investment and market dominance we analyze a model of oligopolistic competition with ongoing investment special cases include incremental investment patent races learning by doing and network externalities we investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments to this end we derive a new comparative statics result for general games with strategic substitutes which applies to our investment game finally we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards or in dynamic games when firms are sufficiently patient

market structure and r d competition abstract r d is modelled as a random draw from a set of technologies for producing a homogeneous good it is shown that both a pure monopolist and bertrand oligopolists stop r d at technology levels which are less productive than is socially desirable with bertrand competition this reservation technology level is independent of the number of firms the effort per r d project depends in general on the market structure and total r d expenditures generated in markets are smaller than the social optimum

tobacco consumption and policy in the united kingdom in recent years several structural changes and sequences of shocks have occurred in the market for tobacco in the uk including an explosive growth in smuggling this study examines whether it is still possible to estimate a reliable plausible tobacco demand equation from time series data for the uk whilst allowing for all of the various shocks and structural changes a second objective of this study is to use the estimated demand function to evaluate tobacco policy in the uk including the scope for using tax increases to achieve reduced consumption and increased revenues it is found that smuggling has diminished the revenue yield of higher rates of duty but total consumption of tobacco has been reduced in addition to the introduction of further measures to control smuggling policy may need to place more emphasis in the future on health campaigns and smoking restrictions

r d marketing and the success of next generation products this paper studies dynamic competition in markets characterized by the introduction of technologically advanced next generation products firms invest in new product effort in an attempt to attain industry leadership thus securing high profits and benefiting from advantages relevant for the success of future product generations the analysis reveals that when the current leader possesses higher research and development r d competence it tends to investmore in r d than rivals and to retain its lead position the leader s investment exhibits an inverse u pattern as this advantage increases in contrast when the leader enjoys an advantage that originates from the persistence of reputation it investsless than its followers now followers investment exhibits an inverse u pattern as reputation advantage increases depending on the extent of leader reputation industry structure can either exhibit frequent leadership shifts or prolonged incumbent dominance the basic framework is extended to allow investments in additional marketing variables e g advertising interestingly the leader takes advantage of strong demand for its current product by focusing more on advertising whereas the follower expends more on r d by shedding light on the implications of industry position for investment incentives and market evolution the analysis provides valuable insights for formulating marketing strategy in fast paced high tech business environments

what price drug use the contribution of economics to an evidence based drugs policy abstract this paper presents a review of the recent economics literature in the area of illicit drug use particular attention is paid to the economics of addiction and the rational addiction model the welfare economics framework for analysing the social costs of drug use and the attempts that have been made by economists to evaluate recent or proposed policy interventions a dominant theme in this review is the problem of poor data availability this is particularly true when it comes to implementing the rational addiction model but it is also apparent in the literature on estimating the costs of illicit drug use to society as a whole one of the main conclusions of this review is that until recently public policy has not been particularly influenced by research carried out by economists it is not clear whether this is because economists have had to grapple with inadequate data and hence their conclusions are couched in uncertainty or whether it is because drugs researchers have assumed a very limited role for economists in their analysis

the yield factor and the learning curve in semiconductor production the role of the yield factor and the learning curve is estimated at the firm level the estimated learning curves for the different generations of semiconductor memory chips are clustered around the 72 per cent type the results are consistent with the persistence of leadership hypothesis an incumbent firm has an advantage over a new entrant in adopting a new technology because it can move quicker down the learning curve

corporate governance and innovation a survey abstract the traditional economics of innovation inspired by schumpeter and more recent advances on his work seem unable to explain why firms with similar external conditions may show greatly different performance in innovation contrastingly the literature on corporate governance provides some useful insights for understanding corporate innovation activity to the extent that such literature examines the economic effects of different modes of coordination between firm members the process through which individuals integrate their human and physical resources within the firm is central to the dynamics of corporate innovation this paper provides the first survey of the literature on this issue we start by discussing how various theoretical approaches to the analysis of the firm deal with technological innovation we then describe three main channels corporate ownership corporate finance and labour through which a system of corporate governance shapes a firm s innovation activity finally we examine the relationship between country level institutional settings national patterns of corporate governance and the aggregate innovation activity of corporations we conclude by suggesting that future research should focus more deeply on the interrelation between the various dimensions of corporate governance and on their joint effect on firm innovation

