cash transfers in latin america effects on poverty and redistribution we present comparative evidence for eight latin american countries regarding the design and effects of cash transfers cts on the basis of household survey data we analyze their coverage importance in household income and effects on poverty reduction and income redistribution we present a static microsimulation to analyze the potential impacts of alternative pro gram designs including perfect targeting and higher budgets our results illustrate wide variation in terms of design coverage and importance in household income cts account for a significant portion of household income in lower deciles nonetheless their effects in terms of reducing the incidence intensity and severity of poverty are moderate at best and although their progressivity is high their redistributive impact is limited these results are mainly explained by the meager resources involved even under perfect targeting the budgets allocated would be insufficient to achieve full coverage among households in the lowest part of the income distribution

indirect effects of an aid program how do cash transfers affect ineligibles consumption cash transfers to eligible households indirectly increase the consumption of ineligible households living in the same villages this effect operates through insurance and credit markets ineligible households benefit from the transfers by receiving more gifts and loans and by reducing their savings thus the transfers benefit the local economy at large looking only at the effect on the treated underestimates the impact one should analyze the effects of this class of programs on the entire local economy rather than on the treated only and use a village level randomization rather than selecting treatment and control subjects from the same community

consumption vulnerability to risk in rural pakistan abstract as one of the dimensions of vulnerability this paper empirically investigates the inability of rural dwellers to cope with negative income shocks a variable coefficient regression model is applied to a two period household panel dataset collected in the north west frontier province pakistan an area with high incidence of income poverty and low human development the empirical model allows for a different ability to smooth consumption approximated by a linear function of households attributes and controls for the endogeneity of observed changes in income using qualitative information on subjective risk assessment estimation results show that the ability to cope with negative income shocks is lower for households that are aged landless and do not receive remittances regularly

capacity investment under postponement strategies market competition and demand uncertainty we consider duopoly models where firms make decisions on capacity production and price under demand uncertainty capacity and price decisions are made respectively ex ante and ex post demand realizations the interplay between the timings of demand realization and production decision endows firms with different capabilities flexible firms can postpone production decisions until the actual demand curve is observed but inflexible firms cannot under general demand structures and cost functions we characterize the equilibrium for a symmetric duopoly and establish the strategic equivalence of price and quantity competitions when firms are flexible we investigate the stochastic order properties of capacity and profit and show that they both increase for a flexible firm when the market is more volatile we find that flexibility allows a firm to increase investment in capacity and earn a higher profit while benefiting customers by keeping the price in a narrower range strategic equivalence implies that

cournot duopoly with two production periods and cost differentials abstract saloner 1987 analyzes a cournot model with two production periods before the market clears if costs do not vary across periods any point on the outer envelope of the reaction functions between the firms stackelberg outputs is attainable with a subgame perfect nash equilibrium spne saloner s analysis is generalized by allowing for cost differences across periods the continuum of equilibria vanishes for any cost differential if costs fall slightly over time there are multiple leader follower equilibria otherwise the model generates a unique spne where both firms produce their single period cournot outputs in the period when production is cheaper

incentive compatible pollution control policies under asymmetric information on both risk preferences and technology this article proposes a method to accommodate asymmetric information on farmers risk preferences in designing voluntary environmental policies by incorporating stochastic efficiency rules in a mechanism design problem the government can find incentive compatible policies by knowing only the general class of risk preferences among farmers the model also accounts for hidden information on technology types and input use the method is applied empirically to simulate a pollution control program in new york results suggest that participation incentives would be inadequate for many risk averse producers if the government does not account for the diversity in risk preferences

symmetry breaking in two player games via strategic substitutes and diagonal nonconcavity a synthesis abstract this paper is an attempt to develop a unified approach to symmetry breaking in strategic models arising in industrial organization by constructing two general classes of two player symmetric games that always possess only asymmetric pure strategy nash equilibria these classes of games are characterized in some abstract sense by two general properties payoff nonconcavities and some form of strategic substitutability our framework relies on easily verified assumptions on the primitives of the game and relies on the theory of supermodular games the underlying natural assumptions are satisfied in a number of two stage models with an investment decision preceding product market competition to illustrate the generality and wide scope for application of our approach we present some existing models dealing with r d capacity expansion and information provision which motivated this study

long run competition in capacity short run competition in price and the cournot model in this article we investigate the nature of equilibrium in markets in which firms choose the scale of operation before they make pricing decisions we analyze a duopoly model in which firms choose their capacities before engaging in bertrand like price competition we demonstrate that the cournot outcome is unlikely to emerge in such markets and that the equilibrium tends to be more competitive than the cournot model would predict in addition our results indicate a tendency toward asymmetric firm sizes and price dispersion that results from the mixed strategies firms use in equilibrium

nonpoint pollution control inducing first best outcomes through the use of threats abstract this paper develops an economic model to analyze the use of a policy that combines a voluntary approach to controlling nonpoint source pollution with a background threat of an ambient tax if the voluntary approach is unsuccessful in meeting a pre specified environmental goal we show that such a policy can be designed to induce cost minimizing abatement without actually imposing the tax because the threat of imposition of the tax is sufficient to induce voluntary compliance thus the combined policy approach can not only be more effective in protecting environmental quality than a pure voluntary approach but can also be less costly than a pure ambient tax approach however whether the cost minimizing choices are a unique equilibrium or not depends on the design of the tax policy and whether or not it can be applied retroactively all results still hold if the background threat takes the form of a reducing in government subsidies

