interfering with secondary markets we present a model to address in a unified manner four ways in which a monopolist can interfere with secondary markets in the model consumers have heterogeneous valuations for quality so that used good markets play an allocative role our results are the following 1 in contrast to swan s famous independence result a monopolist does not provide socially optimal durability 2 allowing the monopolist to rent does not restore socially optimal durability and increases the monopolist s market power in the used market however forcing the monopolist to sell the goods may be a bad policy because it would lead to either lower output or lower durability 3 the manufacturer benefits from a well functioning used good market despite the fact that used goods provide competition for new goods 4 the monopolist prefers to restrict consumers abilities to maintain the good

excess burden and the marginal cost of public spending abstract the relationship between excess burden of taxation and the shadow price of public expenditure is explored an equality is established between compensated and uncompensated versions of the marginal social costs of taxation

on measures of excess burden and their application abstract new measures of the additional excess burden of a tax reform are proposed and are shown to be useful in three key policy applications these new measures induce a unique measure of marginal excess burden meb among its interesting properties meb is uniformly zero for a proportional tax on inelastically supplied labor problems in applying the standard measures of total excess burden are demonstrated it is concluded that the induced measure of the marginal cost of funds mcf should be regarded as the most useful concept in applied tax analysis

the marginal cost of public funds and tax reform in africa abstract in this paper we propose estimates of the marginal cost of public funds mcf in 38 african countries we develop a simple general equilibrium model that can handle taxes on five major tax classes and can be calibrated with little more than national accounts data a key feature of our model is the explicit recognition of the informal economy our base case estimate of the average mcf from marginal increases in all five tax instruments is 1 2 focusing on the lowest cost tax instruments in each country commonly the vat but not always the average mcf is 1 1 finally extending the tax base to include sections of the informal economy by removing some tax exemptions offers the potential for a low mcf source of public funds and a lowering of mcfs on other tax instruments

progressive taxation and the social marginal cost of public funds abstract this paper describes the calculation of the social marginal cost of public funds smcf for a progressive tax system which distorts individuals labour supply decisions a formula for the smcf indicates that the income and substitution effects of the labour supply response are weighted by the changes in individuals average and marginal tax rates respectively other well known formulas for the smcf are shown to be special cases of this formula the difference between this formula and the mayshar 1991 formula is shown to be due to different but equally valid ways of computing the change in the average tax rate the condition under which a marginal tax rate increase may lead to a reduction in revenues is derived

innovation and the durable goods monopolist the optimality of frequent new version releases when an improvable durable good such as packaged software saturates the market the seller could be tempted to release new versions too frequently hurting her profit a novel contractual device which i term as a free new version rights warranty free nvr warranty can help the seller overcome this temptation in a two period game theoretic model involving a monopolist firm facing heterogeneous consumers i derive conditions under which a rational monopolist can act suboptimally she could face a commitment problem and offer the new version even if doing so lowers her overall profit profit is hurt because when consumers expect a new version a fewer consumers buy the initial version and b the monopolist is forced to charge a lower price for the initial version i show how the free nvr warranty which requires the monopolist to offer consumers the right to receive the new version for free for a limited period can solve her commitment problem this is a new surprising finding by bundling new version rights with the initial version the monopolist at first appears to be denying herself future revenue i derive conditions under which this apparently unprofitable action is optimal which is my main contribution when free nvr is offered consumer surplus decreases and social surplus increases this work extends prior literature on durable goods and the coase conjecture to innovative durable goods with network externalities the findings have important practical implications for firms selling new versions of innovative durable goods subject to network effects as well as for their consumers

the marginal welfare cost of public funds theory and estimates abstract we derive a general analytic formula for the marginal welfare cost mwc of public funds without imposing restrictive assumptions on preferences or technologies the framework encompasses the various special cases previously considered and reconciles the disparities among the reported estimates of mwc unresolved differences in existing estimates are fully explained by appropriate interpretations of intended thought experiments and alternative assumptions about the elasticity of labor supply with respect to public spending further progress in measuring mwc requires empirical estimation of labor supply functions that include government spending as an explanatory variable

