a multiplicative model of optimal ceo incentives in market equilibrium this paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium by embedding a moral hazard problem into a talent assignment model by considering multiplicative specifications for the ceo s utility and production functions we generate a number of different results from traditional additive models first both the ceo s low fractional ownership the jensen murphy incentives measure and its negative relationship with firm size can be quantitatively reconciled with optimal contracting and thus need not reflect rent extraction second the dollar change in wealth for a percentage change in firm value divided by annual pay is independent of firm size and therefore a desirable empirical measure of incentives third incentive pay is effective at solving agency problems with multiplicative impacts on firm value such as strategy choice however additive issues such as perk consumption are best addressed through direct monitoring jel d2 d3 g34 j3

information competition and markets one of the dominant characteristics of modern capitalist economies is the important role played by competition not the peculiar static form of pure price competition embodied in the arrow debreu model but rather a dynamic competition more akin to the kind of competition represented by sports contests and other races including patent races in recent years there have been several attempts to explain why firms often base the pay of their workers and managers on relative performance see for example edward lazear and sherwin rosen 1981 such compensation schemes become desirable when three conditions are satisfied a the input effort of workers managers must not be directly observable at least without cost thus firms must either expend resources to monitor inputs or devise reward structures in which compensation is a function of variables such as output or profits which are themselves functions of inputs but are less costly to observe b the relationship between input and output must be stochastic so that by observing output one cannot perfectly infer what the input was c finally the stochastic disturbances which affect the relationship between input and output of different firms must be correlated by looking at the performance of one worker relative to that of others one can make better inferences about his effort than one can make without using this information not only can competition provide a basis of comparison which enables the design of reward structures that can simultaneously provide a high level of incentives with relatively low level risk but compensation schemes based on relative performance have the further advantage of automatically adjusting incentives to changes in the economic environment we refer to this as built in flexibility in a first best world with perfect information concerning the nature of the technology but where it is still costly to monitor individuals activities the compensation scheme would vary from time to time as the environment changed such changes in the compensation scheme are costly to implement and the information required to do so is seldom available when a task is easier the individual s rewards for performing the task should be reduced if pay is based on relative performance although all individuals perform better when they exert the same level of effort their compensation is automatically adjusted thus teachers frequently grade on the curve and a significant fraction of the pay of successful salesmen often consists of bonuses based on relative performance

patterns of research productivity in the business ethics literature insights from analyses of bibliometric distributions in any academic discipline published articles in respective journals represent production units of scientific knowledge and bibliometric distributions reflect the patterns in such outputs across authors or producers closely following the analysis approach used for similar studies in the economics and finance literature we present the first study to examine whether there exists an empirical regularity in the bibliometric patterns of research productivity in the business ethics literature our results present strong evidence that there indeed exists a distinct empirical regularity it is the so called generalized lotka s law of scientific productivity pattern the number of authors publishing n papers is about 1 n c of those publishing one paper we discuss the likely processes that underlie the productivity pattern postulated by the generalized lotka s law we find that the value of the exponent c is equal to about 2 6 for the comprehensive bibliometric data across the two leading business ethics journals the observed research productivity pattern in the business ethics area a relatively young discipline is interestingly very consistent with those found in much older related business disciplines like economics accounting and finance we discuss the general implications of our findings

are rich people smarter abstract we formulate a general stochastic process of wealth accumulation by capital investment and analyze the conditions required to ensure convergence to the empirically observed pareto wealth distribution while homogeneous investment talent leads to the pareto distribution under very general conditions even a mild degree of differential investment talent results in a non pareto wealth distribution this finding suggests that chance rather than differential investment talent is the dominant factor in the process of wealth accumulation by financial investment our findings conform with market efficiency and may have implications regarding the origins the economic significance and the social desirability of wealth inequality at the high wealth range