estimation of vulnerability to poverty using a multilevel longitudinal model evidence from the philippines using the panel data for the philippines in 2003 2009 we estimate a three level random coefficient model to measure household vulnerability and to decompose it into idiosyncratic and covariate com

dynamic capacity planning using strategic slack valuation in this paper we analyze a particular aspect of capacity planning that is concerned with the active trading of production facilities for a homogenous product market we provide a theoretical rationale for the valuation and trading of these assets based on a metric of strategic slack we show that trading production assets with non additive portfolio profitability involves complex coordination with multiple equilibria and that these equilibria depend on the foresight in the planning horizon using the concept of strategic slack we have analyzed the dynamics of market structure the impact of asset trading on the level of production of the industry and to derive boundaries on the value of the traded assets moreover through computational learning the formulation is applied to a large oligopolistic electricity market showing that plant trading tends to lead to increased market concentration high prices lower production and a decrease in consumer surplus

tacit collusion in the presence of cyclical demand and endogenous capacity levels abstract we analyze tacit collusion in an industry characterized by cyclical demand and long run scale decisions firms face deterministic demand cycles and choose capacity levels prior to competing in prices our focus is on the nature of prices we find that two types of price wars may exist in one collusion can involve periods of mixed strategy price wars in the other consistent with the rotemberg and saloner 1986 definition of price wars we show that collusive prices can also become counter cyclical we also establish pricing patterns with respect to the relative prices in booms and recessions if the marginal cost of capacity is high enough holding current demand constant prices in the boom are generally lower than the prices in the recession this reverses the results of haltiwanger and harrington 1991 in contrast if the marginal cost of capacity is low enough then prices in the boom are generally higher than the prices in the recession for costs in an intermediate range numerical examples are calculated to show specific pricing patterns

some neglected social costs of government spending in farm programs economic welfare analyses of farm programs typically assume that the direct social opportunity cost of subsidy payments is one dollar per dollar of government spending recent literature suggests that the marginal opportunity cost of a dollar of u s federal government spending is more likely to be in the range of 1 20 to 1 50 this implies that the net social costs of farm programs that involve government spending are significantly greater than the typical estimates in addition the normative efficiency ranking of alternative policies is sensitive to the marginal opportunity cost of government spending

the conservation reserve program as a least cost land retirement mechanism mechanism design theory is used to characterize the properties of a least cost crp if marginal land rents decrease with acres farmed then a least cost crp is a set of nonlinear price schedules if marginal land rents are independent of acres farmed then an offer system constitutes a least cost crp the least cost offer system gives a useful estimate of the upper bound of a least cost crp empirical results suggest that a 34 million acre crp should have cost no more than 1 billion per year

conservation auctions should information about environmental benefits be made public most bid evaluation systems in conservation auctions consider both the proposed payment and the environmental attributes when auctioneers have a more comprehensive understanding of the conservation benefits than bidders do information becomes a central element of the auction design concealing information about conservation benefits may be the optimal strategy when entry decisions are not relevant however disclosing information may motivate landholders whose lands are associated with high environmental benefits to participate in an auction the present study demonstrates that revealing information about conservation benefits can be an optimal strategy if it enhances an auction s participation rate when bid acceptance rates are high copyright 2013 oxford university press

self selecting agri environmental policieswith an application to the don watershed we consider a model of regulation for nonpoint source water pollution through non linear taxation subsidization of agricultural production farmers are heterogenous along two dimensions their ability to transform inputs into final production and the available area they possess asymmetric information and participation of farmers to the regulation scheme put constraints on the optimal policy that we characterize we show that a positive relationship between size of land and ability may exacerbate adverse selection effects we calibrate the model using data on a french watershed and we simulate the optimal second best policy and characterize the allocation of the abatement effort among the producers

competition based environmental policy an analysis of farmland preservation in maryland policy makers have turned to competition based voluntary enrollment programs as a cost effective way to achieve preferred land uses this paper studies bidder behavior in an innovative auction based program in which farmers compete to sell and retire the right to develop their land we derive a reduced form bidding model that includes private and common values this model allows us to estimate the role of bidder competition winner s curse correction and the underlying distribution of private values we estimate that the auction enrolled as many as 3 000 acres 12 more than a take it or leave it offer would have enrolled for the same budgetary cost

on the design of agricultural policy mechanisms the fact that different agricultural policy mechanisms have emerged for different commodities suggests that the choice of policy instrument may reflect the goals of agricultural policy makers this paper uses the principles of mechanism design under asymmetric information to examine the motivations underlying the choice of agricultural policy mechanisms it is found that supply control mechanisms favor high cost producers and the budget while mechanisms resulting in overproduction favor low cost producers

reversing property rights practice based approaches for controlling agricultural nonpoint source water pollution when emissions aggregate nonlinearly nonpoint source water pollution remains a major issue despite decades of research and sizable conservation programs we suggest that by taking advantage of contemporary modeling and optimization approaches good approximations to physical relationships can be constructed so that even in the presence of unobservable field emissions and nonlinear fate and transport relationships standard economic tools of command and control requirements performance standards and trading can be implemented the boone river watershed in the u s state of iowa is used for empirical demonstration although the approach can be used to construct voluntary conservation policies the described policies involve imposing requirements on agricultural polluters rather than relying on voluntary actions alone