fiscal interactions and the case for carbon taxes over grandfathered carbon permits this paper provides simple formulas for adjusting the costs of carbon taxes and tradable carbon permits to account for interactions with pre existing tax distortions in the labour market both policies reduce labour supply as they increase product prices and reduce real household wages the resulting efficiency losses in the labour market can be substantial relative to partial equilibrium abatement costs however much of this added cost can be offset and perhaps more than offset when additional distortions from the tax system are considered if revenues from carbon taxes or auctioned permits are used to reduce distortionary taxes consequently there can be a strong case on efficiency grounds for using carbon taxes or auctioned permits over grandfathered carbon permits copyright 2003 oxford university press

manufacturers and retailers in the global economy we develop a general equilibrium model to capture key features of the retailing and of the manufacturing industry in order to understand how these two industries interact and how labor is allocated between them we show that the observed shift in employment from manufacturing to retailing the rise in retailer product assortment and the emergence of slotting allowances in many retail markets are consistent with the global integration of product markets while higher retail market concentration is best explained by technological change in retailing we also identify a novel benefit from market integration consisting of efficiency gains in the vertical distribution chain

marginal welfare costs of taxation with human and physical capital i introduction marginal welfare cost of taxation is the amount by which the social cost of an additional tax dollar differs from 1 because of distortionary taxation browning and johnson 1984 stuart 1984 browning 1987 ballard 1988 and allgood and snow 1998 use static models of the u s economy in which labor supplies adjust but the stocks of human and physical capital are fixed to calculate estimates of this welfare cost relevant to cost benefit analysis the studies by lucas 1990 and perroni 1995 incorporate human and physical capital into calculations of excess burden for the purpose of comparing alternative tax systems but do not address the welfare costs of marginal tax and spending reforms ballard et al 1985 and judd 1987 provide estimates of welfare cost using models that allow the stock of physical capital to change in response to marginal reforms but the stock of human capital is exogenous in these studies however judd 2001 argues that there is ample evidence indicating that human capital investment decisions have a significant effect on the cost of altering the tax system which suggests that these decisions could also have an important influence on marginal welfare cost in this article we present estimates of welfare costs for marginal reforms to government tax and spending policies when labor supply saving and education decisions are all endogenous we focus our analysis on marginal reforms because as skinner and slemrod 1985 observe most policy reforms enacted do not involve replacing one tax or spending system with another but instead typically entail marginal adjustments in tax laws and government appropriations using a perfect foresight overlapping generations model with a three period life cycle we derive analytical expressions for the changes in labor supply saving and education and use them to calculate marginal welfare cost as shown by auerbach et al 1983 in overlapping generations models steady state welfare comparisons of alternative tax policies are biased unless households are compensated for intergenerational redistribution along the transition path to arrive at our steady state estimates of welfare costs we adapt the compensation method introduced by gravelle 1991 for analyzing fundamental tax reforms to the context of incremental tax and spending reforms in a static one consumer model triest 1990 has shown that marginal welfare cost mwc is positive solely because of tax leakage the decline in tax revenue caused by reductions in the tax base we extend this insight to an intertemporal context that incorporates tax leakage arising from changes in both human and physical capital investment we evaluate three sets of reforms first a revenue neutral reduction in the tax on capital income funded by a higher tax on labor income second spending on a public good financed by either a higher tax on labor or interest income third a per capita lump sum transfer or demogrant also funded by either a higher tax on labor or interest income we find that marginal welfare costs are uniformly lower in the dynamic model where investment decisions are endogenous than in the static model where investment decisions are fixed and that the majority of the difference between the dynamic and static estimates is attributable to human capital decisions the principal reason is that a reallocation of time between labor hours and human capital investment has opposing and potentially offsetting effects on effective labor supply as a result labor supply responds less elastically in the dynamic model and changes in labor supply are the main source of tax leakage because wage taxation is the main source of tax revenue we also find that shifting marginal financing from capital to labor results in a lower welfare cost the reason being that such a change encourages saving which increases wage rates and stimulates labor supply leading to a reduction in marginal welfare costs