metropolitan evolution sectoral economic change and the city size distribution metropolitan evolution is conceptualised from a broad long term perspective that focuses on demographic and sectoral economic variables emphasis is placed on understanding these changes from a process oriented approach that considers its general relevance rather than its outcomes or microanalytic details a selective review of the literature provides a significant perspective and background on the stages model that is applied to the study of metropolitan change this is then related to the pareto city size distribution by considering the interurban population distribution coefficient and its expected performance over the various phases of metropolitan evolution a hypothetical interurban manufacturing employment distribution coefficient analogous to the pareto population coefficient is also considered and is related to the process of metropolitan and interurban sectoral economic change the relationship between metropolitan change and national urban size distribution is viewed as a significant compone

urban development in the united states 1690 1990 the united states transformed itself from a rural to an urban society over the last three cen turies after a century of unremarkable growth the pace of urbanization was historically un precedented between the nineteenth and the early twentieth centuries in the twentieth century the urban population continued to increase but in a much more dispersed manner as the sub urban population increased throughout these developments cities also exhibited considerable variation in their population sizes this paper finds that the pace and pattern of u s urban development are explained by changes in regional comparative advantage and in economies in transportation and local public goods which in turn were determined by the changes in the economic structures of cities this paper also finds that cities varied considerably in size because the larger cities reduced market transaction costs associated with coordinating greater geograph ic division of labor

the role of exclusive territories in producers competition reprinted in cartels stephen salant ed the international library of critical writings in economics edward elgar reference collections

economic growth in a cross section of cities abstract we examine the relationship between urban characteristics in 1960 and urban growth between 1960 and 1990 income and population growth move together and both types of growth are 1 positively related to initial schooling 2 negatively related to initial unemployment and 3 negatively related to the initial share of employment in manufacturing racial composition and segregation are uncorrelated with urban growth across all cities but in cities with large nonwhite communities segregation is positively correlated with population growth government expenditures except for sanitation are uncorrelated with growth government debt is positively correlated with later growth

inventory pooling under heavy tailed demand risk pooling has been studied extensively in the operations management literature as the basic driver behind strategies such as transshipment manufacturing flexibility component commonality and drop shipping this paper explores the benefit of risk pooling in the context of inventory management using the canonical model first studied in eppen eppen gd 1979 effects of centralization on expected costs in a multi location newsboy problem management sci 25 5 498 501 specifically we consider a single period multilocation newsvendor model where n different locations face independent and identically distributed demands and linear holding and backorder costs we show that eppen s celebrated result i e that the expected cost savings from centralized inventory management scale with the square root of the number of locations depends critically on the light tailed nature of the demand uncertainty in particular we establish that the benefit from pooling relative to the decentralized case in term

firm size distributions an overview of steady state distributions resulting from firm dynamics models abstract empirical firm size distributions are the cumulated result of underlying firm dynamics involving entry of new firms and growth decline and exits of incumbent firms in this paper we give an overview of firm size distributions that result as steady states from models differing in the way these firm dynamics are modelled in the process we i derive common results and explain seemingly contradictory results ii propose new functional forms to describe firm size distributions iii give insight in the interrelationships between the distributions in terms of underlying firm dynamics iv give possible firm dynamical interpretations of the parameters of the distributions and v analyse to which extent the steady state approach is able to explain the shape of firm size distributions that are encountered in practice

a theory of limited liquidity and large investors causing spikes in stock market volatility and trading volume we survey a theory of the economic underpinnings of the fat tailed distributions of a number of financial variables such as returns and trading volumes our theory posits that they have a common origin in the strategic trading behavior of very large financial institutions in a relatively illiquid market we show how the fat tailed distribution of fund sizes can indeed generate extreme returns and volumes even in the absence of fundamental news moreover we are able to replicate the individually different empirical values of the power law exponents foreachdistribution largeinvestorsmoderatetheirtradestoreducetheirpriceimpact coupled with a concave price impact function this leads to volumes being more fat tailed than returns but less fat tailed than fund sizes the trades of large institutions offer a unified explanation for apparently disconnected empirical regularities that are otherwise a challenge for economic theory jel g12 g14 g23

