frontiers of real time data analysis in the past ten years researchers have explored the impact of data revisions in many different contexts researchers have examined the properties of data revisions how structural modeling is affected by data revisions how data revisions affect forecasting the impact of data revisions on monetary policy analysis and the use of real time data in current analysis this paper summarizes many of the questions for which real time data analysis has provided answers in addition researchers and institutions have developed better real time data sets around the world still additional research is needed in key areas and research to date has uncovered even more fruitful areas worth exploring jel c52 c53 c80 e01

nonlinear price schedules and tied products illegal tying often occurs when a monopolist jointly sells a product with a complementary requirement also sold competitively along with selling the complement at its competi tive price this paper shows that profit can increase when a monopoli st lets consumers bundle any amount of the requirement with the basic product at a fixed price examples illustrate demand conditions that enhance the profitability of this nonlinear price strategy and show that profits can approximate those earned from tying as a noncoerciv e option to buyers legal entanglements are avoided certain nonlinea r schedules can be pareto superior to the most profitable uniform pri ces copyright 1988 by the london school of economics and political science

the proper scope of government theory and an application to prisons when should a government provide a service in house and when should it contract out provision we develop a model in which the provider can invest in improving the quality of service or reducing cost if contracts are incomplete the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee has however the private contractor s incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on noncontractible quality the model is applied to understanding the costs and benefits of prison privatization

var estimation and forecasting when data are subject to revision we show that howrey s method for producing economic forecasts when data are subject to revision is easily generalized to handle the case where data are produced by a sophisticated statistical agency the proposed approach assumes that government estimates are efficient with a finite lag it takes no stand on whether earlier revisions are the result of news or of reductions in noise we present asymptotic performance results in the scalar case and illustrate the technique using several simple models of economic activity in each case it outperforms both conventional var analysis and the original howrey method it produces gdp forecasts that are competitive with those of professional forecasters special cases and extensions of the analysis are discussed in a series of appendices that are available online

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

agent compensation and the limits of bonding agents in positions of trust may engage in malfeasance which is difficult to detect this paper develops a model in which employers seek to control malfeasance by paying wages contingent on imperfect monitoring and agents may be required to pay entry fees or post bonds we conclude that entry fees which exceed agents assets are ineffective in controlling malfeasance as a result conditions exist in which it is optimal to pay agents more than their opportunity cost such conditions lead to an excess supply of applicants and allow employers to engage in discrimination at zero cost to themselves

determinants of corporate leasing policy the existing finance literature assumes the real operating cash flows from leasing or owning are invariant to the ownership of the asset and focuses on tax related incentives for corporate leasing policy our analysis suggests that taxes are important in identifying potential lessees and lessors but are less important in identifying the specific assets leased we provide a unified analysis of the various incentives affecting the lease versuspurchase decision we then show how these incentives explain the use of contractual provisions such as maintenance clauses deposits options to purchase the asset and metering when a firm buys an asset it obtains both the right to the services of that asset over the period it is owned plus the right to sell the asset at any future date with a lease the firm acquires only the right to the asset s services for a period specified in the contract the existing finance literature analyzing corporate leasing policy concentrates on the tax related incentives to lease or buy e g see miller and upton 19 myers et al 21 lewellen et al 13 franks and hodges 11 and brealey and young 4 we believe that taxes play an important role in explaining certain dimensions of leasing policy for example the choice between manufacturer and third party leasing however taxes provide only a limited explanation of why specific assets are leased rather than owned and for the choice of provisions in lease contracts in this paper we want to accomplish two things 1 to provide a unified analysis of the various incentives affecting the lease versus buy decision and 2 to employ that analysis to explain observed variation in corporate leasing policy in deriving testable hypotheses about the characteristics of lessees lessors the assets leased and provisions in lease contracts we extend the standard leaseversus buy analysis found in corporate finance textbooks e g brealey and myers

privatization public offerings and political objectives this paper empirically analyses the political and economic objectives underlying privatization on the stock market particularly the factors of sips underpricing are explained and the study analyses whether the change of political parties in government play a role on the issue the paper has two main findings first larger initial returns occurred in the early stages of privatization second the change of government from left wing to right wing did not lead to significantly higher levels of underpricing the results show that governments are quite pragmatic with respect to underpricing maximizing proceeds from sips shows to be more important than ideological differences between parties in government