network effects software provision and standardization in this paper we examine the software provision decision of software firms the provision decision by software firms determines the value and hence the market share of competing hardware technologies we show how the provision decision by software firms determines whether multiple hardware technologies are supported in equilibrium or whether there is de facto standardization with only one hardware technology supplied with software in equilibrium we show that when consumers place a high value on software variety there is a suboptimal amount of standardization by the market

no lease is short enough to solve the time inconsistency problem the author provides a model of endogenous lease duration determination in the context of the durable goods monopolist problem he shows that infinitely many leases per finite unit of time are required to solve completely the time inconsistency problem thus suggesting that leasing may not provide a practical solution the author also provides a warning regarding the results that can be derived by exogenously setting lease durations equal to one period by resolving a paradoxical result in the literature copyright 1994 by blackwell publishing ltd

credible signals of the release of new versions i introduction many products are marketed some time after they have been developed for instance a new smartphone may be developed and tested well before it is available for purchase a new car might be prototyped and driven months before it comes to the market indeed a firm will often have several products concurrently in a development pipeline consumers may know a product is in that pipeline without knowing its progress towards the market because the outcome of such development and testing is not visible to outsiders the firm knows whether it can market a product before consumers do consumers are uninformed about when and if the new product will be marketed to them economists have long recognized that the present demand for durable goods depends on future prospects such as the future price or the introduction of an improved version 1 the existence of such an improved version is often the seller s private information if consumers anticipate a new version some will defer purchases until the new version is available and the seller will face low demand for the present version disclosing the new version is not in a monopoly seller s interest a seller whose good does not have a new version would also like to communicate that fact to consumers while a firm with a successful product innovation can credibly disclose the new version with relative ease a firm that has failed to develop a new product could have great difficulty convincing consumers that the product has no new version in such situations it is important to examine whether prices can inform consumers whether a new version will be marketed in the near future in a recent paper choi et al 2010 developed a model with a risky product development process in which reputation effects allow cheap talk announcements to signal successful product development to consumers an announcement induces consumers to delay or divert purchases to the announcer s coming product which increases the announcer s profit and can improve welfare 2 in their model the announcer and her non innovative rivals supply the original good competitively because of this an announcement does not reduce profit on the current version this paper will focus on markets where the seller has substantial market power before innovating so announcing a successful product development has a cost in terms of current revenue further because we attend to prices as signals this model may also apply to markets where a long run relationship between consumers and firms may not be sustainable another objective of this paper is to examine the welfare effects of mandatory disclosure a government policy mandating disclosure of any new version is an alternative means of informing consumers 3 as long as firms are not willing to lie to the government such a policy would credibly communicate whether a new version of a durable is coming mandatory disclosure would bring about full information as consumers are informed about any improved future version before observing the price of the current version in this paper we explore a two period model of a durable good monopoly in which consumers are initially uninformed about whether there will be a new version of the current good the monopoly seller is privately informed if he will be able to market an improved version in the second period in the first period consumers must decide whether to purchase the good now or wait for an upgraded version they may be able to infer from the price of the current version whether the seller will bring a new version to the market it is important to see first whether prices can serve as signals and second how welfare compares between any signaling outcome and a full information benchmark corresponding to mandatory disclosure we will show that there is a unique equilibrium supported by intuitive beliefs in this equilibrium the seller s private information about an improved version is completely revealed to consumers

the marginal cost of raising tax revenue and redistributing income we present analytic formulas for calculating marginal welfare costs when taxes are levied against the wages of a heterogeneous population of households and marginal tax revenue finances either the supply of a public good or lump sum transfers the formulas are applied to explain the wide discrepancy between estimates of marginal welfare costs for redistribution previously obtained through computer simulation procedures our calculations reveal that these procedures introduced lump sum transfers that were not specified as part of the reforms to be simulated but explain most of the differences between their estimates we also show that welfare cost estimates are quite sensitive to the elasticity of labor supply with respect to exhaustive public spending