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

costs and benefits of inducing intrabrand competition the role of limited liability when is inducing intrabrand competition via nonexclusive distribution an optimal strategy to address this issue a static model is developed to examine two settings the manufacturer uses exclusive distributors in the first setting and nonexclusive distributors in the second the analysis indicates that the choice of distribution rests critically on whether the manufacturer can effectively extract surplus from the distributors due to a variety of institutional reasons the distributors liability is often limited in performing on behalf of the manufacturer such limited liability restricts how much of the distributors surplus can be extracted when the distributors surplus cannot be fully extracted the manufacturer may prefer nonexclusive distribution even when distributors can free ride on each other s efforts

patterns of technological competence accumulation a proposition for empirical measurement this article develops a typology that describes and measures different types of technological competence accumulation the notion of accumulation comprises not only the state but also the change in competence and hence it complies with the criticism of the static approaches to competence management the typology of competence accumulation enables a comparison of firm profiles that lead to identification of four groups of firm behavior across the telecommunications industry the relationship between the firm and the industry level is established on the condition that each firm s competence level depends on the firms mutual relationships with other firms in the same industry known as red queen evolution the four groups of firm behaviour are therefore not considered as groups of independent firms that are similar by coincidence but as patterns of behavior within the telecommunications industry which allows for a discussion of more general implications for management of technology copyright 2005 oxford university press

exclusive territories and manufacturers collusion this paper highlights the rationale for exclusive territories in a model of repeated interaction between competing supply chains we show that with observable contracts exclusive territories have two countervailing effects on manufacturers incentives to sustain tacit collusion first granting local monopolies to retailers softens competition in a one shot game hence punishment profits are larger thereby rendering deviation more profitable second exclusive territories stifle deviation profits because retailers of competing brands adjust their prices to the wholesale contract offered by a deviant manufacturer whereas intrabrand competition prevents such instantaneous reaction we show that the latter effect tends to dominate thereby making exclusive territories a more suitable organizational mode to cooperate these insights are robust to endogenous communication between manufacturers we also consider retailers service investments here a novel effect emerges that softens the procollusive value of exclusive territories retailers of a deviant manufacturer increase investments which renders deviation more profitable this paper was accepted by preyas desai marketing

coordinating channels under price and nonprice competition this paper analyzes how manufacturers should coordinate distribution channels when retailers compete in price as well as important nonprice factors such as the provision of product information free repair faster check out or after sales service differentiation among retailers in price and nonprice service factors is a central feature of markets ranging from automobiles and appliances to gasoline and is especially observed in the coexistence of high service retailers and lower price discount retailers therefore how a manufacturer should manage retail differentiation is an important channel management question yet the approach in the existing literature has been to examine channel coordination under the standard symmetric contracting assumption that offering a uniform contract to all the retailers in a market will be sufficient for coordination i bring this assumption into question and ask when is it optimal for the manufacturer to use the channel contract to deliberately induce retail differentiation even if the retailers were ex ante identical in their cost and other characteristics the paper identifies the type of channel contracts that can endogenously induce symmetry as opposed to differentiation among retailers next the paper highlights a type of channel conflict that arises from the very nature of retail price service competition a manufacturer might find the retailers to be excessively biased towards price competition at the cost of service provision or vice versa the paper establishes when a manufacturer is likely to stimulate greater price as opposed to greater service competition among the retailers the framework that i develop to address these issues highlights the role of two basic types of consumer heterogeneity consumers are heterogeneous in their locations as in the spatial models of horizontal differentiation and in their willingness to pay for retail services as in the models of vertical differentiation the model also uses a natural relationship in retail markets between the travel time cost incurred by a consumer and her willingness to pay the more affluent consumers who have a higher willingness to pay for retail services also have a higher cost for their personal time given these market features the paper analyzes the problem faced by a manufacturer who sells to competing retailers the paper shows that the standard notion in the literature of offering similar contracts to all the retailers is sufficient only in markets with substantial locational differentiation relative to the differences in the willingness to pay effective channel management in these markets simply requires mechanisms that ensure that retailer interests are aligned so that they compete by offering a mix of price and service that is desirable from the manufacturer s point of view however in markets with small locational differentiation and substantial diversity in consumer willingness to pay the manufacturer s problem is not just to align retailer interests but to also use the channel contract to induce the correct level of retail differentiation this helps the manufacturer to better cater to the diversity in consumer willingness to pay and to prevent the cut throat competition that the retailers would otherwise have indulged in the manufacturer can achieve this through the use of menu based contracts menu based contracts induce differentiated retailer behavior despite the fact that the retailers are not forced into accepting different terms of trade this aspect can be useful in shielding manufacturers from litigation under the robinson patman act the paper also shows that for relatively high ticket items retailers tend to be excessively biased towards competing in the provision of retail services the correlation between consumer willingness to pay for service and travel costs implies that for high ticket products the competing retailers will focus on the more service sensitive customers at the cost of ignoring the price sensitive consumers in the market the manufacturer is therefore likely to encourage greater price competition among the retailers in contrast for low ticket items the manufacturer prefers to reduce price competition and encourage greater provision of services this provides an endogenous rationale for the use of price ceilings versus floors the basic model is also extended to consider the effect of upstream competition between manufacturers under upstream competition coordinating retail price and service decisions is not always optimal for an individual manufacturer this extension to manufacturer competition provides a basis for understanding the role of retail price service differentiation in the context of a channel duopoly it also shows that a mixed distribution channel a channel in which one manufacturer chooses to be coordinated while the other chooses to be noncoordinated can be an equilibrium in markets with weak brand loyalty

