how to best ensure remuneration for creators in the market for music copyright and its alternatives the focus of this essay is to examine the market for copyrighted works with a particular emphasis on the sound recording market this market is currently in a state of flux some would say disarray due to the ability of the internet to lower transmission costs for both authorized and unauthorized copies with the latter being at this time far more prevalent in this essay we discuss the intent of copyright the role of copying and file sharing and some alternative production consumption schemes meant to strengthen or to replace copyright

effects of piracy on quality of information goods it is commonly believed that piracy of information goods leads to lower profits which translate to lower incentives to invest in innovation and eventually to lower quality products manufacturers policy makers and researchers all claim that inadequate piracy enforcement efforts translate to lower investments in product development however we find many practical examples that contradict this claim therefore to examine this claim more carefully we develop a rigorous economic model of the manufacturer s quality decision problem in the presence of piracy we consider a monopolist who does not have any marginal costs but has a product development cost quadratic in the quality level produced the monopolist faces a consumer market heterogeneous in its preference for quality and offers a quality level that maximizes its profit we also allow for the possibility that the manufacturer may use versioning to counter piracy we unexpectedly find that in certain situations lower piracy enforcement increases the monopolist s incentive to invest in quality we explain the reasons and welfare implications of our findings this paper was accepted by lorin hitt information systems

product and price competition in a duopoly this paper examines the role of consumer preferences costs and price competition in determining the competitive product strategy of a firm in the model studied here there are two identical firms competing on product quality and price they face consumers who prefer a higher quality product to a lower quality product but differ in how much they are willing to pay for quality the consumers can also choose a substitute if they don t like the product price offerings of the two firms for the firms a higher quality product costs more to produce than a lower quality product the paper shows that the equilibrium strategy for each firm should be to differentiate its product from its competitor with the firm choosing the higher quality choosing the higher margin as well this differentiation however is not efficient that is it is possible to choose two other products and offer them at prices that cover their marginal cost and still satisfy consumers needs better in the aggregate a monopolist by contrast would differentiate his product line efficiently this suggests that cannibalization has different effects on product strategy than competition the paper also shows that if one firm enters the market first then it can defend itself from later entrants and gain a first mover advantage by preempting the most desirable product position

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

optimal timing of sequential distribution the impact of congestion externalities and day and date strategies the window between a film s theatrical and video releases has been steadily declining with some studios now testing day and date strategies i e when a film is released across multiple channels at once we present a model of consumer choice that examines trade offs between substitutable products theatrical and video forms the possibility of purchasing both alternatives a congestion externality affecting consumption at theaters with heterogeneous consumer groups and a decay in the quality of the content over time our model permits a normative study of the impact of shorter release windows zero three months for which there is a scarcity of relevant data we characterize the market conditions under which a studio makes video release time and price selections indicative of direct to video day and date and delayed video release tactics during seasons of peak congestion we establish that day and date strategies are optimal for high quality films with high content durability i e films whose content tends to lead consumers to purchase both alternatives whereas prices are set to perfectly segment the consumer market for films with low content durability we find that lower congestion effects provide studios with incentives to delay release and price the video to induce multiple purchasing behavior for films with higher content durability however an increase in congestion effects can in certain cases actually lead to higher studio profitability we also show that at the lower range of quality an increase in movie quality should often be accompanied by a later video release time surprisingly however we observe the opposite result at the upper range of movie quality an increase in quality can justify an earlier release of the video

research notesell first fix later impact of patching on software quality we present a model of fixing or patching a software problem after the product has been released in the market specifically we model a software firms trade off in releasing a buggy product early and investments in fixing it later just as the marginal cost of producing software can be effectively zero so can the marginal cost of repairing multiple copies of defective software by issuing patches we show that due to the fixed cost nature of investments in patching a software vendor has incentives to release a buggier product early and patch it later in a larger market thus a software monopolist releases a product with fewer bugs but later than what is socially optimal we contrast this result with physical good markets where market size does not play any role in quality provision we also show that for comparable costs a software monopolist releases the product with more bugs but invests more in post patching support later than the physical good monopolist