priorities in cost sharing for soil and water conservation a revealed preference study a number of studies have questioned how successfully paid land diversion has been adapted to address broad environmental policy concerns similar evaluations of cost sharing programs have not been performed this paper uses a revealed preference approach to estimate the implicit decision criteria used to allocate federal cost sharing funds in maryland during the fiscal years 1994 through 1996 funds appear to have been awarded preferentially to projects that enhanced agricultural productivity and farm profitability in contrast to findings regarding the crp however our results do not indicate that cost share awards in maryland were inconsistent with stated environmental quality priorities

stop and go agricultural policies with a land market this article studies the design of farm policy in the presence of asymmetric information about farmers productivity a government objective to insure farmers a minimum parity income an endogenous land rent and diminishing returns on alternative nonprogram crop land uses in this setting acreage set asides are never part of an optimal farm policy although compensated acreage limits are when there are new farmer entrants who cannot be excluded from farm programs optimal policy takes the form of a pure voluntary acreage limitation or buyout program in which high cost producers participate and low cost producers do not copyright 2003 oxford university press

crop insurance in a political economy an alternative perspective on agricultural policy lawmakers often subsidize farmers in times of financial distress this article models this political impulse as a constraint on government farm policy describing how ex ante government farm insurance can deter ex post disaster relief and improve production incentives by countering the moral hazard that otherwise prevails absent ex ante government policy ex post relief takes the form of revenue insurance which prompts excessive entry into farm production and under production by operating farmers ex ante government policy can raise economic and political welfare by buying out low productivity farmers and offering profitable farmers a combination of revenue insurance price supports and a program participation fee copyright 2003 oxford university press

risk induced resource dependency in capacity investments a capacity acquisition process is resource dependent when the existing resources impact the valuation of new resources and thereby influence the investment decision following a formal analysis of resource dependency we show that uncertainty and aversion to risks are sufficient conditions for resource dependent capacity acquisition distinct from the technology lock in effects of increasing returns to scale or learning risk aversion can induce diversity we develop a stochastic programming framework and solve the optimization problem by decomposing the problem into investment and operational horizon subproblems our computational results for an application to the electricity sector show inter alia that technology choices between low carbon and fossil fuel technologies as well as their investment timings are dependent upon the resource bases of the companies with scale debt leverage and uncertainty effects increasing resource dependency particularly we show that resource dependency can significantly impact the optimal investment decisions and we argue that it should be evaluated at both company and policy levels of analysis

payments for ecosystem services programs predicting landowner enrollment and opportunity cost using a beta binomial model this paper concerns predicting enrollment in payment for ecosystem services pes programs to promote habitat preservation on private lands we develop a beta binomial model to address both program participation and the amount of land enrolled by each potential enrollee we apply the estimation approach to stated preference data from non industrial private forest owners in finland as an alternative econometric model we also develop a multivariate censored regression model of enrollments using cross validation we find that the beta binomial model predicts at least as well as the multivariate censored model yet has fewer parameters using our estimation results we demonstrate policy predictions regarding program enrollment and landowner opportunity cost

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

incentivizing and tendering conservation contracts the trade off between participation and effort provision this paper uses lab experiments to investigate landholder responses to and the resulting outcome performance of programs that incentivize and tender conservation contracts assuming environmental outcome monitoring is costless we find that increasing the share of payment linked to uncertain environmental outcomes raises the level of individual stewardship effort but reduces participation thereby creating a trade off this leads to a second trade off environmental outcome is maximized at some intermediate level of contract incentivization but cost effectiveness at 100 tendering such contracts can yield additional benefits in terms of both environmental outcome and cost effectiveness however these benefits decline rapidly with rising incentivization

consumer rationing and cournot outcomes experimental evidence author affiliation jason j lepore department of economics orfalea business college california polytechnic state university san luis obispo ca 93407 usa e mail jlepore calpoly edu aric p shafran dagger department of economics orfalea business college california polytechnic state university san luis obispo ca 93407 usa e mail ashafran calpoly edu corresponding author acknowledgment the authors acknowledge the orfalea college of business for financial support we thank blake allison for assistance running the experiments and the anonymous reviewers and conference participants at the north american economic science association meetings for helpful comments 1 introductionthis article reports the results of duopoly market experiments where firms first commit to capacities and then compete in prices the theoretical literature pertaining to these duopoly models suggests that the way residual demand is rationed is fundamental to the character of equilibrium outcomes the goal of this study is to test the impact of residual demand rationing on the behavior of subjects in an experimental environment in a two stage game where firms first commit to capacities and then compete in prices kreps and scheinkman 1983 hereafter k s prove that the unique nash equilibrium outcome coincides with the cournot equilibrium outcome with efficient rationing of residual demand efficient rationing means that the higher priced firm is left with the worst possible residual demand curve if demand is composed of many similar consumers that each demand multiple units and we construct aggregate demand by way of a representative consumer then efficient rationing is imposed by the model on the other hand if demand is instead composed of a mass of consumers with unit demand and varied willingness to pay then the efficient rationing rule imposes the restriction that the highest valued consumers buy from the firm with the lower price davidson and deneckere 1986 make a compelling argument that proportional rationing is a more appropriate assumption in the latter case proportional rationing means that a uniform distribution of possible consumers buy from the firm with the lower price davidson and deneckere show that under proportional rationing as well as any rationing rule other than the efficient rule the cournot outcome is not necessarily the unique equilibrium of the two stage game the davidson and deneckere result is problematic for the k s model because it deflates the generality of their theoretical result 1lepore 2009 further clarifies the relationship between proportional rationing and the cournot outcome in the k s game with proportional rationing the cournot outcome is the unique nash equilibrium only when capacity cost is greater than a threshold level the purpose of our experiments is to assess if the play of experimental subjects in the two stage game is sensitive to the rationing scheme in the way that theory predicts to do this we construct an experimental design with four treatments the treatments vary by two controls the demand rationing scheme and the cost of capacity we conduct two efficient rationing treatments one with a high capacity cost and one with a low cost for both costs theory predicts that the outcome coincide with the cournot model we also conduct two treatments using proportional rationing one with each of the capacity costs used in the efficient rationing treatments with a high cost theory predicts the outcome should coincide with the cournot model as in the case of efficient rationing however theory predicts that the cournot outcome should not occur when the cost of capacity is low and prices should not clear the market recently several authors have used laboratory experiments as a means to empirically test the predictions of the k s model