efficient division of profits from complementary innovations abstract many products including microprocessors telecommunications devices computer software and on line auction services make use of multiple technologies each of which is essential to make or sell the product the owner of one technology benefits from the existence of complementary technologies we show that despite this externality the structure of payoffs that support efficient r d investment by duopolists racing to discover a single innovation generalizes to the structure that supports efficient investment for complementary innovations the paper also examines how alternative intellectual property regimes and legal institutions affect r d investment in complementary technologies the results have policy implications for the organization of r d the assessment of damages for patent infringement and allocations of value in patent pools

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

asymmetric outcome in a symmetric dynamic duopoly abstract in a dynamic duopoly will an initial asymmetry between firms increase or decrease over time we examine this issue within a stochastic dynamic alternate move duopoly model that explicitly accounts for action and reaction between firms we consider two firms that are symmetric with regard to all primitives such as demand cost and production functions and which are subject to the same stochastic environment the only asymmetry is with regard to their initial capital stocks which in turn asymmetrically influences their current and future profit and investment possibilities we offer a characterization of the stochastic steady state and its supporting ergodic set for each firm we are then able to identify the precise restrictions on the initial conditions under which the two firms either converge or diverge in the long run

smoking cessation a model of planned vs actual behavior for time inconsistent consumers we offer a simple model of intertemporal choice to characterize how planned versus actual behaviors evolve for time inconsistent smokers our results suggest that smokers participation and cessation decisions are governed by the interplay between three effects the cessation effect leads smokers to advance their plans to quit smoking whereas the procrastination effect leads them to consecutively revise their planned quitting age upwards consequently the duration of smoking is effectively governed by which one of these two effects is dominant finally for certain consumer segments a threshold effect causes an all or nothing type of extreme smoking behavior based on certain critical values of present biased preferences our results provide some preliminary evidence that both marketing efforts by tobacco firms and public policy initiatives can have a significant influence on smoking behavior in particular we find that reductions in the age at which individuals start smoking may not only vastly extend their duration of smoking but also convert potential never smokers into lifetime smokers finally we estimate a hazard model using survey data from over 800 smokers to provide evidence in support of our theoretical model

an empirical analysis of alcohol addiction results from the monitoring the future panels in a panel of young adults we find that alcohol consumption is addictive in the sense that increases in past or future consumption cause current consumption to rise the positive and significant future consumption effect is consistent with the hypothesis of rational addiction the long run price elasticity is approximately 60 larger than the short run price elasticity and twice as large as the elasticity that ignores addiction thus a tax hike policy to curtail consumption or abuse may not have a favorable cost benefit ratio unless it is based on the long run price elasticity jel 110

estimating production activity costs for multioutput firms with a random coefficient regression model a random coefficient regression model provides an approach for estimating the mean variable costs of specific enterprise production activities for each output over a population of multioutput firms the model specifically acknowledges that these farm level costs vary from farm to farm in addition best linear unbiased predictions can be estimated for each activity for an individual farm the mean estimates are quite useful for ex post cost analysis thereby providing per unit cost estimates for farmers governmental agencies and researchers the best linear unbiased predictions can be used by individual farmers for planning yearly operations applying for operating loans and analyzing marketing strategies

rates of time preference for saving lives an important characteristic of many environmental programs is that their benefits extend far into the future the primary purpose of cleanups at hazardous waste disposal sites for example is often to prevent the contamination of groundwater that could pose risks to future residents at these sites such cleanups typically involve considerable capital and other costs which are incurred at the front end of the project and yield a stream of health benefits often in the form of cancer cases avoided that may not be recognized for many years this would not pose unusual problems for program evaluation if everyone were comfortable with the assignment of dollar values to these reductions in future risk see cropper and portney 1990 however regulatory agencies are sometimes reluctant to make such monetary valuations preferring instead to evaluate programs on a cost per life saved cpls basis office of management and budget 1991 this raises an interesting question should lives saved in the future be discounted for the purpose of calculating cpls or should they be counted the same as those saved tomorrow to shed light on this over the last year we have asked members of the public hypothetical questions that enable us to infer the rate at which they implicitly discount future lives saved john k horowitz and richard t carson 1990 asked similar questions of students in the remainder of this paper we summarize the results of this research details of which can be found elsewhere cropper et al 1991 1992