digital content provision and optimal copyright protection advances in digital technologies have led to an increasing concern about piracy for providers of digital content e g e books games music software videos yet controversies exist over the influence of copyright protection on firm profitability the objective of this paper is to provide an alternative rationale for the growing anti protection trend and to investigate optimal copyright enforcement and quality provision in a monopoly setting the proposed economic mechanism centers on the influence of copyright protection on consumer search when consumers can get to know the firm s actions e g price quality only after costly search we show that more stringent copyright protection can induce the consumers to rationally expect lower ex post surplus thus exerting a negative strategic effect on the consumers willingness to search this strategic effect may outweigh the positive main effect on the relative attractiveness of the authorized versus the pirated product which can hence explain the opti

software piracy an analysis of protection strategies software piracy by users is generally believed to harm both software firms through lower profits and buying customers through higher prices thus it is thought that perfect and costless technological protection would benefit both firms and consumers the model developed here suggests that in some circumstances even with significant piracy not protecting can be the best policy both raising firm profits and lowering selling prices key to the analysis is joining the presence of a positive network externality with the fact that piracy increases the total number of program users the network externality exists because consumers have an incentive to economize on post purchase learning and customization costs

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

analysis of protection and pricing strategies for digital products under uncertain demand abstract we analyze pricing and protection digital rights management strategies in a two echelon supply chain that consists of a manufacturer and a retailer of digital products the demand for the legal non pirated product which depends on both price and monetary investment in protection is assumed to be uncertain three different supply chain models are analyzed manufacturer stackelberg retailer stackelberg and vertical integration we show that the retailer s utility function has no effect on the equilibrium strategies and suggest schemes to find these strategies for any utility function of the manufacturer further results are obtained under assumptions of either a multiplicative or an additive demand model we study the players strategies under different profit criteria reflecting different attitudes toward risk specifically the expectation criterion and the target criterion and for each criterion we obtain the dependence between the pricing and the protection investment we show that there are situations in which the manufacturer can increase his profit by giving up his leadership to the retailer even if the power balance is in his favor

economic and policy implications of restricted patch distribution in this paper we study how restricting the availability of patches to legal users impacts the vendor s profits market share software maintenance decisions and welfare outcomes prior work on this topic assumes that the hacker s effort is independent of the vendor s decision to release the patch freely or not clearly if the patch is not available to everyone the hacker finds it easier to exploit the vulnerability in the product and as a result is likely to alter his effort to understand the role of a strategic hacker we build a game theoretic model where the hacker s decision is endogenous with this model we find that the hacker s effort may on the one hand decrease the utility that the vendor can extract from the consumers but on the other hand may help differentiate the legal version of the product from the pirated version a vendor can strategically exploit the hacker s behavior in its pricing and software maintenance decisions the endogeneity of the hacker s actions drives several of

software piracy a strategic analysis and policy instruments abstract we examine the government s role in restricting commercial piracy in a software market welfare maximization may or may not result in monitoring as the socially optimal outcome correspondingly either monopoly situation or market sharing between an original firm and a pirate are subgame perfect equilibria if it is profitable for a monopolist to prevent piracy by installing a protective device then not monitoring is the equilibrium we also discuss the effects of network externalities in addition to deriving the effects of changes in the reliability of the pirated software and network benefits on the policy variables the extent of piracy and the monopolist s incentive to prevent piracy

information goods vs industrial goods cost structure and competition we study markets for information goods and find that they differ significantly from markets for traditional industrial goods markets for information goods in which products are vertically differentiated lack the segmentation inherent in markets for industrial goods as a result a monopoly will offer only a single product competition leads to highly concentrated information good markets with the leading firm behaving almost like a monopoly even with free entry and without network effects we study how the structure of the firms cost functions drives our results this paper was accepted by barrie r nault information systems

an unobserved components model that yields business and medium run cycles we generalize the unobserved components uc model to allow the permanent component to have different dynamics than the transitory components when decomposing u s economic activity using a multivariate uc model of log output consumption and investment we find that these proposed dynamics in the permanent component are statistically significant and distinct from those of the transitory components our approach provides an alternative explanation for the growth cycles identified by comin and gertler 2006 that is related to the cyclical movements in technology in a framework consistent with the beveridge and nelson 1981 decomposition