central place theory and city size distribution this paper proposes a theory of city size distribution via a hierarchy approach rather than the popular random growth process it does so by formalizing central place theory using an equilibrium entry model and specifying the conditions under which city size distribution follows a power law central place theory describes the way in which a hierarchical city system with difierent layers of cities serving difierently sized market areas is formed from a uniformly populated space the force driving the city size difierences in this model is the heterogeneity in economies of scale across goods the city size distribution under a central place hierarchy exhibits a power law if the distribution of scale economies is regularly varying which is a general class that encompasses many well known commonly used distributions this model is also consistent with a power law for flrms and a number average size rule which is the log linear relationship between the number and average size of the cities in which an industry is located

income and price elasticities of demand at low levels of real income abstract for levels of real per capita income starting at 3 of the u s per capita income in 1975 income and price elasticities of demand are tabulated the prominent role of food consumption for low income households is emphasized

negotiations and exclusivity contracts for advertising exclusive advertising on a given media outlet is usually profitable for an advertiser because consumers are less aware of competing products however for such arrangements to exist media must benefit as well we examine conditions under which such exclusive advertising contracts benefit both advertisers and media outlets referred to as stations by illustrating that exclusive equilibria arise in a theoretical model of the media advertisers and consumers who participate in both the product and media markets in the model stations sell advertising space to advertisers and broadcast advertising messages to consumers conditions leading to higher equilibrium levels of advertising can be unprofitable for advertisers because high levels of advertising make consumers better informed and thus lead to fiercer product price competition as a result media stations may be less profitable as well because their payoff is determined as a fraction of the advertiser surplus generated in the product market stations mitigate this effect by offering advertisers exclusive advertising contracts with such contracts consumers are less informed about competing products yielding higher producer surplus it is profitable for stations to offer exclusivity when commercial advertising is an important means for advertisers to inform consumers about their products

consequences of the clean water act and the demand for water quality since the 1972 u s clean water act government and industry have invested over 1 trillion to abate water pollution or 100 per person year over half of u s stream and river miles however still violate pollution standards we use the most comprehensive set of files ever compiled on water pollution and its determinants including 50 million pollution readings from 240 000 monitoring sites and a network model of all u s rivers to study water pollution s trends causes and welfare consequences we have three main findings first water pollution concentrations have fallen substantially between 1972 and 2001 for example the share of waters safe for fishing grew by 12 percentage points second the clean water act s grants to municipal wastewater treatment plants which account for 650 billion in expenditure caused some of these declines through these grants it cost around 1 5 million 2014 dollars to make one river mile fishable for a year we find little displacement of municipal expenditure due to a federal grant third the grants estimated effects on housing values are smaller than the grants costs we carefully discuss welfare implications

