empirical evaluation of bureaucratic models of inefficiency two separate but related strands of literature exist regarding the efficiency of public sector service provision the theoretical base developed in the bureaucratic models of supply and the methodological base developed in the operations research and economic literatures most analyses focus exclusively on either the measurement or causes of inefficiency this paper seeks to empirically test bureaucratic models of supply by drawing on the measurement literature in anticipation of the results it is found that there does exist empirical evidence supporting some of the implications of these models

consolidation in banking and the lending channel of monetary transmission evidence from asia and latin america abstract this paper examines the relationship between increased consolidation in banking and monetary policy transmission in eighteen asian and latin american economies using bank level data from 1996 to 2006 our results provide consistent evidence that as concentration in banking increases the bank lending channel is weakened leading the monetary policy transmission mechanism to be less effective we also investigate how this relationship between concentration and the strength of the lending channel depends on bank specific characteristics using bank level balance sheet and income statement data allows us first to better identify the effects of banking consolidation on the supply side bank lending channel from those of the demand side interest rate channel and second to test for any systematic differences in the impact of consolidation on monetary policy transmission across banks of different size and financial strength we also discuss potential explanations for and policy implications of the main findings of this paper

electoral outcomes with probabilistic voting and nash social welfare maxima abstract this paper provides unexpected support to nash s view of how bargaining determines the social choice we first present a spatial model of electoral competition with probabilistic voting and a very close relation between voters preferences and their choice probabilities the outcome of the electoral competition game is then shown to be precisely the social alternative that maximizes a nash type social welfare function theorem 1 this electoral outcome is also interpreted as a unanimity likelihood maximum corollary 1 within our framework existence and uniqueness of such an outcome are guaranteed corollaries 2 and 3

platform pricing in mixed two sided markets when a consumer can appear on both sides of a two sided market such as a user who both buys and sells on ebay the platform may want to bundle the services it provides to two sides i develop a general model for such mixed two sided markets and show that a monopolist platform s incentive to bundle and its optimal pricing strategy are determined by simple formulas using familiar price elasticities of demand which embody the bundling effect and price cost margins adjusted for network externalities which incorporate two sidedness the optimal pricing rule in such markets generalizes the familiar lerner formula

congested public goods the case of fire protection abstract this paper uses a fire protection measure based on a community s fire insurance rating to estimate the strength of congestion effects for fire protection services the empirical results show that the congestion properties of fire protection are much like those of a pure public good in addition the paper introduces a new notion of returns to scale for public goods and estimates the relevant parameters for the fire protection case

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

the many faces of tiebout bias in local education demand parameter estimates abstract tiebout sorting can occasion bias in public service demand parameter estimates in at least three distinct ways this paper identifies each of these types of tiebout bias and provides estimates of each of their magnitudes first the empirical results suggest that the type of tiebout bias first identified by goldstein and pauly is positive and large but that their proposed method of correcting for that bias substantially overestimates its magnitude second failing to control for unobservable taste variations that are negatively correlated with the difference between an individual household s income and the income of the decisive voter is found to impart a significant negative bias into the income parameter estimate we find that conventional demographic descriptors do not adequately control for such taste variations and consequently fail to protect the income parameter estimates from this type of tiebout bias finally the significant negative relationship between individual household school expenditure demands and deviations of individual household income from the income of the decisive voter suggest that tiebout sorting is a significant phenomenon

platform competition in two sided markets many if not most markets with network externalities are two sided to succeed platforms in industries such as software portals and media payment systems and the internet must get both sides of the market on board accordingly platforms devote much attention to their business model that is to how they court each side while making money overall this paper builds a model of platform competition with two sided markets it unveils the determinants of price allocation and end user surplus for different governance structures profit maximizing platforms and not for profit joint undertakings and compares the outcomes with those under an integrated monopolist and a ramsey planner jel l5 l82 l86 l96