a marginal cost of funds approach to multi period public project evaluation implications for the social discount rate abstract although the use of marginal cost of funds mcf has been widely appreciated in public finance literature discussions of mcf have been confined to a static setting this paper develops a multi period project evaluation rule that is based on mcf unlike previous approaches the parameters required for implementing the mcf rule are independent of projects under consideration a lesson from this paper is that the government discount rate policies that are largely based on the concepts of social discount rate and shadow price of capital should be rewritten with the use of parameters representing mcf

an economic theory of planned obsolescence planned obsolescence is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases however rational customers will pay for only the present value of the future services of a product therefore profit maximization seemingly implies producing any given flow of services as cheaply as possible with production involving efficient useful lives this paper shows why this analysis is incomplete and therefore incorrect monopolists are shown to desire uneconomically short useful lives for their goods oligopolists have the monopolist s incentive for short lives as well as a second incentive that may either increase or decrease their chosen durability however oligopolists can generally gain by colluding to reduce durability and increase rentals relative to sales some evidence is presented that appears to be generally consistent with the predictions of the theory

the marginal cost of public funds hours of work versus labor force participation this paper extends the theory and measurement of the marginal cost of public funds mcf to account for labor force participation responses our work is motivated by the emerging consensus in the empirical literature that extensive participation responses are more important than intensive hours of work responses in the modelling of extensive responses we argue that it is crucial to account for the presence of non convexities created by fixed work costs in a non convex framework tax and transfer reforms give rise to discrete participation responses generating first order effects on government revenue these revenue effects make the marginal cost of funds higher and we show numerically that the implications for mcf tend to be substantial

monopoly with endogenous durability abstract a multi period formulation for a durable good monopoly is developed where production and durability are decision variables when commitment to production is possible neither the level nor the depreciation rate of initial stock has an effect on the selected efficient degree of durability with time consistent production policy the optimal degree of durability is less than the efficient rate and typically increasing in the initial stock and initial degree of durability when a monopolist can switch at any time from an inefficient non durable to an efficient durable there exists a cutoff durability above which only the non durable will be produced otherwise the efficient durable will be produced

discounting according to output type federal discount rate policies advocate both a high rate representing the marginal productivity of capital and a low rate representing the government borrowing rate these differential discount rate policies could be inconsistent and biased in favor of projects on which the lower discount rate is applied this paper shows that the coexistence of different discount rates may be appropriate depending on the type of project output when a project s outputs are perfect substitutes for private consumption both its costs and benefits should be discounted using the marginal productivity of capital however if the project s outputs are separable in the utility function the benefits should be discounted using the net of tax rate of return

a new perspective on planned obsolescence automobile manufacturers have long had a policy of introducing annual style changes into their new model cars textbook publishers have a policy of periodically bringing out revised editions of their popular books recently ibm changed the operating system used in its personal computers causing a reduction in the compatibility between its old and new machines if one were to ask the typical man in the street to explain what is happening in these markets he would not hesitate before giving the following answer in economists terminology he would say that for the above firms the incentive to introduce new products that make old units obsolete is too high i e the firms have an incentive to practice planned obsolescence of course just as is true for the man in the street economists have also long observed and commented on the speed with which new products are introduced for example galbraith 1958 suggests that the annual model changes of automobile manufacturers are socially wasteful while fisher griliches and kaysen 1962 provide empirical estimates of the costs of these changes there have also been numerous theoretical attempts to model the idea of planned obsolescence or the related idea of killing off the market for secondhand goods but most of these models have in fact considered the choice a monopolist faces concerning how much durability to build initially into his product rather than the monopolist s incentive to introduce new versions of his product over time 1 in this paper i consider planned obsolescence from the standpoint of a firm that can change the nature of what it sells and show that the man in the street is in fact correct in many settings the incentive for a durable goods monopolist to introduce new products that make old units obsolete will be above that which is socially optimal