spatial growth and industry age between 1970 and 2000 employment growth across u s counties exhibited very different patterns in manufacturing and services whereas manufacturing employment growth was negatively related to initial manufacturing employment across the entire distribution of counties service employment growth was positively related to initial service employment for intermediate sized counties this paper presents a theory to rationalize these facts local sectoral growth is driven by technological diffusion across space and depends on the age of the sector the theory correctly predicts the relation between county employment growth and initial county employment in manufacturing at the turn of the 20th century

a cross country tabulation of own price elasticities of demand abstract this paper tabulates frisch slutsky and cournot own price elasticities for each of 10 goods at the per capita real income levels of 30 countries ranging from india to the united states

a bargaining theory of distribution channels abstract a critical factor in channel relationships between manufacturers and retailers is the relative bargaining power of both parties in this article the authors develop a framework to examine bargaining between channel members and demonstrate that the bargaining process actually affects the degree of coordination and that two part tariffs will not be part of the market contract even in a simple one manufacturer one retailer channel to establish the institutional and theoretical bases for these results the authors relax the conventional assumption that the product being exchanged is completely specifiable in a contract they show that the institution of bargaining has force and it affects channel coordination when the complexity of nonspecifiability of the product exchange is present the authors find that greater retailer power promotes channel coordination thus there are conditions in which the presence of a powerful retailer might actually be beneficial to all channel members the authors rec

a new approach to business fluctuations heterogeneous interacting agents scaling laws and financial fragility abstract in this paper we discuss a scaling approach to business fluctuations our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to re discover a set of stylized facts which have to be satisfactorily accounted for in their models standard macroeconomics based on a reductionist approach centered on the representative agent is definitely badly equipped for this task on the contrary we show that a simple financial fragility agent based model based on complex interactions of heterogeneous agents is able to replicate a large number of scaling type stylized facts with a remarkable high degree of statistical precision

gale nikaido debreu and milgrom shannon communal interactions with endogenous community structures abstract this paper examines nash jurisdictional stability in a model with a continuum of agents whose characteristics are distributed over a unidimensional interval communal benefits and costs of each individual depend on her identity and the composition of the community which she belongs to since the framework is too general to yield an existence of nash equilibrium we introduce the essentiality of membership in one of the communities for all individuals we highlight the border indifference property bip when all individuals located on a border between two adjacent jurisdictions are indifferent about joining either of them and show that bip is a necessary condition for yielding a nash equilibrium we invoke the celebrated gale nikaido debreu lemma to guarantee the existence of a partition that satisfies bip we then proceed to demonstrate that bip is not sufficient to yield a nash equilibrium the equilibrium existence under bip is rescued when we use the milgrom shannon monotone comparative statics conditions

why is pollution from u s manufacturing declining the roles of environmental regulation productivity and trade between 1990 and 2008 air pollution emissions from u s manufacturing fell by 60 percent despite a substantial increase in manufacturing output we show that these emissions reductions are primarily driven by within product changes in emissions intensity rather than changes in output or in the composition of products produced we then develop and estimate a quantitative model linking trade with the environment to better understand the economic forces driving these changes our estimates suggest that the implicit pollution tax that manufacturers face doubled between 1990 and 2008 these changes in environmental regulation rather than changes in productivity and trade account for most of the emissions reductions