rational expectations in microeconomic models an overview abstract this paper is an expository introduction to several topics of current research in the general equilibrium theory of rational expectations more specifically we discuss the existence of exact and approximate rational expectations equilibria the implementation of equilibria the behavior of learning and smoothing processes by which traders construct expectations from repeated observations of the market and the lagged use of the information revealed by prices in an intertemporal sequence of markets the purpose of this discussion is to introduce papers on these topics appearing in the journal of economic theory symposium on rational expectations in microeconomic models

subscribe cancel or renew the economics of reading by subscription the authors investigate a consumer s decision of whether or not to join a bookclub and once his her contractual obligations are fulfilled whether to remain as a member cancel his her membership outrights or cancel his her membership and subsequently rejoin the bookclub since the consumer s subscription strategy depends on the transaction costs of purchasing books and on the marketing strategy adopted by bookclubs the authors investigate why bookclubs make introductory offers and or enforce minimum purchase requirements introductory offers allow bookclubs to price discriminate between consumers who self select alternative subscription strategies minimum purchase requirements increase the bookclub s profit by appropriating part of the consumer surplus

improving real time estimates of output and inflation gaps with multiple vintage models real time estimates of output gaps and inflation gaps differ from the values that are obtained using data available long after the event part of the problem is that the data on which the real time estimates are based is subsequently revised we show that vector autoregressive models of data vintages provide forecasts of post revision values of future observations and of already released observations capable of improving estimates of output and inflation gaps in real time our findings indicate that annual revisions to output and inflation data are in part predictable based on their past vintages this article has online supplementary materials

building and managing facilities for public services abstract we model alternative institutional arrangements for building and managing facilities for provision of public services including the use of the private finance initiative pfi by exploring the effects on innovative investment activity by providers the desirability of bundling the building and management operations is analyzed and it is considered whether it is optimal to allocate ownership to the public or the private sector we also examine how the case for pfi is affected by the voluntary or automatic transfer of ownership from the private to the public sector when the contract expires asset specificity and service demand risk play critical roles

rate base selection and the structure of regulation this article investigates the role played by rate base valuation rules in the context of rate of return regulation it shows 1 that there is nothing inherently fair about any particular valuation rule 2 that properly interpreted rate bases represent promises of future returns 3 that valuation rules can be fairly selected from a very broad class and 4 that once this is recognized rate of return regulation represents a highly effective and flexible means of avoiding the dynamic consistency problems associated with repeated regulatory reviews in addition the article investigates the nature of optimal rate base valuation rules

privatization policy in an international oligopoly this paper studies privatization policy in an international oligopoly the argument that equal treatment of foreign investors will be detrimental to domestic welfare by shifting profits from domestic to foreign firms is shown to be less relevant in privatization auctions than in greenfield fdi models since these profi ts hifts are partly paid for by the foreign firms in the bidding competition effects of local equity requirements trade and investment policies are also studied it is for instance shown that small local equity requirements are likely to be beneficial but large ones are counterproductive by preventing welfare enhancing foreign acquisitions

the impact of ownership on price setting in retail energy markets the german case abstract this paper analyzes whether public ownership has an impact on providers price setting under the assumption of more efficient energy provision which benefits customers a large number of former energy monopolists have been privatized in line with the liberalization of energy markets in germany at the end of the 1990s however current re municipalizations are justified by similar arguments in the public debate based on a dataset on the ownership structure of energy providers we find that public property or private property itself is not the decisive factor for lower retail and wholesale prices rather a high ownership concentration leads to low prices regardless of the type of owner as public investors often seek total ownership of a provider households which are less willing to switch benefit at least indirectly from public ownership tests for robustness of our results applying different owner and concentration measures confirm the results independently from the underlying estimation specification

data revisions are not well behaved we document the empirical properties of revisions to major macroeconomic variables in the united states our findings suggest that they do not satisfy simple desirable statistical properties in particular we find that these revisions do not have a zero mean which indicates that the initial announcements by statistical agencies are biased we also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement which means that the initial announcements of statistical agencies are not rational forecasts

