do firms differ much with finn profitability data for a cross section of geographic markets it is possible to determine the relative importance of firm and market effects on profitability analysis of variance from a panel of multihank holditig companies in texas suggests that finn effects are more important than market effects in determining profitability and that the magnitudes of the effects vary over time in a 1985 article schmalensee takes a new approach to analysis of the structure conduct performance paradigm schmalensee chooses a purely descriptive approach to distinguish among the classical tradition of bain 1956 which takes markets as the basic unit of analysis with a particular focus on market concentration the revisionist views of demsetz 1973 and peltzman 1977 who view the observed relation between profitability and concentration as reflecting underlying inter firm profitability differences and the managerial view that profitability is determined by firm wide management practices but not necessarily by differences in market share this descriptive approach has two advantages over a structural analysis a descriptive analysis avoids imposition of the troublesome maintained hypotheses inherent in structural models further as scott and pascoe 1986 point out the explanatory power of structural models is generally only a small fraction of that of descriptive models

information value and risk premium in agricultural production the case of split nitrogen application for corn this article considers an agricultural production model of sequential nitrogen application under risk because of random shocks between subsequent production stages optimal fertilization decisions depend on the magnitude of farmers risk aversion risk premium and the possibility for farmers to process information value of information we propose a joint estimation procedure of technology and risk aversion parameters using a structural simulation based econometric procedure parameter estimates allow to compute both the value of information and the risk premium which account for about 30 of fertilizer cost for midwest corn producers

input demand under yield and revenue insurance previous studies disagree on the effects of insurance on fertilizer application rates the effect of increased fertilizer on the probability of low yields primarily determines whether fertilizer and insurance are substitutes or complements we estimate conditional distributions of corn yields to determine if the technical relationship between yields and fertilizer supports the hypothesis that insurance increases optimal application rates our results indicate no support for this hypothesis at all nitrogen fertilizer rates and reasonable levels of risk aversion nitrogen fertilizer and insurance are substitutes suggesting that those who purchase insurance are likely to decrease nitrogen fertilizer applications

tests for the role of risk aversion on input use for risk averting agents risks alter production decisions while the existence of institutions to insure against adverse states of nature will likely restore decisions toward levels under risk neutrality in this article conditions are identified on a stochastic technology to test h that risk averters choose smaller input levels than risk neutral agents and h that an increase in risk aversion reduces input use a robust statistical method to test for dominance is adapted to stochastic production relations it is found that h is likely true for nitrogen application on iowa corn weaker evidence is found in favor of h

is there a principle for defining industries this paper presents a criterion for dividing observable firms into industries the previous literature has failed to recognize how important is the lack of a principle for forming industries not only does the lack of an industry criterion lead to bad antitrust decisions but it brings into question the logic behind applying standard economic analyses to observable groups of sellers economic theory traditionally has constructed models of markets composed of sellers of a homogeneous commodity in the application of theories to observable sellers whose production processes and products are rarely precisely identical the easy and convenient assumption that all sellers are identical is violated one of the lacks of the theoretical literature is that it has given no guidance on how to put existing producers together to form the markets and industries to which economic modellers make reference instead applied economists have tended to follow the pragmatic advice that violations of assumptions do not matter so long as the firms behave approximately as if the assumptions of the model were satisfied 8 logic requires however that this as if methodology be applied only to firms which have been selected independently of the model being used for example to find the bounds of a competitive industry by finding the group of firms whose behavior is predicted by the competitive model and then to justify the use of the model on the grounds that the model predicts well is tautological the logic of analyzing industry behavior in contradiction to the assumptions of the model is defensible only if there exists a procedure for forming an industry that is independent of the criterion used to select the model to analyze it this paper provides such a procedure the industry bounding procedure outlined in this paper may be one of many and others may be found in the future which have more desirable properties than the one presented here the main contribution of this paper is to demonstrate that there is at least one definition which can be used to divide existing firms into industries and that the industry so defined is unique for each firm the lack of a criterion for defining industries is especially noticeable in antitrust analyses where the question posed is whether a particular firm is a monopoly not whether it behaves as if it were one the current procedure in such cases is ad hoc in the true sense of the term every situation is taken as unique and while the economic witness will sometimes apologize about measurement problems a list of industry members is produced for use in court in what stigler has called an impudent exercise in economic gerrymandering 20 8

uncertainty and incentives empirical work testing for a trade off between risk and incentives has had at best mixed success this article provides two simple reasons associated with subjectivity of performance appraisals why we might not expect to see any negative relationship both reasons relate to empirically observed problems associated with monitoring i supervisors sometimes bias their evaluations based on their personal feelings toward their subordinates and ii supervisors will sometimes offer evaluations that reduce their costs these aspects of monitoring are ignored in the standard model and can reverse the usual negative trade off between risk and incentives