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

bertrand edgeworth competition demand uncertainty and asymmetric outcomes abstract we analyze investment and pricing incentives in a symmetric bertrand edgeworth framework with uncertain demand firms choose production capacities before observing demand prices are chosen after demand is observed if the extent of demand variation exceeds a threshold level then a symmetric equilibrium in pure strategies for capacities does not exist a smaller firm has no incentive ex ante to expand its capacity because capacity expansion would reduce its expected revenue in the event that demand is lower than expected output prices are predicted to have positive variance when demand is low and zero variance when demand is high journal of economic literature classification numbers d43 l13

price competition in a capacity constrained duopoly abstract this paper characterizes the set of nash equilibria in a model of price setting duopoly in which each firm has limited capacity and demand is continuous and decreasing in general there is a unique equilibrium so that comparative static exercises are meaningful the properties of the equilibrium conform with a number of stylized facts the equilibrium prices are lower the smaller is demand relative to capacity when demand is in an intermediate range the firms use mixed strategies they randomly hold sales if capacities are chosen simultaneously before prices the set of equilibrium capacities coincides with the set of cournot quantities

collusive pricing with capacity constraints in the presence of demand uncertainty we explore the response of collusive prices to changing demand conditions when firms operate under capacity constraints in the presence of demand uncertainty we find support for the conventional view that periods of low demand lead through the emergence of excess capacity to a breakdown of collusive pricing we also find that the nature of price wars depends on the degree of excess capacity in the industry while small amounts of excess capacity can lead firms to engage in mild price wars characterized by uniform price reductions and market share stability more severe price wars characterized by price undercutting and market share instability can emerge if excess capacity is sufficiently great finally our results lend support to the view that market share instability is a symptom of ineffective collusion

r d induced industry polarization and shake outs abstract we consider the standard two stage game of r d and cournot competition with ex ante identical firms but depart from the literature in assuming that r d is characterized by mildly instead of strongly decreasing returns to scale we establish that only extreme r d levels are possible at equilibrium and that for a broad range of parameters equilibria are asymmetric in r d levels possibly leading one firm to endogenously exit this provides a simple link between returns to scale in r d and industry polarization including shake outs a novelty is that exit may be triggered by positive opportunities in a strategic setting given the original nature of our r d equilibrium a complete welfare analysis is conducted including a possible role for r d subsidies

generation capacity expansion in a risky environment a stochastic equilibrium analysis we cast models of the generation capacity expansion type formally developed for the monopoly regime into equilibrium models better adapted for a competitive environment we focus on some of the risks faced today by investors in generation capacity and thus pose the problem as a stochastic equilibrium model we illustrate the approach on the problem of the incentive to invest agents can be risk neutral or risk averse we model risk aversion through the cvar of plants profit the cvar induces risk adjusted probabilities according to which investors value their plants the model is formulated as a complementarity problem including the cvar valuation of investments an illustration is provided on a small problem that captures several features of today s electricity world a choice often restricted to coal and gas units a peaky load curve because of wind penetration uncertain fuel prices and an evolving carbon market we assess the potential of the approach by comparing energy only and capacity market organizations in this risky environment our results can be summarized as follows a deterministic analysis overlooks some changes of capacity structure induced by risk whether in the capacity market or energy only organizations the risk neutral analysis also misses a shift towards less capital intensive technologies that may result from risk aversion last risk aversion also increases the shortage of capacity compared to the risk neutral view in the energy only market when the price cap is low this may have a dramatic impact on the bill to the final consumer the approach relies on mathematical programming techniques and can be extended to full size problems the results are illustrative and may deserve more investigation

green payments and dual policy goals abstract we use a mechanism design framework to analyze the optimal design of green payment policies with the dual goals of conservation and income support for small farms each farm is characterized by two dimensions of attributes farms size and conservation efficiency the policymaker may not be able to use the attributes as an explicit criterion for payments we characterize optimal policy when conservation efficiency is unobservable to policymakers and when farm size is also unobservable an income support goal is shown to reduce the conservation distortion caused by asymmetric information the cost of optimal green payment mechanisms is shown to depend crucially on whether large or small farms have greater conservation efficiency