rational addiction to caffeine an analysis of coffee consumption it is common knowledge that coffee tea and other beverages that contain caffeine are habit forming a recent medical study confirms that caffeine is strongly addictive with subjects exhibiting syndromes of intoxication withdrawal and dependence strain et al 1994 p 1043 that study concludes that the effect is physiological not just psychological it is of interest to ask whether the addictive nature of the most widely used psychoactive substance in the world is apparent from data on consumption there are several economic models of addiction among them the rational addiction model of becker and murphy 1988 stands out because of its simplicity and consistency with economic theory in this model the utility a consumer derives from consumption depends not only on the quantity c that is consumed but also on the degree of addiction at addiction is a form of human capital taking the form of a possibly harmful rather than beneficial stock variable it is increased as a by product of consumption and it gradually depreciates as time passes thus current consumption affects future choices consuming the good now increases its desirability in the future the becker murphy model is rational and forward looking in that the consumer is aware of these future effects and weighs them in making the current consumption choice this is in strong contrast to models that are based on assumptions of myopia and nonrational behavior an implication of the model is that this forward looking behavior can be detected in the data theory predicts that consumption data

innovation and industry evolution the theoretical literature on innovation has been concerned with a single innovation produced by a number of identical agents by contrast we consider a market in which one firm is the current incumbent while the remaining firms are challengers moreover we consider a sequence of innovations so that success does not imply that the successful firm reaps monopoly profits forever after but only until the next better innovation is developed we begin with a fully optimizing behavioral model and derive the equivalent of the schumpeterian process of creative destruction that is a firm enjoys temporary monopoly power but is soon overthrown by a more inventive challenger the essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process the fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers goods the new methods of production or transportation the new markets the new forms of industrial organization that capitalist enterprise creates schumpeter 1942 pp 82 83

random coefficients estimation of average total product costs for multiproduct firms the problem of estimating the mean average total cost of each output for multiproduct firms in an industry is addressed the identity that defines total cost for each firm as the product of output levels multiplied by their respective average total costs is viewed as a random coefficients model a random coefficients regression estimator is used to estimate mean average total output costs solutions to problems arising with this method in empirical studies are discussed an application of the approach to data from cash grain farms in illinois shows that the method gives reliable estimates for per unit output production costs with considerably fewer data requirements than current methods of cost estimation

the rational effect of price promotions on sales and consumption we explore the rational effect of price variation on sales and consumption in markets where consumers are uncertain about the future price of goods we first derive an optimal ordering policy which expresses the amount a consumer should purchase and consume in a given period as a function of the observed price of the good the distribution of future prices and the nature of his or her inventory this policy extends previous normative models of inventory control such as those by golabi 1985 and kalymon 1970 to the case where the amount to consume in a given period is an explicit decision variable and prices follow a first order stochastic process we then use this model to explore how changes in the long run frequency and temporal correlations of price promotions should normatively affect the contemporaneous relationship between purchase consumption and price among the predictions which follow from the model are that consumption should rationally increase with the size of existing inventories the short term sensitivity of sales to prices should be greater than that of consumption to price and this discrepancy increases with decreases in the temporal correlation of price deals and the long term relative frequency of price deals

i ll never forget my first cigarette a revealed preference analysis of the habits as durables model we provide a revealed preference analysis of the habits as durables model this approach avoids the need to impose a functional form on the underlying utility function we show that our characterization is testable by means of linear programming methods and we demonstrate its practical usefulness by means of an application to cigarette consumption using a spanish household consumption data set we find that the habits as durables model has better empirical fit in terms of predictive success compared to the short memory habits and life cycle models