alternative measures of the marginal cost of funds liqun liu this article reconciles the use of two different marginal cost of funds mcf measures by resorting to alternative marginal benefit measures it demonstrates how the alternative mcf measures can be properly applied to two classic problems in expenditure analysis local cost benefit project evaluation and the second best public good level question relative strengths of the two mcf approaches in addressing the two problems are identified jel h21 h43 1 introduction it is widely appreciated that the welfare cost of taxation should play a role in the normative analysis of government expenditures efficiency in government spending involves balancing the marginal benefits and marginal costs of expenditures the marginal cost of spending in part depends on the welfare costs also known as excess burdens or deadweight losses we will use the term welfare costs that result from raising the revenue that finances the expenditures to determine the marginal cost of government spending we multiply the direct resource cost of the expenditure by a term generally referred to as the marginal cost of funds mcf the mcf is the cost of raising an additional dollar of revenue which includes the direct cost the dollar of revenue actually raised plus any additional welfare costs resulting from the change in the tax structure martin feldstein emphasized the importance of mcf in a recent paper appropriately titled how big should government be feldstein 1997 he correctly stresses that the answer to this question involves comparing the benefits of incremental government spending with the mcf and concludes that the economics profession should devote more attention to informing policy makers of the importance of mcf and providing estimates of its magnitude feldstein s own estimate of mcf is 2 65 feldstein 1999 implying that the distortionary cost of raising revenue is amazingly high raising an additional dollar of revenue carries with it an efficiency loss that is more than one and a half times 1 65 as large in sharp contrast there are a number of estimates in the literature on mcf that are strikingly lower so low as to suggest that mcf should play a minor role in the evaluation of government spending programs for example stuart 1984 reports an estimate of 1 07 and ballard and fullerton 1992 suggest that i n a variety of cases mcf is less than 1 10 these disparate estimates of the magnitude of mcf are worrisome because they have contradictory implications regarding the importance of the distortionary cost of taxation but a major reason for the differences in these estimates is simply definitional fullerton 1991 and ballard and fullerton 1992 feldstein is using a definition of mcf that depends primarily on the compensated effects of taxation whereas the other estimates use a definition of mcf that depends primarily on uncompensated effects the definition based on compensated effects always yields a larger estimate of mcf 1 this raises the obvious question which definition is the appropriate one to use in the evaluation of government expenditures that is the subject of the present paper in this paper we investigate the appropriate measure of mcf for a special case that has been widely discussed in the literature when the government expenditure is to finance the provision of a public good that enters consumers utility functions in a separable fashion from private goods and leisure that the appropriate definition of mcf depends on exactly how the expenditure affects consumer utility was emphasized by wildasin 1984 and ballard and fullerton 1992 recent papers that help clarify the role of the separability assumption include mayshar 1991 snow and warren 1996 and ahmed and croushore 1996 furthermore we restrict our attention to the case in which the public good is financed by a tax on wage income in this case much of the literature on mcf emphasizes that the definition of mcf should be based on the uncompensated wage elasticity of labor supply in contrast to feldstein s measure

incentive to reduce crop trait durability to reduce the competition from farmers who self produce seed an inbred line seed producer can switch to nondurable hybrid seed in a two period model we investigate the impact of crop durability on self production pricing and switching decisions and we examine the impact of license fees paid by self producing farmers first in an inbred line seed monopoly model we find that the monopolist may produce technologically dominated hybrid seed in order to extract more surplus from farmers further the introduction of license fees improves efficiency second we study how the monopolist s behavior is affected by the entry of a nondurable hybrid seed producer we show that the inbred line seed producer might benefit from competing with a technologically dominated hybrid seed producer as this allows for consumers discrimination

tying compatibility and planned obsolescence according to the hypothesis of planned obsolescence a durable goods monopolist without commitment power has an excessive incentive to introduce new products that make old units obsolete and this reduces its overall profitability in this paper i reconsider the above hypothesis by examining the role of competition in a monopolist s upgrade decision i find that when a system add on is competitively supplied a monopolist chooses to tie the add on to a new system that is only backward compatible even if a commitment of not introducing the new system is available and socially optimal tying facilitates a price squeeze