natural resources aid and democratization a best case scenario natural resources and aid give dictators revenue to maintain power attempts are being made therefore to funnel these resources away from nondemocratic governments and toward their citizens using formal analysis and building on existing theories of democratization i analyze the effects of such institutional solutions when they function perfectly the best case scenario the models show that even with institutional safeguards these resources diminish chances for democratization in addition to their practical importance the results have an important theoretical implication the political resource curse may not be due to dictators use of these resources but simply to their existence in nondemocracies

digital piracy a competitive analysis in recent years the issue of copyright protection for intellectual properties such as computer software music cds and videos has become increasingly important it is often claimed that illegal copying of intellectual property costs companies billions of dollars in lost revenues and reduces firms incentives to innovate some researchers have shown that copying can be beneficial to firms when there are strong network effects and copying expands the market in this paper we first examine the impact of illegal copying of software and other similar intellectual properties on firms prices profits and quality choices even when there are no network effects and the market is saturated we show that contrary to the claims of manufacturers there are conditions under which copying can increase firms profits lead to better quality products and increase social welfare this is because weaker copyright protection enables firms to reduce price competition by allowing price sensitive consumers to copy thus weaker copyright protection can serve as a coordination device to reduce price competition we also examine how equilibrium copyright enforcement is affected by network externalities in contrast to previous research we show that strong network effects can sometimes lead to a firm choosing higher levels of copyright protection our results show that in the presence of strong network effects stronger copyright enforcement by one firm can serve as a coordinating device to reduce price competition

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

the effects of increased copyright protection an analytic approach previous authors who have considered partially nonexcludable goods have claimed that an increase in copyright protection will have the following two effects on social welfare first it will decrease the social welfare loss due to underproduction second it will increase the social welfare loss due to underutilization in this paper we investigate these claims in a formal setting by analyzing a model in which consumers vary only in terms of their costs of obtaining a reproduction our analysis provides partial support to the first claim of these previous authors while giving little or no support to the second claim

nonlinear pricing of information goods this paper analyzes optimal pricing for information goods under incomplete information when both unlimited usage fixed fee pricing and usage based pricing are feasible and administering usage based pricing may involve transaction costs it is shown that offering fixed fee pricing in addition to a nonlinear usage based pricing scheme is always profit improving in the presence of nonzero transaction costs and there may be markets in which a pure fixed fee is optimal this implies that the optimal pricing strategy for information goods is almost never fully revealing moreover it is proved that the optimal usage based pricing schedule is independent of the value of the fixed fee a result that simplifies the simultaneous design of pricing schedules considerably and provides a simple procedure for determining the optimal combination of fixed fee and nonlinear usage based pricing the introduction of fixed fee pricing is shown to increase both consumer surplus and total surplus the differential effects of setup costs fixed transaction costs and variable transaction costs on pricing policy are described these results suggest a number of managerial guidelines for designing pricing schedules for instance in nascent information markets firms may profit from low fixed fee penetration pricing but as these markets mature the optimal pricing mix should expand to include a wider range of usage based pricing options minimum fees quantity discounts and adoption levels across the different pricing schemes are characterized strategic pricing responses to changes in market characteristics are described and the implications of the paper s results for bundling and vertical differentiation of information goods are discussed

the intertemporal consequences of unauthorized reproduction of intellectual property in an intertemporal framework the harm to firms from unauthorized reproduction of their products may be significantly greater than that predicted by most static models copying by some consumers reduces the appropriable surplus from all consumers including those consumers lacking any propensity to copy somewhat paradoxically however the commitment value of copies may also imply that profits are higher with copying than without copying it is therefore suggested that firms may prefer differential copyright enforcement and that the commitment value of copies may offer a strategic explanation for free giveaways of abridged versions of intellectual property and vertical product differentiation more generally

commercial piracy and intellectual property policy abstract i discuss the competition between a copyright owner and several commercial pirates who sell copies of the same information good to consumers i view the increased risk of a punishment that offering a pirate copy to a consumer causes as an advertising cost whose value is chosen by the government the structure of the market for pirate copies is affected also by fixed costs that are caused by punishments or drm systems i present a systematic analysis of the effects of these policy variables and the quality of pirate copies on the market for the considered information good

the effect of piracy on the market penetration of subscription software software piracy is not necessarily harmful to a software firm seeking to launch a new product when strategically managed through the use of price and protection measures piracy establishes the initial adopters of the software who in turn influence other users to buy the product we examine the role of piracy in affecting the adoption of subscription software products we present an individual level model in an adaptive population setting intended to determine the price protection mix that maximizes the discounted profit stream over the life of the software an extension for nonsubscription software is also discussed