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

learning by doing organizational forgetting and industry dynamics learning by doing and organizational forgetting have been shown to be important in a variety of industrial settings this paper provides a general model of dynamic competition that accounts for these economic fundamentals and shows how they shape industry structure and dynamics previously obtained results regarding the dominance properties of flrms pricing behavior no longer hold in this more general setting we show that forgetting does not simply negate learning rather learning and forgetting are distinct economic forces in particular a model with learning and forgetting can give rise to aggressive pricing behavior market dominance and multiple equilibria whereas a model with learning alone cannot

innovative activity and sunk cost abstract we analyze innovative activity in a general framework with time dependent rewards and sunk costs when firms are identical innovation is delayed by an increase in the number of firms or a decrease in the size of the reward when one firm has higher profit potential it is more likely to innovate first our framework generalizes an all pay auction however we show that under certain conditions there is qualitatively different equilibrium behavior

the role of technology security in a model of trade with horizontal differentiation abstract the security concerns of exporters of products which might be used for military purposes have motivated different security regimes that limit the quality of the products exported by home firms at the same time however home governments want to ensure the competitiveness of their home companies we analyze the optimal policy of a government facing such a trade off we present a multistage model in which the government has the ability to commit to r d subsidies but cannot credibly set its quality restrictions until the outcome of the r d process is known we show that depending on whether some or all governments want to restrict the quality exported by the home firms the optimal policy involves r d subsidies or taxes together with ex post security restrictions

procrastination and obedience in this lecture i shall focus on situations involving repeated decisions with time inconsistent behavior although each choice may be close to maximizing and therefore result in only small losses the cumulative effect of a series of repeated errors may be quite large thus in my examples decision makers are quite close to the intelligent well informed individuals usually assumed in economic analysis but cumulatively they make seriously wrong decisions that do not occur in standard textbook economics this lecture discusses and illustrates several pathological modes of individual and group behavior procrastination in decision making undue obedience to authority membership of seemingly normal individuals in deviant cult groups and escalation of commitment to courses of action that are clearly unwise in each case individuals choose a series of current actions without fully appreciating how those actions will affect future perceptions and behavior the standard assumption of rational forwardlooking utility maximizing is violated the nonindependence of errors in decision making in the series of decisions can be explained with the concept from cognitive psychology of undue salience or vividness for example present benefits and costs may have undue salience relative to future costs

the evolution of market structure when there is a sequence of innovations the paper explores the question of how market structure evolves when there is a sequence of opportunities to innovate does one firm extend its technological superiority to become increasingly dominant or does technological leadership constantly change hands in a process of actionreaction a simple duopoly model is proposed in which the answer to this question depends upon the nature of product market behaviour in that model highly competitive product market behaviour leads to increasing dominance whereas cournot behaviour may lead to action reaction

native american obesity an economic model of the thrifty gene theory native american obesity is hypothesized to result from three potential causes 1 a genetic predisposition or the thrifty gene 2 a rational addiction to nutrients and 3 dietary adjustment costs these hypotheses are tested using a two stage household production approach and scanner data from a panel of native and non native supermarkets nutrient intake for both groups is strongly influenced by adjustment costs native americans tend to place higher implicit valuations on protein relative to fats and carbohydrates compared to non natives consequently reductions in real carbohydrate prices over time may be a cause of high incidence of native american obesity

rational exuberance at the mall addiction to carrying a credit card balance the becker murphy model of rational addiction is tested with new zealand credit card debt data the results clearly favour the rational addiction model over the myopic backward looking model the estimated short run and long run price elasticities are 0 58 and 2 32 respectively and the estimated rate of time preference is 6 7 per quarter

persistence of leadership in product innovation in a firm model of vertical product differentiation three distinct patterns of market shares emerge as an equilibrium outcome reflecting three distinct strategies in respect of timing of the introduction of new products the main novelty relative to the existing literature on vertical product differentiation lies in the incorporation of learning by doing this assumption generates stability of market share patterns over a sequence of product innovations copyright 1992 by blackwell publishing ltd