facts and figures on intermediated trade over the past several years trade economists have begun exploring the role that intermediar ies play in facilitating trade papers by james e rauch and joel watson 2004 dimitra petropoulou 2007 and pol antras and arnaud costinot 2009 model intermediaries as agents that facilitate matching between sellers exporters and foreign buyers these papers examine how improved intermediation matching technolo gies affect trade volumes and the gains from trade bernardo s blum sebastian claro and ignatius horstmann 2009 embed a reduced form match ing model inspired by robert townsend 1983 into a heterogeneous firm trade model and exam ine how changes in the trading environment affect trade costs export import volumes and the extent of trade flowing through trade intermediaries a key modeling challenge for this literature is how to structure matching and intermediation technologies in trading environments blum claro and horstmann 2009 provide certain facts for chile colombia trade and use these facts to structure trading technologies in this paper we provide a broader set of facts on trade intermediaries using new datasets for chile and for chile argentina trade 1 we think that these facts will prove particularly useful for future modeling of trade intermediaries

consumer myopia standardization and aftermarket monopolization abstract in this paper i show that the standard bertrand competition argument does not apply when firms compete for myopic consumers who optimize period by period i develop the model in the context of aftermarket with overlapping generations of consumers simultaneous product offerings in the primary market and aftermarket establishes a price floor for the primary good this constraint prevents aftermarket rents from being dissipated by the primary market competition duopoly firms earn positive profits despite price competition with undifferentiated products nonetheless government interventions to reinforce aftermarket competition such as a standardization requirement may lead to the partial collapse of the primary market

planned obsolescence and the r d decision by investing in rd i e the r d choice that maximizes current profitability does not maximize overall profitability the result is that if output is sold rather than rented then in its r d decision the monopolist has an incentive to practice a type of planned obsolescence that lowers its own profitability

network externality compatibility choice and planned obsolescence this paper attempts to provide a formal theory of planned obsolescence based on incompatible technologies in the presence of network externalities the author explores how a monopolist s ability to make the new product incompatible with the old version of a product constrains the optimal dynamic behavior of the monopolist the social optimum and the market equilibrium are compared finally the possibility of quality distortion is considered as a commitment mechanism to the future compatibility choice copyright 1994 by blackwell publishing ltd

adverse selection in the used car market evidence from purchase and repair patterns in the consumer expenditure survey we analyze adverse selection in the used car market using a new approach that considers a car as an assemblage of parts some with symmetric information and others with asymmetric information using data from the consumer expenditure survey and consumer reports we examine turnover and repair patterns we find evidence of adverse selection due to the conditions of the transmission engine and during colder months air conditioning and sorting due to the conditions of the vehicle body and during warmer months air conditioning our quantification exercises indicate that adverse selection may have a meaningful effect on trade volume and quality in the secondhand market

parallel imports and repair services abstract this study explores the welfare effects of parallel imports when the producer may refuse to provide repair services for parallel imported units which reduces the degree of price convergence between countries if the probability of the product s breakdown is endogenously determined by the producer permitting parallel imports could increase the probability because a higher probability leads to a larger price gap as a result it is possible that prices increase and welfare deteriorates in both countries this negative welfare effect is more likely to emerge as the liberalization of trade in goods proceeds the prohibition of service discrimination recovers the positive welfare effect

pricing strategy quality signaling and entry deterrence abstract i investigate a pricing strategy that is aimed at deterring entry by applying a two period model of a durable goods monopolist there exists an incumbent that is of two types that is high and low quality types they differ in terms of their r d capabilities and the incumbent s type is assumed to be unknown to an entrant if the entrant decided to enter the market nash bertrand price competition ensues between the incumbent and the entrant i show that not only limit pricing but also prestige pricing signals the incumbent s quality type which serves to discourage entry in the prestige pricing the high quality type sells the products at an intentionally higher price i also show that although limit pricing is more desirable than prestige pricing from a social welfare viewpoint the incumbent can still choose prestige pricing

quality upgrades and equilibrium in a dynamic monopoly market abstract we examine an infinite horizon model of quality growth for a durable goods monopoly the seller may offer any bundle s of current and previous quality improvements upgrades subgame perfect equilibrium seller payoffs range from capturing the full social surplus down to only the initial flow value of each good as long as the value of all future quality growth exceeds the value of a single unit each of these payoffs is realized in a markov perfect equilibrium that follows the socially efficient path however inefficient delay equilibria with bundling exist for innovation rates above a threshold