ethnic diversity civil war and redistribution in a game theoretic framework we analyse the circumstances under which self enforcing redistribution and power sharing coalitions can be used to peacefully resolve ethnic conflict the existence of a pacific equilibrium depends crucially on ethnic diversity the number of ethnic groups the risk of civil war is comparatively high at intermediate levels of ethnic diversity the risk is low if a society is either very homogeneous or very diverse predictions of the model are consistent with evidence on the incidence of civil war

comovement in gdp trends and cycles among trading partners abstract it has long been recognized that business cycle comovement is greater between countries that trade more intensively with one another however nations face shocks to both the cyclical and trend components of their gdp series contrary to the result for cyclical fluctuations we find comovement of shocks to the trend component of real gdp is weaker among countries that trade more intensively with one another we simulate changes in ten year output growth correlations corresponding to the estimated effects of trade and show that the impact of trade on trend comovement is quantitatively more important than its effect on cyclical comovement

can repressive regimes be moderated through foreign aid in what circumstances should foreign aid be given to less developed countries with repressive rulers repressive rulers are assumed to control the national income and to trade it against the probability of staying in office which is assumed in turn to depend positively on popular wealth and repression a foreign donor aware of this process of optimization will pursue his international objectives by attaching conditions to his aid that alter the relative price of repression and popular wealth in the calculations of the tyrant the effectiveness of direct and in kind aid and the desirability of a carrot an stick aid policy depend on the direct and the interactive effects that popular wealth repression and the parameters of economic growth exert on the regime s stability and its level of income

how to pay for the peace a theoretical framework with references to african countries this paper analyses a simple game theoretic model to highlight the choice of the government between raising its defence expenditures or giving away some gifts to his opponents as a means to defend his position in power if the government is a cournot nash player then there is no gift in equilibrium and any increase in the budget will lead to more inefficient defence expenditures however if the government is a stackelberg leader then he will use the gift as a tool in his policy for staying in power

not by the sword alone soft power mass media and the production of state sovereignty scholars of civil conflict have long recognized the importance of state strength in the suppression of nascent insurgencies however previous empirical investigations have generally focused on the material and coercive dimensions of state power obscuring the critical role played by the generation of widespread voluntary compliance through processes of political communication that is the production of soft power in contrast in this article i focus on a factor mass communication technology that can enhance state capacity only by strengthening the state s ability to broadly and publicly disseminate political messages i argue that the enhanced capacities for large scale normative influence generated by mass communication technologies can be expected to produce substantial barriers to the mobilization of militarized challenges to state rule by strengthening economies of scale in the marketplace of ideas utilizing newly compiled cross national data on mass media accessibility in the post world war ii period i show that densely constituted mass media systems dramatically reduce the probability of large scale civil violence thereby providing new evidence for the fundamental importance of nonmaterial state capacities in the suppression of internal armed conflicts

nonlinear permanent temporary decompositions in macroeconomics and finance we suggest a method of decomposing univariate and multivariate nonlinear processes into their permanent and temporary components extending the analysis of beveridge and nelson 1981 and stock and watson 1987 we provide applications in the univariate nonlinear case to recent work on nonlinearities in the us business cycle and in the multivariate nonlinear case to recent work on asymmetric nonlinear adjustment in the term structure of interest rates for the us the business cycle results suggest that the method may be particularly useful in future research on output fluctuations