soda wars the effect of a soda tax election on university beverage sales author s taylor rlc kaplan s villas boas sb jung k abstract 2019 western economic association international we examine how soda sales changed due to the campaign attention and election outcome of a local excise tax on sugar sweetened beverages using panel data of beverage sales from university retailers in berkeley california we estimate that soda purchases relative to control beverages significantly dropped immediately after the election months before the tax was implemented in the city of berkeley or on campus supplemental scanner data from off campus retailers reveal this result is not unique to the university setting our findings suggest soda tax media coverage and election outcomes can have larger effects on purchasing behavior than the tax itself jel d12 h20 c23 i38 q18

testable competing hypotheses from structure performance theory efficient structure versus market power this paper provides a structure performance theory that can accommodate leading firm efficiency as well as several competing market power hypotheses the author derive s testable implications distinguishing the simple collusion product differentiation and scale economy hypotheses from the innovative lea ding firm alternative it is shown that recent evidence of a positive market share price cost margin pcm relationship and a nonpositive concentration pcm relationship can reject the scale economy and simpl e collusion hypotheses in homogeneous product markets unfortunately this same evidence cannot reject the product differentiation hypothe sis in favor of leading firm efficiency copyright 1988 by blackwell publishing ltd

trade policy and learning by doing the case of semiconductors abstract the study examines the role of learning by doing for production of different types of semiconductors and how this affects the dynamics of market structure for erasable programmable read only memories eproms the learning curve determines aggregate market dynamics whereas for dynamic random access memories drams economies of scale seem to be more important these results are compared with some stylised facts for eproms persistence of leadership in product innovation could be observed whereas for drams there was leap frogging in product innovation moreover scope for vertical product differentiation is more enhanced for eproms and price competition is less intense these findings are then related to the problem of identifying the appropriate trade policies in oligopolistic industries the analysis concerns the antidumping actions undertaken by the european commission it is shown how markets enjoying similar patterns of protection have a completely different evolution of market shares for european producers the conclusion for strategic trade policy is that industry specific features matter crucially

demand shifts and market structure in free entry oligopoly equilibria abstract this papers examines the structural implications of demand shifts in free entry oligopoly equilibria the model generalizes the conjectural variations framework to consider asymmetric firm conjectures allows for the possibility of cost differences across firms and endogenizes conditions of entry and exit in the industry in non competitive environments changes in incumbent output and industry profitability are inversely related to changes in the equilibrium price following a demand shift in response to rotations of demand through the equilibrium point changes in profitability are positively related to changes in industry concentration and when marginal costs are non decreasing inversely related to changes in market power

estimation of multicrop production functions this paper considers whether separability or nonjointness is the better approach for attaining tractability for multicrop production function estimation characteristics of agricultural production associated with allocated inputs physical constraints and output determination imply sufficient nonjointness for estimation whereas separability is less plausible the paper also addresses estimation of production functions with allocated inputs where allocations are not observed and demonstrates a proposed approach by way of example

addiction as a market failure using rational addiction results to justify tobacco regulation abstract tobacco regulation efforts have been criticized by some academic economists for failing to provide adequate welfare analytic justification this paper attempts to address these criticisms unlike previous research that has discussed second hand smoke and health care financing externalities this paper develops the logic for identifying the much larger market failures attributable to the failure of smokers to fully internalize the costs of their addictive behavior the focus is on teen addiction as a form of intrapersonal externality and observed adult consumption behavior consistent with partial myopia the importance of peer effects in the consideration of welfare impacts is also emphasized

heroin consumption prices and addiction evidence from self reported panel data estimation models of drug demand should encompass the aspect of addiction here we consider two static panel data regression models and two cross section models with lags or leads in drug consumption as additional regressors heroin injectors attending a needle exchange service in oslo were interviewed twice with a one year interval despite our relatively small sample we obtain statistically significant price and income responses for nearly all of the models and specifications applied the sample is split by dealing status with dealers obtaining price elasticities in the range of 0 15 1 51 and non dealers 0 71 1 69 somewhat surprisingly the estimates of the variance of the latent individual specific variable are rather low in the panel data models although higher for non dealers than for dealers

licensing a sequence of innovations it is common for a firm which receives a license for a technology also to obtain as part of the contract a license for future improvements on that technology we derive market structure reasons why such a provision might be used in a two period setting