least cost cheap food policies some implications of international food aid abstract many low income countries pursue cheap food policies in which consumers pay subsidized prices for bread rice and other staples this paper addresses the issue of why different governments select different food subsidy policies using multiple instruments rather than a simple across the board subsidy to provide consumers with access to cheap food it examines the optimal structure of cheap food policies in the context of a partial equilibrium model in which the country may be large in trade and is able to combine import subsidies or tariffs and output taxes or subsidies to transfer income to consumers through the market the model allows for a marginal opportunity cost of government revenues greater than one dollar in addition in the model food aid from overseas may be either given away to the consumer or given to the government for subsequent sale in the domestic market the results indicate that only by happenstance will a country choose to use a pure consumption subsidy or a pure import subsidy to transfer income to consumers in addition an increase in international food aid does not necessarily lead the government to reduce producer and consumer prices for a commodity

remittances and vulnerability to poverty in rural mexico international remittances have been portrayed as the human face of globalization given their potential to alleviate poverty by directly increasing household income using a panel of rural households in mexico from october 1998 to november 2000 this study assesses whether this is in fact the case however rather than examining whether transfers income would reduce future consumption poverty we asked if transfers are likely to reach people whose conditions are prone to worsen in the future we used vulnerability to consumption poverty to quantify the extent to which risks and the more permanent disadvantages embedded in most rural livelihoods can translate into future declines in well being we found contrary to our expectations a negative and statistically significant relationship between the remittance of transfers including foreign remittances and the threat to future poverty that rural households could experience

optimal conservation programs asymmetric information and the role of fixed costs an increasing number of environmental protection programs offers financial compensation to farmers in exchange for conservation services incentive compatible contracts can be designed to mitigate excess compensation but the extant literature suggests that outcomes are always second best so that other instruments such as conservation auctions may be preferred we argue that the claim regarding the first best solution never being incentive compatible is correct if all conservation costs are variable in nature if there are fixed costs too the first best compensation scheme may be incentive compatible after all given the relevance of fixed costs in conservation issues we conclude that incentive compatible contracts should be given a second chance as a policy measure to induce conservation

cost effectiveness of alternative green payment policies for conservation technology adoption with heterogeneous land quality this paper quantitatively analyses the cost effectiveness of alternative green payment policies designed to achieve a targeted level of pollution control by heterogeneous microunits these green payment policies include cost share subsidies that share the fixed costs of adoption of a conservation technology and or input reduction subsidies to reduce the use of a polluting input the paper shows that unlike a pollution tax that achieves abatement through three mechanisms a negative extensive margin effect a negative intensive margin effect and a technology switching effect a cost share subsidy and an input reduction subsidy are much more restricted in the types of incentives they provide for conservation of polluting inputs and adoption of a conservation technology to control pollution moreover they may lead to varying levels of expansion of land under production costs of abatement with alternative policies and implications for production and government payments are compared using a simulation model for controlling drainage from irrigated cotton production in california with drip irrigation as a conservation technology

welfare consequences of food prices increases evidence from rural mexico this paper presents an analysis of the welfare consequences of recent increases in food prices in mexico using micro level data we estimate a quaids model of demand for food using data collected to evaluate the conditional cash transfer program oportunidades we show how the poor have been affected by the recent increases and changes in relative prices of foods we also show how a conditional cash transfer program provides a means of alleviating the problem of increasing staple prices and simulate the impact of such a policy on household welfare and consumer demand we contrast this policy with alternative policy responses such as price subsidies which distort relative prices and are less well targeted

adverse selection in reverse auctions for ecosystem services this paper examines how auctions for ecosystem services introduce adverse selection limiting cost effectiveness induced value experiments test theory and examine the extent of adverse selection in these markets in comparison to the baseline of either doing nothing or the optimality of an externality correcting tax a discriminatory reverse auction and two screening contracts are tested in limited budget situations the auction achieved the lowest social surplus while screening contracts that rely upon the government observing the development value yield the highest relative social surplus these results are important because recent environmental policy trends are focused on expanding fiscally costly reverse auctions jel q57 q58

risk and insurance in village india comment the protection of poor households in high risk agrarian economies from shocks to their incomes has often been seen as a compelling motive for various forms of policy intervention including transfers of cash or food credit subsidies and public employment schemes for a survey see lipton and ravallion 1995 the desirability of such safety net policies clearly depends on how well pre existing risk sharing arrangements work while it is commonly thought that without effective policy intervention rural households are vulnerable to village wide shocks such as adverse prices or poor rains it is less clear to what extent risk sharing institutions within the village mitigate the effects of idiosyncratic income risk stemming for instance from ill health or localized crop damage 2 several recent papers have used household level data to implement tests of risk sharing that might inform such concerns 3 these tests are based on the proposition that with perfect risk sharing consumption at the household level should be insured against idiosyncratic risks and thus depend solely on the realization of the aggregate risk wilson 1968 diamond 1967 townsend 1994 tests this implication of perfect intra village risk sharing using longitudinal household data on consumptions and incomes for three villages in india he reports that the full insurance hypothesis provides a surprisingly good benchmark in that household consumptions co move and do not appear to be much influenced by contemporaneous own income our aim here is to examine the robustness of this potentially important finding we have two main concerns the first is that the specification townsend adopts potentially biases his test towards the null hypothesis of full insurance because it yields inconsistent estimates of the key test parameter under a plausible alternative we therefore estimate a different specification that generates consistent estimates under both the null and the alternative our second concern is that a particular form of measurement error in the consumption data townsend uses may have further biased his results toward the null hypothesis of full insurance to address this concern we use an instrumental variables procedure when we implement the test of consumption insurance with townsend s consumption data we also re estimate the test equations with a measure of consumption derived from the same underlying primary data by an alternate method finally townsend reports 1discussions with robert townsend stimulated our interest in this investigation the staff of the