the non tax wedge abstract this paper argues that there are a large number of non tax phenomena that have the effect of reducing input prices below marginal value products just as do taxes on income it is shown that the presence of the non tax wedge between the marginal value product of labor and the net wage is highly significant for the analysis of the total and marginal welfare costs of taxes similarly the presence of the tax wedge is significant for the analysis of the welfare effects of the non tax phenomena welfare costs are substantially higher when appropriate account is taken of tax and non tax wedges that both distort supply decisions

taxation base in developing countries abstract informal sectors are larger in developing countries than in rich countries this is a result of higher fixed costs of entry into the formal economy in developing countries we show that raising barriers to entry is consistent with a deliberate government policy for raising tax revenue by generating market power and hence rents for the permitted entrants market entry fees foster the emergence of large taxpayers the rents can be readily confiscated by the government through entry fees and taxes on profits at a low administrative cost the relevance of the theory is assessed with a sample of 64 countries empirical analysis supports the results of the paper

a generalized approach to multigeneration project evaluation 1 introductionit is well known that the choice of discount rate plays a significant role in the ranking of projects with varying time paths of costs and benefits for public projects the choice of the appropriate social discount rate sdr is not clear cut even in the context of short lived projects in which costs and benefits occur within a single generation in particular when capital taxes produce a wedge between gross and net rates of return should one discount at the economy s rate of return the before tax rate or the individual s rate of return the after tax rate in the single generation context the literature falls in two camps 1 one camp argues that the appropriate sdr is a weighted average of the gross and net rates of return with weights typically determined by the fractions of resources drawn from consumption and private investment respectively 2 a second camp argues that future benefits should be discounted at the net rate of return but that the initial investment should be multiplied by a scale factor so that the direct costs of the project can be expressed in terms of consumption units 3both approaches suffer from severe implementation problems for the first approach there is no general formula for the weights needed to calculate the sdr as a weighted average of two market rates of return dreze 1974 indeed the appropriate sdr to use is project specific stiglitz 1982 without a systematic methodology to derive project specific sdrs the weighted average approach is hard to implement for the second approach which equalizes the sdr to the net rate of return the scale factor the opportunity cost of public investment must be quantified the opportunity cost of public investment depends on whether resources come from private investment or consumption and on the calculation of the present value of the future consumption yielded by a unit of capital discounted at the net rate of return that is the shadow price of capital as lind 1997 points out however there is no general agreement on a specific procedure for calculating the shadow price of capital indeed the concept of the opportunity cost of public investment suffers the same project dependence problem as the first view of the sdr diamond 1968 multigeneration projects such as nuclear waste disposal natural resource conservation or even social security reform further complicate discount rate choice specifically intergenerational equity in addition to intertemporal efficiency plays a role in determining the appropriate social discount rate for multigeneration public project evaluation 4 as in the single generation context there are two competing views on the appropriate discount rate when evaluating multigeneration projects the descriptive and the prescriptive approaches 5the descriptive approach to discounting is a market based approach it does not rely on an explicit social welfare function swf or the pure time preference rate embedded in the swf however the descriptive approach works under the assumption that intergenerational compensation through changes in the tax debt policy is available 6 it is argued that under appropriate intergenerational compensation the market rates of return are still relevant for calculating the sdr for multigeneration project evaluation and in general the sdr should be a weighted average of the gross and net rates of return this descriptive view of setting the sdr equal to the market return appears to underlie the office of management and budget s omb adoption of 7 as the appropriate discount rate for federal programs 7the intent of the prescriptive approach is to use the social discount rate as an expression of ethical judgment on how consumption of future generations should be compared to consumption of current generations

two sided heterogeneity and exchange rate pass through abstract the bargaining process between exporters and importers is key to understand the degree of exchange rate pass through following the framework established by goldberg and tille 2013 we use a colombian exporter importer matched data from 2005 to 2014 to identify the relative bargaining power between exporters and importers and investigate its effect on exchange rate pass through the results show that within each exporter importer pair the role of importers is at least as important as exporters and higher bargaining power of importers are usually associated with higher exchange rate pass through our findings are robust to a variety of bargaining ability measurement alternative empirical specifications and the selection of certain industries