the evolution of market structure in semiconductors the role of product standards abstract this paper looks at the role of product standards in determining the evolution of market structure in semiconductors theory suggests that product standards along with learning by doing effects lead to market concentration and persistence of leadership in product innovation empirical evidence supports this with some qualifications the market concentration hypothesis is confirmed for all submarkets of the semiconductor industry persistence of leadership is obtained for markets based on proprietary product standards in the market for microprocessors we have persistence of leadership in product innovation that is accompanied with overall market dominance for microcontrollers we observe persistence of leadership in product innovation but not concomitant overall market dominance whereas learning by doing effects seem to be strong in the small market for microprocessors they are weaker in the much larger market for microcontrollers

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

dynamic duopolies with non convex adjustment costs abstract there are numerous situations in which firms compete in a variable with non convex adjustment costs such that each form either does not change its variable or changes it by a large amount i show that if the variables are strategic complements the equilibrium has synchronous adjustments furthermore i present several important economic applications of this result

credit card debt and consumption evidence from household level data this research investigates the relationship between credit card debt and consumption using household level data this is a departure from the previous studies which have used aggregate measures of consumption and general debt such as the debt service ratio or total revolving credit we use a detailed monthly survey of credit card use to impute credit card debt to respondents from the consumer expenditure survey sample in contrast to some earlier studies using aggregate data we find a negative relationship between debt and consumption growth our work shows that a 1000 increase in credit card debt results in a decrease in quarterly consumption growth of almost 2 investigations are also made into effects of debt within different age categories and into the impact of expected income growth on the debt consumption relationship

the dynamics of bertrand price competition with cost reducing investments the authors would like to acknowledge the funding received from the danish council for independent research and innovation fund denmark fedor iskhakov gratefully acknowledges the support from the australian research council projects ce110001029 and fl110100247 as well as from frisch centre project 1307 financed by the ministry of labor norway

rationally addicted to drinking and smoking when modelling demand for addictive consumption goods the most widely used framework is the rational addiction model proposed by becker and murphy this paper extends the rational addiction model to include two addictive consumption goods alcohol and cigarettes and using aggregate annual time series on sales volumes for the period 1955 1999 estimates the aggregate demand for these goods in sweden where ols estimates are compared to gmm estimates allowing for possible endogeneity of lagged and lead consumption first the demand for alcohol and cigarettes are estimated as separate equations and it is found that alcohol demand is quite well described by the rational addiction model while the same is not true for cigarettes the own price elasticities are negative and alcohol demand is more elastic than cigarette demand the cross price elasticities are also negative showing that alcohol and cigarettes are complements since consumption of alcohol and cigarettes are probably simultaneous decisions th

accounting for heterogeneity in multicrop micro econometric models implications for variable input demand modeling this article aims to show that if the farm sample under consideration is characterized by significant heterogeneity recovering output specific input uses or modeling farm level input uses may be more complicated than previously recognized the article theoretically investigates the problems implied by farm heterogeneity in input allocation equations and multicrop econometric models proposes an empirically tractable solution for overcoming these problems and assesses the empirical relevance of the theoretically identified problems the results demonstrate that heterogeneity matters but that the revealed heterogeneity bias has a limited impact on the empirical results copyright 2012 oxford university press

contingent valuation and social choice the contingent valuation method for estimating the existence value of natural resources is examined for psychophysical robustness statistical reliability and economic sensibility extensions of standard models for willingness to pay and suitable econometric techniques for analyzing these models are developed the analysis is applied to a series of experiments on the value of preserving wilderness areas in the western united states the results call into question the reliability of the cv method for estimating existence values

market leadership with a sequence of history dependent patent races this note extends the results of j vickers 1986 examining the consequences on the evolution of market structure of having payoffs and thus profits and incentives which depend on the technological history of the firms in a simple duopoly model the author determines the conditions under which the technological leadership of a firm is strengthened over time increasing dominance or is progressively eroded by the rival catching up this reformulation of vickers model can also accommodate incremental innovations i e technological changes that do not allow the innovator to overtake the rival copyright 1989 by blackwell publishing ltd