the goals of u s agricultural policy a mechanism design approach this article examines motivations underlying the government s choice of alternative policy mechanisms for subsidizing agriculture optimal policies are analyzed for three government objectives one where the government wishes to ensure a minimum level of net income for all farmers a second where the government s only concern is to transfer income from consumers and taxpayers to the farm sector and a final augmented income transfer objective the analysis offers an explanation for agricultural policy mechanisms that involve overproduction by high cost producers relative to a free market equilibrium such a distortion might arise from the existence of nonmarket values for the production of relatively high cost farmers in the government s objective

dynamic price competition with capacity constraints and a strategic buyer we analyze a simple dynamic durable good model two incumbent sellers and potential entrants choose their capacities at the start of the game we solve for equilibrium capacity choices and the necessarily mixed pricing strategies in equilibrium the buyer splits the order with positive probability to preserve competition making it possible that a high and low price seller both have sales sellers command a rent above the value of unmet demand by the other seller a buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

judging agricultural policies a survey this survey provides a structured picture of 40 years of literature which uses welfare economic tools to judge agricultural policy challenges and developments of normative agricultural policy analysis are discussed in an easily accessible graphical framework it is shown how the literature has gone from examining a very small discrete set of simple policies to a much broader often continuous set of policies that combine policy instruments simultaneously the importance of the pareto criterion used to explore the limits of how government can affect welfare is revealed moreover given the importance of the objective of income redistribution in agricultural policy agricultural economists have often departed from the purely efficiency oriented tradition in economics it is shown that they have tried to incorporate equity considerations by either adding these criteria as constraints to the social welfare function or directly incorporating these criteria in the functional form of the social welfare function

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

should we pay for ecosystem service outputs inputs or both payments for ecosystem service outputs have recently become a popular policy prescription for a range of agri environmental schemes the focus of this paper is on the choice of contract instruments to incentivise the provision of ecosystem service outputs from farms the farmer is better informed than the regulator in terms of hidden information about costs and hidden actions relating to effort the results show that with perfect information the regulator can contract equivalently on inputs or outputs with hidden information input based contracts are more cost effective at reducing the informational rent related to adverse selection than output based contracts mixed contracts are also cost effective especially where one input is not observable such contracts allow the regulator to target variables that are costly to fake as opposed to those prone to moral hazard such as effort further results are given for fixed price contracts and input based contracts with moral hazard the model is extended to include a discussion of repeated contracting and the scope that exists for the regulator to benefit from information revealed by the initial choice of contract the models are applied to a case study of contracting with farmers to protect high biodiversity native vegetation that also provides socially valuable ecosystem services

the effects of rising food prices on poverty in mexico we evaluate the impact of the rise in food prices during 2006 2008 on the poverty and extreme poverty rates in mexico we concentrate on the poor s consumption of staple foods and analyze the change in their consumption brought about by changed prices we also allow households receiving income from the farming and livestock sector to benefit from increases in prices of food products we find a modest increase in poverty using 2006 2007 prices however there is a daunting effect on the poor once the 2008 prices are taken into account after considering the positive effects of public policies announced in 2008 such as reduced taxes and tariffs on food products and greater subsidies to the extremely poor the poverty rate measured through consumption increases from 25 to 33 5 and the extreme poverty rate from 10 58 to 16 given the increase in food prices further analysis using the theory of optimal taxes suggests policies oriented towards relieving the food price pressure on the mexican poor should aim at lowering the prices of eggs vegetable oil milk and chicken

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

on reducing the windfall profits in environmental subsidy programs investment subsidies are widely used to induce adoption of new technologies that can lower the marginal cost of reducing emissions to economize on these subsidies governments would like to distinguish between firms that need to receive a subsidy to adopt a new technology and firms that would adopt that technology even without subsidies we show that policies consisting of a menu of emission taxes and investment subsidies can potentially induce firms to self select

market power and price movements over the business cycle this paper develops and tests implications of an oligopoly pricing model the model predicts that during a demand expansion the short run competitive price is a pure strategy nash equilibrium but in a recession firms set prices above the competitive price thus price markups over the competitive price are countercyclical prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions the empirical analysis utilizes hamilton s time series switching regime filter to test the predictions of the model fourteen out of fifteen industries have fluctuations consistent with this oligopoly pricing model

implementing second best environmental policy under adverse selection abstract a key obstacle to practical application of mechanism design theory to regulation is the difficulty of obtaining consistent beliefs regarding information that theoretical models assume to be commonly held this article presents a solution to this problem by developing an easily implemented empirical methodology with which the government can use available data to develop beliefs regarding the technology and distribution of types in a regulated sector characterized by hidden information results are used to calibrate a second best land conservation mechanism and evaluate its cost relative to simpler alternatives