efficient durable good pricing and aftermarket tie in sales i introduction a number of alternative theories currently exist to explain the use of tying arrangements in general incentives involving price discrimination foreclosure variable proportions protection of franchise system goodwill and so on have all been shown to motivate tying under various market conditions 1 interestingly however most of these theories do not appear to apply directly to the tying of aftermarket sales to the purchase of a durable good in a competitive environment such tying or equivalently aftermarket monopolization was a central issue in the widely debated kodak case and continues to be a highly controversial aspect of a series of subsequent antitrust cases 2 the two predominant theories employed by opposing parties at trial in the kodak case were the so called installed based opportunism theory and the systems theory 3 the former posits conditions under which a durable good producer may find it profitable to raise aftermarket prices for maintenance and repair services above the competitive level to its locked in customers regardless of the intensity of competition in the equipment or fore market the latter in turn demonstrates the conditions under which such opportunistic behavior is either a not profitable or b profitable but very limited in its competitive effects 4 while both these theories provide some useful guidance regarding the question of post sale exploitation of purchasers of durable goods neither provides an explicit theory of aftermarket tie in sales that is driven by any sort of efficiency considerations in the wake of the controversy sparked by the kodak decision two important developments have emerged first the courts have demonstrated a strong reluctance to embrace the economic logic embodied in that decision despite a large number of similar claims that have subsequently been filed there have not yet been any decisions that clearly adopt the customer lock in argument that prevailed in kodak 5 second in response to some dissatisfaction with the state of the economic theory relevant to aftermarket tying or monopolization at the time the case was decided a series of articles has emerged that present newer and perhaps more relevant theories of kodak type behavior 6 these include inter alia aftermarket monopolization incentives that derive from a variable proportions production as in elzinga and mills 2001 b the time inconsistency problem of durable good pricing as in morita and waldman 2004 c price discrimination as in klein 1995 and chen and ross 1993 1999 d socially excessive maintenance as in carlton and waldman 2001 and e economies of scope in remanufacturing of used parts as in carlton and waldman 2001 the common thread that connects these theories is that most contain some sort of efficiency based motivation for aftermarket monopolization which results in an unambiguous improvement in social welfare 7 as a consequence considerable doubt has been cast on the legitimacy of kodak s broad condemnation of aftermarket monopolization this article attempts to contribute to this general line of research like the above mentioned articles it offers an efficiency driven motivation for aftermarket tie in sales or monopolization unlike these articles however the incentive arises directly from the contracting problem faced by buyers and sellers of durable goods specifically like the systems theory the model presented here assumes that buyers make their purchase decisions rationally on the basis of the expected life cycle or total ownership costs of the competing durable goods available at the time of purchase similarly sellers make offers that incorporate the life cycle profits anticipated from the sale including both the price received for the initial durable good purchase and the future stream of revenues from any subsequent aftermarket services provided by the seller

a probabilistic approach to pricing a bundle of products or services the authors propose a probabilistic approach to optimally price a bundle of products or services that maximizes seller s profits their focus is on situations in which consumer decision making is o

the british electricity experiment the privatization of the electricity supply industry esi in britain which began 1990 is in itself an unremarkable event much of the esi is privately owned in several european countries and in the united states and the u k privatization program has embraced utilities since 1984 when british telecom was privatized the thing that is remarkable about recent policy toward the industry is the radical nature of the regulatory reform accompanying privatization a vertically integrated administered generation and transmission structure was replaced overnight on march 31 1990 by one that is deintegrated and market based generation and transmission have been separated and there has been an attempt to establish competition in generation a number of countries have been moving gradually in the direction of encouraging competition but nowhere else have such dramatic changes been implemented so quickly

to build or not to build normative and positive theories of public private partnerships abstract this paper analyzes whether the two tasks of building infrastructures which are socially useful in providing public services and managing these assets should be bundled or not when performance contracts can be written both tasks should be performed altogether by the same firm if a better design of the infrastructure helps also to save on operating costs otherwise tasks should be kept apart and undertaken by different units in incomplete contracting environments we isolate conditions under which either the traditional form of public provision of services or the more fashionable public private partnership emerges optimally the latter dominates when there is a positive externality and the private benefits from owning assets are small enough finally we take a political economy perspective and study how incentive schemes are modified under the threat of capture of the decision makers much of the gains from bundling may be lost in this case

concurrent renting and selling in a durable goods monopoly under threat of entry this article analyzes the choice of contract sales or rental of a durable goods monopolist facing a threat of future entry although in the absence of such a threat a monopolist would prefer to rent his entire output we show that the threat of entry alters that preference there is an optimal preentry contract mix involving both rental and sales if both firms behave as cournot duopolists after entry the optimal choice of preentry contracts enables the erstwhile monopolist to gain the same profits as he would if he behaved as a von stackelberg leader