parallel imports challenges from unauthorized distribution channels we examine the problem of parallel imports unauthorized flows of products across countries which compete with authorized distribution channels the traditional economics model of a discriminating monopolist that has different prices for the same good in different markets requires the markets to be separated in some way usually geographically the profits from price discrimination can be threatened by parallel imports that allow consumers in the high priced region some access to the low priced marketplace however as this article shows there is a very real possibility that parallel imports may actually increase profits the basic intuition is that parallel importation becomes another channel for the authentic goods and creates a new product version that allows the manufacturer to price discriminate we propose a two country three stage model to quantitatively study the effects and strategies in the third stage and in the higher priced country where parallel imports have entered we characterize the resulting market segmentation one segment of consumers stays with the authorized version as they place more value on the warranty and services that come with the authorized version another segment switches to parallel imports because a lower price is offered due to lack of country specific features or warranties parallel imports also generate a third and new segment that would not have bought this product before unlike counterfeits that are fabricated by imitators all parallel imports are genuine and sourced from the manufacturer in the lower priced country through authorized dealers therefore the manufacturer s global sales quantity should increase but profit may rise or fall depending on the relative sizes and profitability of the segments a profit maximizing parallel importer should set price and quantity in the second stage after observing the manufacturer s prices in both countries there will be a threshold of across country price gap above which parallel imports would occur in the first stage the manufacturer can anticipate the possible occurrence of a parallel import its price and quantity and its effect on authorized sales in each country to make a coordinated pricing decision to maximize the global supply chain profit under some circumstances the manufacturer should allow parallel imports and under others should prevent them through a stackelberg game we solve for the optimal pricing strategy in each scenario we then find in one extension that when the number of parallel importers increases the optimal authorized price gap should narrow but the prices and quantities of parallel imports may rise or fall in another extension we nd that when the manufacturer has other means such as monitoring dealers differentiating designs and unbundling warranties to contain parallel imports the authorized price gap can widen as a function of the effectiveness of nonpricing controls in summary parallel imports may help the manufacturer to extend the global reach of its product and even boost its global profit if the manufacturer offers a discount version through its authorized dealers it is running a high risk of confusing customers and tarnishing brand images parallel imports may cause similar concerns for the manufacturer but unauthorized dealers are perceived as further removed from the manufacturer therefore there is less risk of confusing consumers when parallel imports are channeled through unauthorized dealers furthermore they are more nimble in diverting the product whenever their transshipment and marketing costs are small enough not to offset the authorized price gap and the valuation discount this may explain why some manufacturers fiercely fight parallel imports while others knowingly use this alternative channel

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

international transmission of business cycles evidence from dynamic correlations abstract we exploit dynamic correlations to estimate determinants of output comovement between oecd countries trade intensity financial integration and specialization patterns have significantly different effects on comovements at different frequencies this sheds more light on previous results based on statistical filters

market for software vulnerabilities think again software vulnerability disclosure has become a critical area of concern for policymakers traditionally a computer emergency response team cert acts as an infomediary between benign identifiers who voluntarily report vulnerability information and software users after verifying a reported vulnerability cert sends out a public advisory so that users can safeguard their systems against potential exploits lately firms such as idefense have been implementing a new market based approach for vulnerability information the market based infomediary provides monetary rewards to identifiers for each vulnerability reported the infomediary then shares this information with its client base using this information clients protect themselves against potential attacks that exploit those specific vulnerabilities the key question addressed in our paper is whether movement toward such a market based mechanism for vulnerability disclosure leads to a better social outcome our analysis demonstrates that an active unregulated market based mechanism for vulnerabilities almost always underperforms a passive cert type mechanism this counterintuitive result is attributed to the market based infomediary s incentive to leak the vulnerability information inappropriately if a profit maximizing firm is not allowed to or chooses not to leak vulnerability information we find that social welfare improves even a regulated market based mechanism performs better than a cert type one but only under certain conditions finally we extend our analysis and show that a proposed mechanism federally funded social planner always performs better than a market based mechanism

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

trading higher software piracy for higher profits the case of phantom piracy faced with the sustained problem of piracy that costs nearly 40 billion in annual revenue losses the software industry has adopted a number of technical legal and economic strategies to curb piracy and stem the resulting losses our work complements and contributes to the existing literature by exploring the possible effect of another economic lever product bundling on the relationship governing piracy and seller profits the traditional economic rationale of demand pooling from bundling that enables sellers to extract higher surplus and its particular attractiveness for information goods with negligible marginal and bundling costs carry over to our analysis however the presence of piracy injects several new facets to our analysis bundling creates a shared level of piracy of disparate products and under certain conditions to the detriment of one of the products we argue that by construction of the copyright laws the act of bundling itself can have a deterrence effect this deterrence effect alo