combining results of different models the case of a levy on the dutch nitrogen surplus economic instruments such as levies are considered by the dutch government for reducing the harmful effects of the production and application of manure to analyse these levies a framework which makes it possible to combine and to choose among different types of research is developed the results are integrated along the line of the marginal abatement cost curve the problems related to integrating different types of research are taken into account the method developed allows every farmer to react to a levy differently a levy turns out to be more effective to reduce the nitrogen surplus on farm level in the pig fattening sector when compared to the pig breeding sector but even a levy of 2 guilders kg of nitrogen does not remove the total manure surplus in the pig sector and results in large profit losses further research is needed to underpin the empirical input required by the model

the divergence of sic industries from antitrust markets abstract a comparison between the size of markets alleged in justice department merger cases and sic industries indicates that sic industries generally are far larger than antitrust markets

regulation of a risk averse firm abstract we extend the laffont tirole regulation model to the case of risk averse firms our main results are the impact of risk aversion is to shift the optimal contract toward a cost plus contract as compared with the risk neutral case distortions are greater and informational rents are smaller for high levels of risk aversion the optimal contract involves cost ceilings and the less efficient firms are bunched together journal of economic literature classification numbers d8 l5

information aggregation rationality and the condorcet jury theorem the condorcet jury theorem states that majorities are more likely than any single individual to select the better of two alternatives when there exists uncertainty about which of the two alternatives is in fact preferred most extant proofs of this theorem implicitly make the behavioral assumption that individuals vote sincerely in the collective decision making a seemingly innocuous assumption given that individuals are taken to possess a common preference for selecting the better alternative however in the model analyzed here we find that sincere behavior by all individuals is not rational even when individuals have such a common preference in particular sincere voting does not constitute a nash equilibrium a satisfactory rational choice foundation for the claim that majorities invariably do better than individuals therefore has yet to be derived

the additionality problem with offsets optimal contracts for carbon sequestration in forests abstract carbon offsets are a frequently discussed tool for reducing the costs of an emissions reduction policy however offsets have a basic problem stemming from asymmetric information sellers of offsets have private information about their opportunity costs leading to concerns about whether offsets are additional non additional offsets can undermine a cap and trade program or if the government purchases them directly result in enormous government expenditures we analyze contracts for carbon sequestration in forests that mitigate the asymmetric information problem landowners are offered a menu of two part contracts that induces them to reveal their type under this scheme the government is able to identify ex post how much additional forest each landowner contributes and minimize ex ante its expenditures on carbon sequestration to explore the performance of the contracting scheme we conduct a national scale simulation using an econometric model of land use change the results indicate that for an increase in forest area of 61 million acres government expenditures are 5 3 billion lower under the contracting approach compared to a uniform subsidy offered to all landowners this compares to an increase in private opportunity costs of just 110 million dollars under the contracts thus the contracting scheme is preferable from society s perspective

explaining voter turnout patterns an information theory voting research is rich in empirical regularities yet a parsimonious theory of voter turnout that can match the facts has proven to be elusive this paper argues that voter turnout patterns can be explained by extending the traditional rational voter model to include limited information a model is presented in which utility maximizing consumers receive higher payoffs from voting the more confident they are of their vote choice the model provides an explanation for the most important cross sectional voter turnout patterns in addition it suggests a novel explanation for the post 1960 decline in u s participation

information aggregation and strategic abstention in large laboratory elections this paper compares strategic abstention in ad hoc committees versus standing committees ad hoc committees meet only once and then dissolve while standing committees the central finding from this study is that most of the predictions of swing voter curse theory hold up in large elections conducted under controlled laboratory conditions there is significant abstention and significant balancing of partisans by uniformed voters and vote balancing increases with the partisan imbalance elections with no partisan imbalance successfully aggregate information and lead to efficient outcomes consistent with swing voter curse theory this efficiency falls off as partisan imbalance increases but to a significantly greater extent than is predicted in equilibrium it is instructive to compare these findings in large elections with results from the elections reported in battaglini et al 2007 all of the qualitative results are the same concerning the comparative statics balancing and abstention one slight difference is that there was less irrational voting for in the small elections than in the large elections except for the 5 9 m 0 treatment where we observed 20 voting for in the small elections compared with 10 voting for in the large elections these differences were reflected in slightly different efficiency results between small and large elections with the comparisons mirroring the differences in voting for more irrational voting results in lower e ciency we conclude that this scaled up study successfully replicates the initial swing voter s curse experiment reported in battaglini et al 2007 obtaining very similar findings in laboratory committees that are three times the size of those in the original study the one caveat is that we found evidence of a slight increase in irrational nonequilibrium behavior voting for in the larger elections whether this trend would continue as election size is further scaled up is an open question a swing voter s curse environment