realizing the gains from electronic payments costs pricing and payment choice the growth of electronic payments can substantially reduce the social cost of a country s payment system we provide an estimate of the potential savings in social cost and determine the responsiveness of payment users when relative prices are used to speed up the substitution of electronic for paper based payments while some countries norway japan have encouraged their banking systems to establish explicit prices to promote electronic payments others the united states have not for the first time ever survey data are available to permit estimation of a model of payment choice from which own price cross price and payment substitution elasticities are derived the data which are semiannual panel data concern the use of three methods for making retail payments in norway cash withdrawals at atms writing a check or using a debit card at the point of sale our finding that payment users are quite sensitive to relative prices that reflect the relatively lower cost of electronic payments is generalizable both production techniques and consumer needs for payment instruments are very similar across developed countries even though instrument usage differs

capitalization and the theory of local public finance the tiebout literature is incomplete this paper argues because it has not fully accounted for the capitalization of local fiscal variables into house values the paper explains why capitalization arises why it persists in long run equilibrium how it affects both residential location and the outcome of local voting and why it interferes with the efficiency of a system of local governments the analysis which is based on the main tiebout assumptions plus a property tax combines a model of household bids in a housing market with a median voter model of local public service determination

the information in the high yield bond spread for the business cycle evidence and some implications the market for high yield below investment grade corporate bonds developed in the middle 1980s we show that since this time the high yield spread has had significant explanatory power for the business cycle we interpret this finding as possibly symptomatic of financial factors at work in the business cycle along the lines suggested by the financial accelerator we also show that over this period the high yield spread outperforms other leading financial indicators including the term spread the paper bill spread and the federal funds rate we conjecture that changes in the conduct of monetary policy over time may account for the reduced informativeness of these alternative indicators all of which are tied closely to monetary policy copyright 1999 by oxford university press

supply side effects of monetary policy and equilibrium multiplicity abstract empirical evidence indicates that changes in the nominal interest rate significantly affect lending costs of firms introducing working capital into an otherwise conventional new keynesian model active interest rate policy remains necessary but should be moderate to ensure real determinacy the likelihood for the latter can approach zero when utility is linear in leisure

optimal monetary policy in a phillips curve world abstract in this paper we study optimal monetary policy in a model that integrates the modern theory of unemployment with a liquidity model of monetary transmission two policy environments are considered period by period optimization time consistency and full commitment ramsey allocation when the economy is subject to productivity shocks the optimal policy is pro cyclical we also characterize the long term properties of monetary policy and show that with commitment the optimal inflation rate is inversely related to the bargaining power of workers both results find empirical support in the data

changing effects of monetary policy in the u s evidence from a time varying coefficient var we estimate a time varying coefficient var model for the us economy to analyse i if the effect of monetary policy on output has been changing systematically over time and ii if monetary policy has asymmetric effects over the business cycle we find that the impact of monetary policy shocks has been gradually declining over the sample period 1962 to 2002 as some theories of the monetary transmission mechanism imply in addition our results indicate that the effects of monetary policy are greater in a recession than in a boom

do interest rates drive inflation dynamics an analysis of the cost channel of monetary transmission abstract this paper proposes a novel approach to empirically assessing the impact of the cost channel of monetary transmission on the dynamics of inflation within a new keynesian phillips curve framework according to the cost channel higher interest rates translate into higher marginal costs of production and eventually into higher inflation we exploit the present value implications of the model to derive a series of fundamental inflation that is contrasted with actual inflation we show that the cost channel adds significantly to the explanation of inflation dynamics in forward looking sticky price models for the us the uk and the euro area moreover the cost channel can explain inflation episodes that cannot be accounted for by the standard new keynesian model

chicken and egg competition among intermediation service providers we analyze a model of imperfect price competition between intermediation service providers we insist on features that are relevant for informational intermediation via the internet the presence of indirect network externalities the possibility of using the nonexclusive services of several intermediaries and the widespread practice of price discrimination based on users identity and on usage efficient market structures emerge in equilibrium as well as some specific form of inefficient structures intermediaries have incentives to propose non exclusive services as this moderates competition and allows them to exert market power we analyze in detail the pricing and business strategies followed by intermediation services providers copyright 2003 by the rand corporation

inflation dynamics and the cost channel of monetary transmission evidence from vector autoregressions indicates that the impact of interest rate shocks on macroeconomic aggregates can substantially be affected by the so called cost channel of monetary transmission in this paper we apply a structural approach to examine the relevance of the cost channel for inflation dynamics in g7 countries we augment the so called hybrid new keynesian philips curve by letting firms costs for external funds rise with the short run nominal interest rate our estimates reveal that the magnitude of this cost channel strongly varies between countries including member countries of the emu in accordance with differences in their financial systems simulations of a new keynesian model further show that the presence of the cost channel substantially affects the transmission of monetary policy shocks in particular the inflation response