money output and inflation in the longer term major industrial countries 1880 2001 i introduction the empirical role of money growth in the macroeconomy has been studied by many researchers using different data and methods the most prominent studies focusing on the quantity theory of money are those of friedman and schwartz 1963 1982 using data averaged over the phases of the business cycle in order to capture longer run movements with u s and u k data back to 1867 the study by mccandless and weber 2001 is a representative example for a different approach for 110 countries in the post wwii period longer run growth rates are approximated by growth of a variable over a 30 year period average growth rates 1 the problem with phase averaging is that it does not deal with possible nonstationarity of the data 2 the problem with growth averages over long periods while informative to a degree is that they have limitations too it is impossible to assess the timing of movements in these variables 3 in the frequency domain the long run is associated with frequency zero which in our terminology is the long run trend previous studies in the frequency domain on the long run neutrality of money at zero frequency include the studies of lucas 1980 and geweke 1986 the theory of spectral analysis provides a rigorous framework for extracting specific frequency bands from the data instead of considering only frequency zero stock and watson 1998 applied the band pass filter of baxter and king 1999 to extract cycles frequency bands for u s data and focused on the business cycle and on mostly the post wwii period christiano and fitzgerald 2003 proposed an improved band pass filter and provided an application to the longer run relation of money and inflation for bands of 8 20 years and 20 40 years in the united states from 1900 to 1997 4 the usefulness of monetary aggregates for conducting monetary policy has been seriously called into question because of the instability of money demand a prominent empirical study is that of estrella and mishkin 1997 recent mainstream new keynesian models have no explicit role for money woodford 2008 a contrasting view is that the longer term role of money is still of relevance for monetary policy the european central bank explicitly emphasizes a supporting role that monetary aggregates should play in order to provide an anchor for inflation expectations hafer haslag and jones 2007 issing 2006 king 2002 nelson 2003 christiano motto and rostagno 2007 provided a theoretical new keynesian model where inflation expectations lose their anchor unless money is monitored and reacted to also beck and wieland 2008 presented a new keynesian model where cross checking with money growth movements improves inflation control similarly assenmacher wesche and gerlach 2006 2007 found a significant role for a low frequency low pass filtered component of money in the empirical new keynesian phillips curve equation 5 in the spirit of friedman 1961 we use long time spans so that our results are unlikely to be because of a specific policy rule in place in a given period we have 122 years of annual data from 1880 to 2001 before the introduction of the euro in 2002 we have real gross domestic product gdp money and consumer price indices cpis with no gaps for 11 industrialized countries 6 the countries included in our study differ in such terms as their institutions fiscal and monetary policies and economic growth rates nonetheless at least in peace time they were similar in generally having comparatively free markets in which prices and interest rates were determined our aim is to apply analytic methods that are free from economic and statistical models as much as possible in order to explore empirical regularities or stylized facts in the data also the focus of our research is the longer run we employ band pass filters to pick out cycles from each time series that last 8 40 years that is the longer term component

the welfare implications of unauthorized reproduction of intellectual property in the presence of demand network externalities this paper finds that unauthorized reproduction of intellectual property in the presence of demand network externalities can not only induce greater firm profits relative to the case where there is no copying it can lead to a pareto improvement in social welfare ceteris paribus when network externalities are present firms have a greater incentive to expand output because marginal revenue is higher and or they may wish to create preemptive installed bases this paper suggests that unauthorized copying can be a relatively efficient means of achieving this by allowing the firm in effect to price discriminate among different classes of consumers copyright 1994 by blackwell publishing ltd

the ethics of counterfeiting in the fashion industry quality credence and profit issues one of the greatest problems facing luxury goods firms in a globalizing market is that of counterfeiting the purpose of this paper is to analyze the different types of counterfeiting that take place in the fashion industry and the ethical issues raised we argue that the problem partly lies in the industry itself copying of designs is endemic and condoned which raises several ethical dilemmas in passing judgment on the practice of counterfeiting we analyze the ethical issues in a number of different types of counterfeiting encountered in the fashion industry we conclude with some observations on the general implications for ethics in intellectual property rights