incentive contracts for natura 2000 implementation in forest areas the implementation of nature conservation policy is often based on contracts between public authorities and landowners in this article we model incentive contracts in forest areas in the presence of adverse selection and moral hazard when the conservation outcome is uncertain ex ante but observable ex post the results show that agents who are likely to achieve a higher level of conservation should be offered a contract where transfers depend on the final outcome with a bonus for a high ecological level of the forest when conservation measures are correlated with forest management we show that the contractual measures involve distorted transfers we analyse the payment mechanisms used in france and denmark in the context of the natura 2000 policy these mechanisms result in overcompensation and under performance since they do not take the problem of moral hazard and natural variability into account

production risk and optimal input decisions the paper examines the impact of production risk on a producer s optimal input decisions whether producers use more or fewer inputs in a yield risky environment depends on the sign of the marginal risk premium which is determined by risk preferences and technology i present the weakest condition on technology that is sufficient to sign the marginal risk premium for all risk averse preferences if this condition fails to hold the marginal risk premium is not of the same sign for all risk averters results are used to explore the properties of an estimated technology

abstention in elections with asymmetric information and diverse preferences we analyze a model of a two candidate election with costless voting in which voters have asymmetric information and diverse preferences we demonstrate that a strictly positive fraction of the electorate will abstain and that nevertheless elections effectively aggregate voters private information using examples we show that more informed voters are more likely to vote than their less informed counterparts increasing the fraction of the electorate that is informed however may lead to higher levels of abstention we conclude by showing that a biased distribution of information can lead to a biased voting population but does not lead to biased outcomes

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

interactions between agricultural and resource policy the importance of attitudes toward risk using a method proposed by meyer for deriving comparative statics results in the presence of risk this paper analyzes the effects of various agricultural and environmental policy alternatives on the choices of a risk averse producer with a just and pope production function many commonly held beliefs about policy effects are not supported unambiguously by economic theory for example a tax on pesticides will not necessarily reduce pesticide use or average output and a reduction in price of agricultural output will not necessarily lead to a reduction in use of water or agricultural chemicals

regulating nitrogen pollution with risk averse farmers under hidden information and moral hazard we consider a model of pollution regulation for a risk averse farmer involving hidden information moral hazard and risk sharing the representative farmer faces a production risk originating from nitrogen leaching and privately observes the soil capacity in retaining nitrogen only after the regulation contract is signed the latter specifies a transfer and a nitrogen quota whose decomposition by the farmer among different production stages is unknown to the regulator we first characterize the optimal solution to the regulator s problem the sequential decision model is estimated on french crop production data and the results are used to calibrate and simulate the optimal contract

choosing not to choose on the link between information and abstention abstract we use a dataset that allows us to circumvent a number of estimation difficulties that have plagued previous studies of the relationship between information and abstention our results show that information is a major determinant of abstention

economic behavior under uncertainty a joint analysis of risk preferences and technology a method is developed to estimate jointly risk preferences and technology under general conditions the approach is illustrated in an application to the analysis of u s corn soybean acreage decisions over time the results provide useful information on the nature of farmers risk preferences and on the influence of price risk and production risk on acreage allocation and farmers welfare copyright 1996 by mit press

contract design for the purchase of environmental goods from agriculture an environmental stewardship program whereby farmers are paid directly for the environmental goods they provide is developed by combining the microparameter distribution model with mechanism design principles the program overcomes the information asymmetry between farmers and governments and accounts for the deadweight losses from distortionary taxes the characteristics of optimal input and payment schedules of the program are derived these optimal schedules are determined by the tradeoffs between farming profits environmental benefits and deadweight losses from taxes and are second best except under restrictive conditions on deadweight losses from taxes and on the marginal product of inputs and marginal pollution costs

the swing voter s curse the authors analyze two candidate elections in which some voters are uncertain about the realization of a state variable that affects the utility of all voters they demonstrate the existence of a swing voter s curse less informed indifferent voters strictly prefer to abstain rather than vote for either candidate even when voting is costless the swing voter s curse leads to the equilibrium result that a substantial fraction of the electorate will abstain even though all abstainers strictly prefer voting for one candidate over voting for another copyright 1996 by american economic association

the divergence of sic industries from antitrust markets some evidence from price fixing cases abstract evidence from price fixing cases is used to demonstrate that sic four digit industries often are far broader in product and or geographic scope than antitrust markets and that the divergence between the two is greater than suggested in the literature

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

regulatory policy design for agroecosystem management on public rangelands this paper analyzes regulatory design for agroecosystem management on public rangelands we present an informational and institutional environment where three of the most prominent regulatory instruments on public rangelands input regulation cost sharing taxation and performance regulation can be de ned and compared the paper examines how the optimal regulation is shaped by the informational and institutional constraints faced by federal land management agencies flmas such as the bureau of land management and the u s forest service these constraints include informational asymmetries between ranchers and flmas limitations on flmas ability to monitor ranch level ecological conditions and constraints on flmas actions due to budget limitations and restrictions on the level of penalties they can assess the theoretical model extends the previous work of baker 1992 prendergast 2002 and hueth and melkonyan 2009 by considering optimal regulation by a budget constrained regulator in an environment of asymmetric information and moral hazard