the duration of the smoking habit i introduction most smokers smoke out of habit once the habit is ended many of smoking s most harmful effects decline rather quickly preventing and ending cigarette addiction is therefore the straightest path toward preventing the health damage done by cigarette smoking consequently the related questions of why people start smoking and why they quit are central to formulating and evaluating effective antismoking policies duration or hazard models are designed to measure the probability of transition between states and are thus ideal for investigating the structural determinants of the transition between addiction and non addiction nevertheless most previous work in the economics literature uses the aggregate smoking participation rate defined as the percentage of people who currently smoke or an individual s probability of participation rather than a hazard rate to measure the attractiveness of habitual smoking this paper models the hazard rates of both starting and quitting the cigarette smoking habit the starting hazard rate is the probability that an individual will start smoking in a given time period conditional on being a nonsmoker until then the quitting hazard rate is the probability of quitting smoking in a given time period conditional on being a smoker since the starting date both of these rates should rise and fall in response to changes in the attractiveness of smoking the two rates will respond differently to different stimuli since the starting hazard reflects the point of view of nonsmokers and the quitting hazard reflects the point of view of smokers hazard or duration models possess several advantages over smoking participation models most obviously smoking participation rates cannot directly distinguish between increased starting rates and decreased quitting rates but the hazard models can also in a participation rate model it is difficult to control for the effect of the duration of the habit whereas duration models are designed specifically to allow for and measure the dependence of the hazard rate on duration another advantage is that the participation rate at any one time will oversample the number of long term smokers relative to those who had a short term habit whereas a duration model is designed to avoid this source of bias one drawback however is that because of their inherent panel nature the data requirements of duration models are somewhat more difficult to satisfy as shall be seen the only previous work in the economics literature that estimates the hazard rate of starting smoking is douglas and hariharan 1994 my paper improves upon douglas and hariharan in at least three important ways first it estimates the hazard rate of quitting smoking as well as that of starting second it takes into account variation in state level regulation third its time varying covariate model allows hazard rates to respond dynamically to changes in cigarette price regulation and information variables the use of time varying covariates is important because it brings the empirical model into much closer accord with theory the decision whether or not to start or quit smoking is an ongoing decision made one day at a time on the basis of current information the hazard of starting is greatest when the cost of the habit appears lowest and its benefit appears highest this comparison of cost and benefit changes through time as price information income and life cycle variables change while douglas and hariharan 1994 used price information from the potential smoker s most vulnerable age on the theory that its marginal effect is greatest at that time the model used in this paper allows each individual s hazard rate to respond to changes in price and public information as they occur the leading theoretical model of the decision to smoke is the rational addiction model of becker and murphy 1988 which assumes that consumers of addictive goods begin smoking only after fully weighing the costs and benefits of the habit

why do people drink tests of the rational addiction model the rational addiction ra model applied to alcoho consumption is tested using 1983 us health interview survey data the ra model yields refutable hypotheses concerning effects of current past and future prices past and future consumption time preference and marginal utility of wealth on addictive good consumption the estimations provide relatively strong support for the ra model past and present consumption had strong positive relationship with current consumption coefficients on past present and future money prices and fines for first oflence drunk driving as a form of price for alcohol consumption were significant and of the predical sign

is the rational addiction model inherently impossible to estimate the rational addiction ra model is increasingly often estimated using individual level panel data with mixed results in particular with regard to the implied rate of time discount this paper suggests that the odd values of the rate of discount frequently found in the literature may in fact be a consequence of the saddle point dynamics associated with individual level inter temporal optimization problems we report the results of monte carlo experiments estimating ra type difference equations that seem to suggest the possibility that the presence of both a stable and an unstable root in the dynamic process may create serious problems for the estimation of ra equations

demand for coffee in sweden the role of prices preferences and market power there is a widespread belief that consumer coffee prices are high relative to bean prices and that lower consumer prices would lead to substantial increases in bean exports from third world countries this issue is evaluated by analysing how retail prices preferences and market power influence coffee demand in sweden a demand function is estimated for the period 1968 2002 and used together with information on import prices of coffee beans to simulate an oligopoly model this approach gives estimates of the maximum average degree of market power and shows how coffee demand would react to reductions in marginal cost to its minimum level the maximum level of market power is found to be low but it generates large spreads between consumer and bean prices because the price elasticity has low absolute values moreover the impact of a price decrease would be small because long run coffee demand is dominated by changes in the population structure in combination with different preferences across age groups hence a change to perfect competition would only have a negligible effect on bean imports