a directed search model of intermediated trade abstract this paper complements antras and costinot s 2010 analysis of a two good two country ricardian economy in which farmers produce either goods but require intermediaries to exchange their production in the goods markets the intermediation market is frictional whereas the goods market is perfectly competitive unlike their random search and price bargaining setup intermediaries herein post intermediation prices and farmers direct their search contrary to their findings we show that opening the economy to international trade always leads to welfare gains this is the case because domestic farmers benefit from relatively efficient intermediation technologies in terms of higher matching probabilities but also lower intermediation prices

upgrades switching costs and the leverage theory of tying this article investigates the role of product upgrades and consumer switching costs in the tying of complementary products previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential where essential means that all uses of the complementary good require the initial monopolised product we show that this is not true in settings characterised by product upgrades and consumer switching costs we also discuss various extensions including the role of the reversibility of tying

exploring the relationship between the markets for new and used durable goods the case of automobiles given that durable products are long lived there exists the possibility of secondary markets for used products as well as the potential for product obsolescence this is an important issue in markets where technology changes rapidly because the introduction of new versions of a product can make earlier versions obsolete more generally prices of older versions in the secondary market adjust in response to changes incorporated in new versions of the product thus another method of evaluating consumers response to a new product is by looking at the variation in market prices of the old product this paper develops a general model to explore the relationship between primary markets for new cars and secondary markets for used cars the results suggest that the depreciation of used cars is influenced strongly by the types of changes in new model cars

on the duration of technology licensing abstract we model an innovator s choice of payment scheme and duration as a joint decision in a multi period licensing game with potential future innovations and some irreversibility of technology transfer we find that it may be optimal to license the innovation for less than the full length of the patent and that royalty contracts can be more profitable than fixed fee licensing even in the absence of information asymmetry and risk aversion moreover licensing contracts based on royalty have a longer duration than fixed fee licenses and are more likely to be used in industries where innovations are frequent and intellectual property protection is weak our paper also highlights an important link between the study of technology licensing and the theory of durable goods

eliminating the market for secondhand goods an alternative explanation for leasing there are a number of prominent specific instances in which a durable goods manufacturer with significant market power employed a lease only policy i united shoe in the market for shoe machinery ii ibm in the market for computers and iii xerox in the market for copiers the obvious question that arises is why would such a firm prefer leasing over selling in this article i argue that one role of the lease only policy was to eliminate the market for secondhand goods the article formally demonstrates the argument discusses the relationship between this article and earlier literature on secondhand markets and discusses the implications for antitrust policy

planned obsolescence and social welfare durable goods marketing has an obsolescence effect on older models i consider two cases commitment where the decision on how much to invest in marketing is made in the first period and noncommitment where the decision is made in the second period i focus on the fact that the introduction of a higher quality model lowers the utility of consumers using an older model i show that in both cases the equilibrium level of marketing rises above the socially optimal level the point is that a larger obsolescence effect promotes replacement demand driving the monopolist to spend more than is socially optimal

the neo luddite s lament excessive upgrades in the software industry we examine two reasons why a monopoly supplier of software may introduce more upgrades than is socially optimal when the upgrade is backward but not forward compatible so users who upgrade reduce others network benefits one explanation involves a commitment problem profits and social welfare may suffer because ex post the monopolist will want to sell the upgraded product to new consumers the second involves consumer heterogeneity here oversupply arises from the difference between the externality that upgrades impose on the marginal and average consumer and from the effect of upgrades on sales of the base good

the marginal efficiency effects of taxes and subsidies in the presence of externalities a computational general equilibrium approach abstract using 1983 data we develop a 19 sector computational general equilibrium model incorporating producer producer externalities and producer consumer externalities simulation results indicate that when additional government expenditure is financed by pigouvian taxes the marginal cost of public funds is substantially below one labor sales and output taxes also affect the output of the polluting industries and thus have indirect pigouvian effects which tend to reduce the associated marginal costs of public funds pigouvian taxes are usually more efficient than pigouvian subsidies since the tax revenue can be used to reduce other taxes