market making oligopoly this paper analyzes price competition between market makers who set costly capacity constraints before they intermediate between producers and consumers the unique equilibrium outcome with pure strategies at the capacity stage is the cournot outcome the paper thus provides a rationale for cournot type competition between market makers this contrasts with previous findings in the literature where due to the absence of capacity constraints that are set ex ante the bertrand result typically obtains

the effect of conservation priority areas on bidding behavior in the conservation reserve program we explore how a landowner s bid to enroll in the conservation reserve program crp is influenced by his parcel s designation as a conservation priority area cpa a theoretical model of a landowner s optimal bid is presented and we demonstrate the ambiguity in a landowner s optimal bid response to cpa designations the bid choice is analyzed using a data set of accepted and unaccepted offers during three crp sign up periods we focus empirically on a subset of offers from the prairie pothole cpa to identify whether bid responses to exogenous location factors differ across landowners with varying opportunity costs to enrollment jel q15 q18

an analysis of sample attrition in panel data the michigan panel study of income dynamics by 1989 the michigan panel study on income dynamics psid had experienced approximately 50 percent sample loss from cumulative attrition from its initial 1968 membership we study the effect of this attrition on the unconditional distributions of several socioeconomic variables and on the estimates of several sets of regression coefficients we provide a statistical framework for conducting tests for attrition bias that draws a sharp distinction between selection on unobservables and on observables and that shows that weighted least squares can generate consistent parameter estimates when selection is based on observables even when they are endogenous our empirical analysis shows that attrition is highly selective and is concentrated among lower socioeconomic status individuals we also show that attrition is concentrated among those with more unstable earnings marriage and migration histories nevertheless we find that these variables explain very little of the attrition in the sample and that the selection that occurs is moderated by regression to the mean effects from selection on transitory components that fade over time consequently despite the large amount of attrition we find no strong evidence that attrition has seriously distorted the representativeness of the psid through 1989 and considerable evidence that its cross sectional representativeness has remained roughly intact

agri environmental policies for biodiversity when the spatial pattern of the reserve matters the aim of this paper is to compare different environmental policies for cost effective habitat conservation on agricultural lands when the desired spatial pattern of reserves is a random mosaic we use a spatially explicit mathematical programming model which studies the farmers behavior as profit maximizers under technical and administrative constraints facing different policy measures each farmer chooses the land use on each field which determines the landscape at the regional level a spatial pattern index ripley l function is then associated to the obtained landscape indicating on the degree of dispersion of the reserve we compare a subsidy per hectare of reserve with an auction scheme and an agglomeration malus we find that the auction is superior to the uniform subsidy for cost efficiency the agglomeration malus does better than the auction for the spatial pattern but is more costly

reconsidering agri environmental policy permitted by the uruguay round agreement agri environmental policies are increasingly being used to redress the balance between jointly produced agricultural and environmental outputs and are permitted by the uruguay round ur agreement with the general provision that they not distort trade in this paper we argue that any market consequences of efficient welfare enhancing agri environmental policies should not be considered trade distorting to consider them so is inconsistent with economic efficiency and with ecological integrity social cost benefit analysis cba is a more appropriate test and guide of trade consistency for agri environmental policies and using trade effects as the test may not enhance social welfare moreover specific provisions in the ur agreement restricting payments under agri environmental policies to opportunity costs are not warranted on economic efficiency grounds and consign the environment to a status subsidiary to agricultural output

conditional cash transfers the case of progresa oportunidades conditional cash transfer cct programs innovate by conditioning transfers to poor families on investments in the human capital of children and other family members the mexican cct program progresa oportunidades began in 1997 and has served as a model for many of the now over sixty countries with ccts around the world in large part due to its initial evaluation with an experimental design and numerous follow up studies this article reviews the literature on the development evaluation and findings of progresa oportunidades summarizing what is known about program effects taking into account corrections for multiple hypothesis testing

do conditional cash transfers reduce household vulnerability evidence from progresa oportunidades in the 2000s abstract a number of researchers and policymakers have revealed the short and medium term impacts of conditional cash transfer cct programs however accumulation of full scale evaluations of their long term impact is ongoing to contribute to filling the gap this study empirically examines the vulnerability of rural households in mexico and how cct has recently impacted them using two mexican rural household panel datasets from the 2000s i adopt kurosaki s 2006 version of townsend s 1994 risk sharing model with instrumental variable methods which enables a greater focus on household welfare decline the empirical results confirm that cct played a certain role in reducing household vulnerability in the 2000s however considering the situation after the global crisis in 2008 and the exact mechanism through which this occurs remains subject to further examination

an incentive approach to land set aside programs abstract this paper is devoted to a theoretical analysis of policies aiming at reducing the supply of agricultural produce through contractual or mandatory land set aside the model relies on contract theory under adverse selection it allows us to evaluate the impact of asymmetric information about yields on the optimal price support policy and on land set aside specifically we analyze an optimal contractual policy consisting of a subsidy system which makes transfers dependent on the set aside area and a policy of mandatory land set aside applying uniformly to all farms and ignoring incentive constraints numerical simulations allow us to assess and compare the respective effects of these policies

market design and investment incentives the purpose of this study was to understand how market design affects market performance through its impact on investment incentives for this purpose we model capacity choices by two ex ante identical firms which compete in the product market we analyse a number of different market design elements including i two commonly used auction formats the uniform price and discriminatory auctions ii price caps and iii bid duration we find that although the discriminatory auction tends to lower prices this does not imply that investment incentives at the margin are poorer indeed aggregate capacity is the same under both auction formats