network software security and user incentives we study the effect of user incentives on software security in a network of individual users under costly patching and negative network security externalities for proprietary software or freeware we compare four alternative policies to manage network security i consumer self patching where no external incentives are provided for patching or purchasing ii mandatory patching iii patching rebate and iv usage tax we show that for proprietary software when the software security risk and the patching costs are high for both a welfare maximizing social planner and a profit maximizing vendor a patching rebate dominates the other policies however when the patching cost or the security risk is low self patching is best we also show that when a rebate is effective the profit maximizing rebate is decreasing in the security risk and increasing in patching costs the welfare maximizing rebates are also increasing in patching costs but can be increasing in the effective security risk when patching costs are high for freeware a usage tax is the most effective policy except when both patching costs and security risk are low in which case a patching rebate prevails optimal patching rebates and taxes tend to increase with increased security risk and patching costs but can decrease in the security risk for high risk levels our results suggest that both the value generated from software and vendor profits can be significantly improved by mechanisms that target user incentives to maintain software security

real business cycle models and the forecastable movements in output hours and consumption the authors study the movements in output consumption and hours that are forecastable from a vector autoregression and analyze how they differ from those predicted by standard real business cycle models they show that actual forecastable movements in output have a variance about one hundred times larger than those predicted by the model the authors also find that forecastable changes in the three series are strongly positively correlated with each other on the other hand for parameters whose implications are plausible in other respects the model implies that output consumption and hours should not all be expected to move in the same direction copyright 1996 by american economic association

copying and indirect appropriability photocopying of journals creators and owners of intellectual properties are alarmed by the growth of technologies that ease the tasks of copying these properties this paper however shows that the unauthorized copying of intellectual properties need not be harmful and actually may be beneficial the empirical impact of photocopying on publishers of journals is examined in an attempt to discover if publishers can indirectly appropriate revenues from users who are not original purchasers the evidence indicates that publishers can indirectly appropriate revenues from users who do not directly purchase journals and that photocopying has not harmed journal publishers 18 references 1 table

strategic disclosure of meaningful information to rival i study a model of strategic disclosure of a private signal to a rival in the presence of a payoff externality in the model two agents forecast the unknown true state of a future period specifically the quality of the signal is also private information hence which quality of signal is revealed for which incentive is the main question of interest i show that even when disclosure is costly the revealing equilibrium where an agent voluntarily reveals his signal can exist and it should be a monotone equilibrium asymmetry between the penalty for an incorrect forecast and the reward for a correct forecast is a necessary condition for the existence of this revealing equilibrium if the penalty is larger than the reward the unique revealing equilibrium is a separating equilibrium where only the low quality signal is disclosed in order to induce the rival s imitation on the other hand if the reward is much larger than the penalty the unique revealing equilibrium is a pooling equilibrium where the signal is always revealed in order to induce the rival s deviation if the reward is not much larger than the penalty no revealing equilibrium is robust to a costly disclosure jel d81 d82

can entrepreneurial firms benefit from product piracy abstract we examine the potential benefits of product piracy to entrepreneurial firms specifically we use a resource based perspective to show that a decrease in the inimitability of an entrepreneurial firm s intellectual property does not necessarily diminish performance when piracy increases the value of this resource and an information economics perspective to explain why and when imitation can increase the value of an intellectual property resource this explanation reconciles empirical studies that indicate mixed results it also expands the resource based view by suggesting that reducing the value of one resource can directly increase the value of another

optimal pricing for information goods with piracy and saturation effect we analyze the pricing decision of a firm selling a product for which there is a significant and continuous saturation effect over time and that can be pirated assuming that the firm uses a skimming strategy we solve three profit maximization models given demand that is linearly decreasing in price few prices can be used over the life of the product the effects of both piracy and saturation are combined in the first model in the second model the firm can invest in technology or copyright enforcement to reduce piracy the third model describes the case in which piracy leads to increased awareness of the product and increased demand numerical sensitivity analysis and examples are used to illustrate the results the results indicate that under strong piracy and saturation effects a skimming strategy is suboptimal

allocative efficiency of markets with zero intelligence traders market as a partial substitute for individual rationality we report market experiments in which human traders are replaced by zero intelligence programs that submit random bids and offers imposing a budget constraint i e not permitting traders to sell below their costs or buy above their values is sufficient to raise the allocative efficiency of these auctions close to 100 percent allocative efficiency of a double auction derives largely from its structure independent of traders motivation intelligence or learning adam smith s invisible hand may be more powerful than some may have thought it can generate aggregate rationality not only from individual rationality but also from individual irrationality