the time varying cost channel of monetary transmission abstract this paper studies the time varying role of the cost channel of monetary transmission i e the supply side effect of monetary policy based on firms costs of holding working capital for that purpose we provide rolling window estimates of an augmented new keynesian phillips curve and show that the cost channel exhibits important time varying dynamics we find as a general pattern that the cost channel was most important in the pre volcker period and less important in the volcker greenspan era recently however the cost channel regained importance since the cost channel is based on the transmission of policy impulses through bank lending it is likely that the time varying cost channel reflects the cyclical nature of financial frictions

optimal monetary policy with an uncertain cost channel the cost channel of monetary transmission describes a supply side effect of interest rates on firms costs previous research has found this effect to vary both over time and across countries moreover the cyclical nature of financial frictions is likely to amplify the cost channel this paper derives optimal monetary policy in the presence of uncertainty about the true size of the cost channel in a min max approach the central bank derives an optimal policy plan to be implemented by a taylor rule it is shown that uncertainty about the cost channel leads to an attenuated interest rate setting behavior in this respect the brainard 1967 principle of cautious policy in the face of uncertainty continues to hold in both a bayesian and a min max framework

an analysis of returns to scale in public production with an application to fire protection abstract this paper analyzes returns to scale in public production existing studies fail to differentiate among three dimensions of scale service quality the level of governmental activity and the number of people served a fourth dimension economies of scope is need for agencies that provide multiple services this paper provides a formal definition of returns to scale for each dimension this framework is applied to fire protection using a translog cost function with two services fire prevention and fire suppression the results indicate economies of scope increasing returns to quality scale and constant returns to population scale

bertrand competition under network externalities abstract two firms engage in price competition to attract buyers located on a network the value of the good of either firm to any buyer depends on the number of neighbors on the network who adopt the same good when the size of externalities increases linearly with the number of adoptions we identify the set of pricing strategies that are consistent with an equilibrium in which one of the firms monopolizes the market the set includes marginal cost mc pricing as well as bipartition pricing which offers discounts to some buyers and charges markups to others we show that mc pricing fails to be an equilibrium under non linear externalities in a general network but identify conditions for an equilibrium with bipartition pricing to be robust against perturbations in the externalities from linearity the analysis is applied to platform competition in a two sided market under local and approximately linear externalities

efficiency enhancing taxation in two sided markets this paper examines the efficient provision of goods in two sided markets and characterizes optimal specific and ad valorem taxes we show that i a monopoly may have too high output compared to the social optimum ii output may be reduced by imposing negative value added taxes subsidy or positive specific taxes

heavily skewed pricing in two sided markets a common feature in two sided markets is the prevalence of heavily skewed pricing strategies in which price markups are much higher on one side of the market than the other we show that maximal skewed pricing is profit maximizing under constant elasticity of demand the most elastic side of the market is used to generate maximum demand by providing it with platform services at the lowest possible price full participation of the high elasticity low price side of the market attracts the other side as this side is less price elastic the platform is able to extract high prices

optimal simple and implementable monetary and fiscal rules welfare maximizing monetary and fiscal policy rules are studied in a model with sticky prices money and distortionary taxation the ramsey optimal policy is used as a point of comparison the main findings are the size of the inflation coefficient in the interest rate rule plays a minor role for welfare it matters only insofar as it affects the determinacy of equilibrium optimal monetary policy features a muted response to output interest rate rules that feature a positive response to output can lead to significant welfare losses the welfare gains from interest rate smoothing are negligible optimal fiscal policy is passive the optimal monetary and fiscal rule combination attains virtually the same level of welfare as the ramsey optimal policy

on fiscal disparities across cities abstract some cities have fewer taxable resources and higher costs for providing public services than do other cities the result which is widely regarded as unfair is a wide variation in the ability of cities to supply public services but our understanding of these fiscal disparities particularly on the cost side is limited this paper provides a general treatment of fiscal disparities by incorporating input and environmental costs into a model of local expenditure determination investigating the consequences of fiscal disparities in a system of local governments including housing price adjustments and migration and designing intergovernmental grants to offset fiscal disparities