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

endogenous leadership in a new market in this article i analyze strategic investment under uncertainty in a new market where firms face a tradeoff between commitment and flexibility the model predicts asymmetric equilibria under fairly general conditions even though firms are ex ante identical and have symmetric opportunities to enter the market in equilibrium one firm commits to early investment and the other firm follows a wait and see strategy in the ex post outcome firms end up with asymmetric sizes if the market profitability turns out close to or lower than expected firms end up in symmetric position if the market turns out highly profitable if uncertainty is small the model yields approximately stackelberg outcomes

incentives for wetland creation abstract when information about soil quality is complete wetland creation with a take it or leave it contract which specifies wetland size and transfer yields higher social benefits than if a uniform contract which offers a payment proportional to the wetland size had been used this result points to a paradox because uniform contracts have been used a lot in practice this article concentrates on the presence of asymmetric information about soil quality as a possible explanation for this paradox it shows that the choice of instrument for wetland creation has welfare implications different contracts typically yield quite different social welfare surpluses and distribution between interest groups it is not obvious which of four contracts studied dominates when a farm characteristic affecting costs is unknown to the social planner the probability distribution of the characteristic the size of the excess burden the elasticity of costs and benefits to wetland size and the cost of acquiring missing information influence the outcome

the economics of a public fund for environmental amenities a study of crp contracts the problem of targeting crp purchases to buy environmental amenities under productivity and environmental heterogeneity is considered gini coefficients and lorenz curves are used to measure the effectiveness of spending under alternative targeting criteria the environmental benefits considered are water erosion wind erosion surface water quality and wildlife habitat the three alternative targeting criteria examined include purchasing land according to i the benefit to cost ratio ii the level of benefits and iii the level of cost results indicate that the degree of variability and correlation determine the extent to which suboptimal targeting achieves a significant portion of available environmental benefits

implementable ramsey boiteux pricing in agricultural and environmental policy agricultural producers frequently face price discrimination that is based either on characteristics of their products or on the physical manner in which the product is produced we consider how to set such discriminatory prices optimally and show that for a very broad range of production technologies the first best voluntary policy which involves a modified version of ramsey boiteux pricing is implementable even in the presence of hidden knowledge by farmers about their types

transaction costs in payment for environmental service contracts citation jeffrey m peterson craig m smith john c leatherman nathan p hendricks john a fox transaction costs in payment for environmental service contracts american journal of agricultural economics volume 97 issue 1 1 january 2015 pages 219 238 https doi org 10 1093 ajae aau071

optimal environmental regulation of politically influential sectors with asymmetric information abstract politically motivated subsidies can have undesired environmental consequences asymmetric information regarding firm productivity constrains the government s ability both to redistribute income and control emissions taking political and information constraints as given this article characterizes a social welfare maximizing policy the optimal policy uses a single instrument to achieve both goals making income support subsidies contingent upon pollution reduction price variation allows the government to design contracts with countervailing incentives potentially eliminating some firms information advantage

additionality when redd contracts must be self enforcing this paper examines self enforcing contracts as a financial mechanism for reducing carbon emissions from deforestation and forest degradation when the opportunity cost of the land i e landholder type is private information and is imperfectly correlated over time i e partially persistent types because self enforcement limits the feasible incentives the conservation levels are constrained by the surplus created regardless of the degree of persistence of such opportunity costs across contracting periods a first best self enforcing contract can deliver additional carbon sequestration beyond the business as usual scenario only if the value of forest conservation is sufficiently high otherwise self enforcing contracts can induce some suboptimal level of carbon sequestration the degree of persistence of opportunity costs across periods does not affect the amount of total payments provided in the optimal menu of contracts but greater persistence of opportunity cost types leads to contracts that feature more of the total payment as a bonus in contracts for landholders with a high opportunity cost for their land and more of the total payment as an upfront fixed payment for landholders with a low opportunity cost

capacity dynamics and endogenous asymmetries in firm size empirical evidence suggests that there are substantial and persistent differences in the sizes of firms in most industries we propose a dynamic model of capacity accumulation that is consistent with the observed facts the model highlights the mode of product market competition and the extent of investment reversibility as key determinants of the size distribution of firms in an industry in particular if firms compete in prices and the rate of depreciation is large then the industry moves toward an outcome with one dominant firm and one small firm industry dynamics in this case resemble a preemption race contrary to the usual intuition this preemption race becomes more brutal as investment becomes more reversible

voluntary environmental agreements good or bad news for environmental protection abstract there has been growing interest in the use of voluntary agreements vas as an environmental policy tool this article uses a simple model to determine whether vas are likely to lead to efficient environmental protection we consider cases where polluters are induced to participate either by a background threat of mandatory controls the stick approach or by cost sharing subsidies the carrot approach the results suggest that the overall impact on environmental quality could be positive or negative depending on a number of factors including the allocation of bargaining power the magnitude of the background threat and the social cost of funds