government s credit rating concerns and the evaluation of public projects we study how considerations regarding the credit rating of the government s debt affect privatization policy credit market discipline presses the government to put more weight on the monetary aspect of public projects relative to their social benefits as the anticipated income increases its creditors confidence in its ability to repay debt yet several informational problems undermine this discipline leading to a costly downgrading of the credit rating dynamic inconsistency occurs when the monetary to social benefi tt radeoff is made only after the credit market has priced government s debt such as in the decision of the toll on a road projects are operated with an excessive emphasis on social benefits adverse selection occurs when the government has private information regarding a prospective project s characteristics such as anticipated traffic project selection is tilted towards those with high social benefits and low monetary benefi ts we study the possible roles for privatization to alleviate these informational problems and evaluate the regimes with and without the option for privatization

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

regional output growth in the united kingdom more timely and higher frequency estimates from 1970 output growth estimates for the regions of the uk are currently published at the annual frequency only and are released with a long delay regional economists and policymakers would benefit from having higher frequency and more timely estimates in this paper we develop a mixed frequency vector autoregressive mf var model and use it to produce estimates of quarterly regional output growth temporal and cross sectional restrictions are imposed in the model to ensure that our quarterly regional estimates are consistent with the annual regional observations and the observed quarterly uk totals we use a machine learning method based on the hierarchical dirichlet laplace prior to ensure optimal shrinkage and parsimony in our over parameterised mf var thus this paper presents a new regional quarterly database of nominal and real gross value added dating back to 1970 we describe how we update and evaluate these estimates on an ongoing quarterly basis to publish online at www escoe ac uk regionalnowcasting more timely estimates of regional economic growth we illustrate how the new quarterly data can be used to contribute to our historical understanding of business cycle dynamics and connectedness between regions

macroeconomic forecasting with mixed frequency data forecasting output growth in the united states many macroeconomic series such as u s real output growth are sampled quarterly although potentially useful predictors are often observed at a higher frequency we look at whether a mixed data frequency sampling midas approach can improve forecasts of output growth the midas specification used in the comparison uses a novel way of including an autoregressive term we find that the use of monthly data on the current quarter leads to significant improvement in forecasting current and next quarter output growth and that midas is an effective way to exploit monthly data compared with alternative methods

economic perspectives on privatization despite being one of the most fundamental issues in political economy the question of the appropriate boundary between public and private enterprise received relatively little attention in mainstream economic analysis until quite recently in the 1980s however programs of ownership reform were started in many developed and developing countries dramatic though some of these policies have been they are likely to be overshadowed in the 1990s by even greater privatization in the reforming socialist economies the opening sections of this paper are organized around three broad and interrelated questions how does ownership matter for the efficiency of enterprise performance what is the role for privatization in financing public debts and deficits what are the distributional and political implications of privatization finally we examine privatization in practice in three countries britain chile and poland

tie in sales and price discrimination this paper analyzes a class of contracts between buyers and sellers which specifies that the purchase of one good cannot be effectuated unless a second good is also purchased the economic forces resulting from a tie in are shown to be influenced by factors such as depreciation of the tying good the sales policy of the firm and the discount rate price discrimination the traditional hypothesis for this tie in is seen to make sense only when these factors align themselves in particular ways although an alternative hypothesis risk reduction is unaffected by these factors the price discrimination hypothesis therefore loses much of its appeal relative to the alternative

price differentials and price discrimination reply and extensions precise definitions of price discrimination are analyzed in this paper as part of a reply to one of my earlier papers on a related topic the main conclusion is that the two definitions used most frequently are appropriate only in special circumstances not recognized previously no definition exists to cover all real world situations

competition and two part tariffs monopoly power of some sort is thought to have viewed two part tariffs as price discrimibe a necessary condition for a firm to have the nation devices empower to price discriminate for example a firm ployed exclusively by prefers to use a two part tariff see oi 1971 firms with market rather than charge a single price for output power this paper ofhowever a competing firm could always charge fers an explanation for the use of such price a single price that consumers would prefer and schedules by firms in earn nonnegative profits thus it seems that the highly competitive marexistence of competition in a market would result kets such as health in the elimination of any two part tariff howclubs it is argued that ever the existence of two part tariffs in many in a world with buyer markets that are or appear to be competitive uncertainty about future demands they can belies this standard assumption this paper exprovide insurance for plains why monopoly power is not required for risk averse buyers the the existence of a two part tariff i show circumfixed entry fee finances stances in which price discrimination using a a marginal price below marginal cost it is two part tariff is preferred by consumers to a sinshown that the benefits gle price and therefore why this pricing method from this lower price will be found in competitive markets such pricwill under certain ing occurs in environments with uncertainty bespecified conditions cause two part tariffs act as a form of insurance outweigh the costs of ex ante consumers plan consumption however the entry fee there is a random component to their consump