how to deal with intercept and trend in practical cointegration analysis this note gives a few practical guidelines for cointegration analysis the focus is on testing the cointegration rank in a var model and on how an intercept and a trend should be incorporated in the testing model only two cases appear relevant for most economic data

pseudo panel data estimation technique and rational addiction model an analysis of cigarette alcohol and coffee demands we use a pseudo panel data approach to analyze the relationship between the consumptions of cigarettes alcohol and coffee in a rational addiction framework we find that while cigarette and coffee demands fit well with the rational addiction model alcohol demand conforms to a model with inventory effects the results suggest that alcohol consumption increases the marginal utility derived from consumption of cigarettes increasing alcohol prices would decrease not only the consumption of alcohol but also the consumption of cigarettes on the other hand increasing cigarette prices do not have the same effect on consumption of alcohol the cross price elasticity of coffee with respect to cigarette price is positive and significant which suggests that coffee substitutes for cigarettes when cigarette prices increase the cross price elasticity of alcohol with respect to coffee price is found to be negative and significant on the other hand morishima elasticities of substitution indicate that cigarette alcohol and coffee substitute each other along the indifference curve when relative prices change

intensity of competition and the incentive to innovate abstract the effects of intensity of product market competition on r d incentives are analysed in a model capturing the strategic interactions between firms with different cost levels first four axioms are proposed that a measure of intensity of competition should satisfy then the effects of intensity of competition on the value of the innovation are analysed and it is shown that the axioms imply the existence of a non monotone relation between intensity of competition and the value of an innovation

economic implications of 3d printing market structure models in light of additive manufacturing revisited abstract additive manufacturing am colloquially known as 3d printing is currently being promoted as the spark of a new industrial revolution the technology allows one to make customized products without incurring any cost penalties in manufacturing as neither tools nor molds are required moreover am enables the production of complex and integrated functional designs in a one step process thereby also potentially reducing the need for assembly work in this article we discuss the impact of am technology at both firm and industry level our intention is to discern how market structures will be affected from an operations management perspective based on an analysis of established economic models we first identify the economic and technological characteristics of am and distill four key principles relevant to manufacturers at firm level we then critically assess the effects of am at industry level by analyzing the validity of earlier assumptions in the models when these four principles apply in so doing we derive a set of seven propositions which provide impetus for future research in particular we propose that in a monopoly the adoption of am allows a firm to increase profits by capturing consumer surplus when flexibly producing customized products meanwhile in competitive markets competition is spurred as am may lower barriers to market entry and offers the ability to serve multiple markets at once this should ultimately result in lower prices for consumers

sequential auctions of endogenously valued objects two completely informed but possibly asymmetric bidders buy or sell identical claims in sequential auctions they subsequently receive monetary prizes that depend upon the final allocation of claims iterated elimination of weakly dominated strategies leaves a unique nash equilibrium for any prize schedule prices weakly decline as the auctions progress and points of strict decline have a simple characterization for one class of prize schedules which arises naturally if duopolists bid for a scarce input the equilibrium is completely characterized many initial allocations generate the same final unequal division of claims which may be interpreted as the natural market structure journal of economic literature classification numbers d43 d44 l11

an empirical analysis of milk addiction we show the estimable rational addiction model tends to yield spurious evidence in favor of the rational addiction hypothesis when aggregate data are used direct application of the canonical model yields results seemingly indicative that non addictive commodities such as milk eggs and oranges are rationally addictive monte carlo simulation demonstrates that such results are likely to obtain whenever the commodity under scrutiny exhibits high serial correlation or when even a small amount of the variation in prices is endogenous or when overidentified instrumental variables estimators are used or when commonly imposed restrictions are employed we conclude that time series data will often be insufficient to differentiate rational addiction from serial correlation in the consumption series