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

cooperation among competitors some economics of payment card associations we analyze platforms in two sided markets with network externalities using the specific context of a payment card association we study the cooperative determination of the interchange fee by member banks the interchange fee is the access charge paid by the merchants banks the acquirers to cardholders banks the issuers we develop a framework in which banks and merchants may have market power and consumers and merchants decide rationally on whether to buy or accept a payment card after drawing the welfare implications of a cooperative determination of the interchange fee we describe in detail the factors affecting merchant resistance compare cooperative and for profit business models and make a first cut in the analysis of system competition

the time varying volatility of macroeconomic fluctuations we investigate the sources of the important shifts in the volatility of us mac roeconomic variables in the postwar period to this end we propose the esti mation of dsge models allowing for time variation in the volatility of the structural innovations we apply our estimation strategy to a large scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades jel c51 e32

poverty and urban public expenditures cities in the us bear a disproportionate responsibility for the public expenditures that grow out of poverty because they contain disproportionate numbers of the poor and because a substantial part

optimal monetary policy with the cost channel in the standard new keynesian framework an optimizing policy maker does not face a trade off between stabilizing the inflation rate and stabilizing the gap between actual output and output under flexible prices an ad hoc exogenous cost push shock is typically added to the inflation equation to generate a meaningful policy problem in this paper we show that a cost push shock arises endogenously when a cost channel for monetary policy is introduced into the new keynesian model a cost channel is present when firms marginal cost depends directly on the nominal rate of interest besides providing empirical evidence for a cost channel we explore its implications for optimal monetary policy we show that its presence alters the optimal policy problem in important ways for example both the output gap and inflation are allowed to fluctuate in response to productivity and demand shocks under optimal monetary policy

the flypaper effect and other anomalies abstract i develop a model in which income both in its own right and as a proxy for other socioeconomic characteristics is an input in the production function for local public services the most obvious example is education though there are other applications as well the comparative statics results from this model yield the following results 1 the observed flypaper effect the tendency for local government to spend a higher fraction of unrestricted grants than income of residents may be due at least in part to the fact that own income but not grants is a substitute for purchased inputs in the technology hence the propensity to spend on purchased inputs out of own income is lower than out of grants 2 the income elasticity of demand for public sector output may be higher than the observed income elasticity of demand for purchased inputs 3 equalization of educational opportunity via wealth neutrality as suggested by feldstein requires major changes in education finance once we recognice the distinction between purchased inputs and output

monopoly ramsey and lindahl in rochet and tirole 2003 abstract rochet and tirole rochet j c tirole j 2003 platform competition in two sided markets journal of the european economic association 1 4 990 1029 consider the consumer ramsey problem in a model of two sided markets i extend their analysis to the social ramsey and lindahl problems comparing the solutions to all three to monopoly pricing

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

two sided markets a progress report the paper provides a road map to the burgeoning literature on two sided markets and presents new results it identifies two sided markets with markets in which the structure and not only the level of prices charged by platforms matters the failure of the coase theorem is necessary but not sufficient for two sidedness the paper builds a model integrating usage and membership externalities that unifies two hitherto disparate strands of the literature emphasizing either form of externality and obtains new results on the mix of membership and usage charges when price setting or bargaining determine payments between end users

evaluating the efficiency and equity of federal fiscal equalization abstract theoretically federal transfers that make household location decisions efficient should ignore local cost differences subsidize positive externalities and offset differences in federal tax payments and local taxes levied on non residents but not local tax revenues from residents transfers that redistribute resources equitably across regions will likely target areas with individuals of low earnings potential or low real incomes applying these criteria empirically canadian equalization policy appears neither efficient nor equitable but exacerbates pre existing inefficiencies and underfunds minorities locational inefficiencies cost canada 0 41 of income annually and cause over funded provinces to have populations of 30 beyond their efficient long run levels

banking competition and market efficiency this paper analyses competition among financial intermediaries in a set up where financial intermediaries economize on duplicated monitoring diamond 1984 we analyse two different games in which both direct trade and indirect trade are available we show that in general equilibrium outcomes are inefficient so that diamond s efficiency result is fragile intermediation may increase rather than decrease transaction costs disintermediation may also be an equilibrium we discuss the role played by the nonconvexities of banks technology and that played by competition for deposits and loans