motivating wealth constrained actors we examine how owners of productive resources e g public enterprises or financial capital optimally allocate their resources among wealth constrained operators of unknown ability optimal allocations exhibit 1 shared enterprise profit the resource owner always shares the operator s profit 2 dispersed enterprise ownership resources are widely distributed among operators of varying ability 3 limited benefits of competition the owner may not benefit from increased competition for the resource and sometimes 4 diluted incentives for the most capable more capable operators receive smaller shares of the returns they generate implications for privatizations and venture capital arrangements are explored

the contractual nature of the firm for their helpful comments i am grateful to armen a alchian yoram barzel keith leffler john s mcgee and dean worcester 1 ronald h coase the nature of the firm 4 economica 386 1937 the paper however was written several years earlier see note 3 infra 2 the social sciences citation index provides the following information breaking down the period of 1966 80 into three five year periods the total citations of coase s firm paper for each subperiod are 1966 70 17 citations 1971 75 47 citations and 1976 80 105 citations

market enforced information asymmetry a study of claiming races this is a study of complementary markets the race track polices the betting market with information revealed in a claiming horse market this policing reduces the adverse consequences of asymmetric information experts in identifying horses and fraud are deterred from biasing betting odds against bettors at large consequently bettors specialize in evaluating published race information this monitoring theory is compared to a competing theory of claim races as a self assessed horse market parametric data is used to evaluate each theory institutional details also provide a test of each theory

market socialism a case for rejuvenation in this paper we will outline a feasible economic mechanism of competitive socialism our claim is that competitive markets are necessary to achieve an efficient and vigorous economy but that full scale private ownership is not necessary for the successful operation of competition and markets contrary to popular impression this claim has not yet been disproved by either history or economic theory it is the failure of both the political right and the left to disentangle the concepts of private ownership and the competitive market that has led to the premature obituaries for socialism in the second section we look at the question of the soft budget constraint as an agency problem under market socialism we then propose two variants of a bank centric system of insider monitoring as a viable solution to the agency problem the next section discusses the essential problem of political accountability and the difficulty of credible pre commitment in avoiding the soft budget constraint problem and suggests ways of minimizing this problem in our proposed system we then conclude by addressing some of the other standard objections to a proposal for market socialism

real time forecasting of inflation and output growth with autoregressive models in the presence of data revisions we examine how the accuracy of real time forecasts from models that include autoregressive terms can be improved by estimating the models on lightly revised data instead of using data from the latest available vintage the benefits of estimating autoregressive models on lightly revised data are related to the nature of the data revision process and the underlying process for the true values empirically we find improvements in root mean square forecasting error of 2 4 when forecasting output growth and inflation with univariate models and of 8 with multivariate models we show that multiple vintage models which explicitly model data revisions require large estimation samples to deliver competitive forecasts copyright 2012 john wiley sons ltd

heterogeneous firms and the organization of production firms in the same industry exhibit systematic differences in the organization of production and the structure of employment entrepreneurial ability is the specific scarce input that limits the size of a firm this input must be allocated to two activities coordinating production and monitoring workers able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms greater ability implies a higher shadow price of time which increases the implicit costs of monitoring a dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms differences in monitoring costs affect the choice of worker productivities the design of products and the organization of production the monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior

privatization and economic growth an empirical investigation from a sample of developing market economies this paper explores the economic determinants of privatization programmes and the macroeconomic impact of this institutional reform on the growth rate of the gdp a sample of thirty five developing market economies is considered over the 1988 92 period probit and tobit models are used to identify the determinants of successful privatization programmes then regressions are run where probabilities probit and expected values tobit are successively included as additional regressors beside the potential influence of other economic policy variables a significant positive effect is highlighted giving evidence of the importance of divestiture the economic effect is found to be stronger when this institutional reform took place in industry or infrastructure