civil war and the social contract in this contract theoretic modelthe government promises a transfer to itspotential opponent in return for notengaging in a civil war two causes ofcivil war are identified i imperfectcredibility increases the cost of therequired transfer and may make itunfeasible ii asymmetric informationfaces the government with the classicefficiency rent extraction trade off andcivil war is used as a screening device this problem can be solved by creating amixed army the model determines whether amilitary regime or a redistributive stateprevails in a peaceful equilibrium astatistical illustration is presented using african data

democracy and development a theoretical framework a simple framework is set up to discuss the relationship between democracy material welfare and development democracy is regarded both as a good in its own right and as an input in the production of material welfare the optimum level of democracy is then related to the level of development at the optimum point the marginal cost of democracy in terms of foregone output is positive and growth is a decreasing function of the level of democracy deviations from the optimum path are described as either repressive or populist democratization is not unambiguously an optimal response to exogenous shocks

socio economic development and software piracy an empirical assessment the high rate of software piracy is a growing concern for software developers as well as businesses and governments it is argued here that the piracy rate is influenced by expected benefits and costs to the pirates a model is developed using a set of variables that may affect such benefits and costs and hence piracy rate in a country and tested for a large sample of 53 countries the results of this paper suggest that the existing socio economic conditions and the lack of proper institutions in developing and emerging economies may be responsible for high software piracy rates one may therefore infer that the current trends of globalization and socio economic development may help software piracy in developing countries

welfare spending and political conflict in latin america 1970 2010 abstract we study an age old question in political economy does government spending on welfare ensure peace this question was at the heart of the european welfare state model of the early 20th century and remains relevant today in face of rising inequalities and political conflict yet there is limited empirical evidence about this question we make use of a panel of 12 latin american countries over the period 1970 2010 to show that welfare spending has led to substantial reductions in conflict across the region this effect is more pronounced when associated with reductions in inequality and increasing social and institutional trust

research note when is versioning optimal for information goods this paper provides insights about when versioning is an optimal strategy for information goods our characterization of this class of goods is that variable costs are invariant with quality including the special case of zero variable costs our analysis assumes a monopoly firm that has an existing product in the market and has an opportunity to segment the market by introducing additional lower quality versions we derive a simple decision rule for determining the optimality of versioning based on the solution to a single product maximization problem versioning is optimal when the optimal market share of the lower quality version offered alone is greater than the optimal market share of the high quality version offered alone a firm can profitably employ versioning for an information good if it can design the lower quality in a way that relative to their valuations for the high end version high type consumers have a lower relative valuation for the lower quality than do low type consumers when variable costs increase a firm that offered only one product version need not consider adding another version when variable costs decrease the firm should explore adding a lower quality version

land inequality and conflict intensity this paper investigates the impact of land inequality on conflict intensity a fundamental distinction with the existing literature lies in the nature of inequality under consideration we investigate how land inequality across landlords only influences the intensity of the fight against a rebel group comprised of landless individuals we show that conflict intensity is non monotonic in land inequality in particular the most severe conflicts occur for intermediate land inequality levels moreover a pareto improving and thus voluntary transfer of land from the smaller to the larger landlord may exist

obtaining strategic advantage from being imitated when can encouraging clones pay an important business strategy research theme concerns finding ways to minimize competition faced by the firm this paper however focuses on a different set of situations the model developed suggests that an innovator s best strategy may be to encourage clones of its product when a network externality is present key factors to consider in assessing whether encouraging cloning is the innovator s best strategy are 1 the benefit to be derived in terms of added user base contributed by the clone sales traded off against 2 the unit sales that will be lost to the clones these factors in turn depend upon the strength of the network effect and the degree to which the innovator s product quality is perceived by consumers to be superior to the clone s the model further suggests that both the innovator and clone earn their highest payoffs when the clone takes the lead in price setting i e when the clone establishes its own price by considering for each price it might set how the innovator will react to that price and the innovator as price follower responds to the price the clone chooses the paper demonstrates that the clone leader innovator follower situation represents the unique nash equilibrium in price setting strategies a central implication is that when operating in a network externality environment instead of a problem to be avoided clones may be valuable assets to an innovating firm building up the user base for the innovator s technology by bringing lower valuing consumers into the market which in turn makes the innovator s product more attractive to high and medium valuing purchasers thus when the above described conditions hold being cloned can be more profitable for an innovating firm than dominating the market alone