ownership and control rights in internet portal alliances 1995 1999 we examine the structure of more than 100 alliances by internet portals and other firms between 1995 to 1999 from a contract theory perspective models of incomplete contracts frequently invoke unforeseen contingencies the cost of writing contracts and the cost of enforcing contracts in justifying the assumption of incompleteness the setting in which internet portals formed alliances was rife with these sorts of transaction costs we argue that these alliances can be viewed as incomplete contracts and find that the division of ownership and the allocation of control rights are consistent with the incomplete contracting literature copyright 2003 by the rand corporation

optimal quality threshold of admission in a two sided farmers market we develop a two sided model for a farmers market where farmers value the number of consumers and consumers value the number of farmers and the average product quality in the market consumer preference over product quality provides an incentive for the farmers market to exclude farmers of the lowest product quality using the model we identify what factors the farmers market has to consider in determining the optimal quality threshold of admission an issue that has not received any formal study those factors include the network effects between farmers and consumers consumer preference over product quality and variety and the quality spread among farmers we also outline an empirical estimation strategy in order to make use of the model developed in this study

introducing financial frictions and unemployment into a small open economy model the current nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from nancial factors it is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations some questions which the dominating extant business cycle models are mute on but that we would like to answer are how important are nancial and labor market frictions for the business cycle dynamics of a

estimating the evolution of money s role in the u s monetary business cycle we assess money s role in the post wwii u s business cycle by employing both fixed coefficient and rolling window bayesian estimations of a structural model of the business cycle with money our empirical evidence favors a specification with drifting parameters for money consumption nonseparability and the federal reserve s reaction to nominal money growth the role of money is estimated to have been important during the 1970s and declined afterward the omission of money produces severely distorted impulse response functions relative to the model with money money is found to be important in replicating the u s output volatility during the great inflation

when does the cost channel pose a challenge to inflation targeting central banks abstract in a sticky price model where firms finance their production inputs there is both a lower and an upper bound on the central bank s inflation response necessary to rule out the possibility of self fulfilling inflation expectations this paper shows that real wage rigidities decrease this upper bound but coefficients in the range of those on the taylor rule place the economy well within the determinacy region however when there is time variation in the share of firms who finance their inputs i e markov switching then inflation targeting interest rate rules frequently result in indeterminacy even if the central bank also targets output adding a nominal growth target to the policy rule can often alleviate this indeterminacy and therefore anchor inflation expectations

on revenue and welfare dominance of ad valorem taxes in two sided markets abstract a benchmark result in public economics is that it is possible to increase both tax revenue and welfare by making a monopoly subject to ad valorem taxes rather than unit taxes we show that such revenue and welfare dominance does not hold in two sided markets

incentives at the counter an empirical analysis of surcharging card payments and payment behaviour in the netherlands in card payment systems no surcharge rules prohibit merchants from charging consumers extra for card payments however such rules are prohibited in the netherlands dutch retailers are allowed to surcharge consumers for debit card use this setting permits an empirical analysis of the impact of surcharging card payments on merchant acceptance and consumer payment choice based on consumer and retailer survey data our analysis shows that surcharging steers consumers away from using debit cards towards cash half of the observed difference in debit card payment shares across retailers can be explained by this surcharge effect removing debit card surcharges may induce cost savings of more than eur 50 million in the long run

experimentation in two sided markets we study optimal experimentation by a monopolistic platform in a two sided market the platform provider is uncertain about the strength of the externality each side is exerting on the other setting participation fees on both sides it gradually learns about these externalities by observing actual participation levels this provides an informational rationale for introductory pricing with the platform provider charging a fee below the myopically optimal level on at least one side of the market if the externality that the other side exerts is sufficiently well known and weaker than the externality it experiences the platform provider extracts surplus from that side by charging it a fee above the myopically optimal level this interplay between learning and surplus extraction is crucial to the market outcome and its dynamics

armstrong meets rochet tirole on the equivalence of different pricing structures in two sided markets abstract we formally show that lump sum participation fees and per interaction fees charged by a monopoly platform in a two sided market are not interchangeable in the presence of price distortions such as ad valorem taxes