pareto and piketty the macroeconomics of top income and wealth inequality abstract since the early 2000s research by thomas piketty emmanuel saez and their coauthors has revolutionized our understanding of income and wealth inequality in this paper i highlight some of the key empirical facts from this research and comment on how they relate to macroeconomics and to economic theory more generally one of the key links between data and theory is the pareto distribution the paper describes simple mechanisms that give rise to pareto distributions for income and wealth and considers the economic forces that influence top inequality over time and across countries for example it is in this context that the role of the famous r g expression is best understood

asset pricing in large information networks we study asset pricing in economies with large information networks we focus on networks that are sparse and have power law degree distributions in line with empirical studies of large scale social networks our theoretical framework yields a rich set of novel asset pricing implications we derive closed form expressions for price volatility profitability and trading volume as functions of the network topology we also study agent welfare and show that the network that optimizes total welfare is typically a uniform one with an intermediate degree of connectedness

a microfoundation for normalized ces production functions with factor augmenting technical change based on a tractable endogeneous technology choice framework we provide a microfoundation for aggregate normalized constant elasticity of substitution ces production functions with non neutral factor augmenting technical change in this framework firms are allowed to choose unit productivities of capital and labor optimally from a technology menu constructed under the assumption that unit factor productivities ufps are independently weibull distributed the weibull distribution itself is also microfounded here based on extreme value theory it is found to be an accurate and robust approximation of the true ufp distribution if technologies consist of a large number of complementary components

institutional investors and stock market volatility statement of responsibility on t p reads xavier gabaix parameswaran gopikrishnan vasiliki plerou h eugene stanley

delegating pricing decisions an outstanding problem in marketing is why some firms in a competitive market delegate pricing decisions to agents and other firms do not this paper analyzes the impact of competition on the delegation decision and in turn the impact of delegation on prices and incentives the theory builds on the simplest framework of competition in two dimensions prices and sales agents effort specifically we are interested in answering the following questions 1 does competition affect the price delegation decision and if yes why 2 how do prices vary under price delegation and no price delegation scenarios 3 do the incentives to the sales representatives vary under the delegation and no delegation scenarios to address these issues we build a game theoretic model that consists of two firms selling through their sales representatives these representatives are company employees sales are a function of prices and selling efforts the risk neutral firms decide whether or not to delegate the pricing decision to risk averse sales representatives the wages to the sales representatives consist of salary plus a commission on gross margins the commission on gross margins can be adjusted either through communicated marginal cost of production which we call virtual marginal cost or directly the firm and the sales representative are assumed to have the same information about the market that is there is no information asymmetry with competition in two dimensions the strategic nature of decision variableprice depends on the relative intensity of competition with unobservable contracts and risk averse sales representatives firms delegate the pricing decision when price competition is intense part of the uncertainty in demand is absorbed by the firm by keeping virtual marginal cost greater than the marginal cost of production the competing firm infers this through the risk aversion of the sales representatives under price delegation the sales representatives wages are higher and they set a price that is higher than what the firms would have set themselves this leads to softening of price competition that is to the advantage of both firms when the effort competition is dominant however the firms prefer to make the pricing decision themselves because this reduces the intensity of effort competition among agents a single instrument commission structure in which the firms adjust the virtual marginal cost is compared to a two instrument commission structure in which the firms can adjust the commission rate as well the virtual marginal cost under no price delegation the two incentive schemes are the same however under price delegation the risk premium with the two instrument scheme is lower however the prices and efforts are higher with the single instrument scheme when price competition is intense the increase in risk premium with the single instrument scheme is more than compensated for by the increase in profits this is the benefit of softening price competition through higher prices

limited liability contracts between principal and agent abstract the optimal strategy of the principal is examined in an environment where there are ex post limitations on the maximum penalty that can be imposed on a riskneutral agent contrary to the case in which such limitations are not imposed it is in the principal s interest to deliberately forego the opportunity to induce socially efficient behavior and to instead design a contract that induces the agent to realize an efficient outcome only in the most productive state of nature and perhaps in certain very unproductive states the properties of the contract are examined in detail

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

price versus quantity monitoring in an adverse selection context this article explores the relative usefulness of price information over quantity information the main finding is that price monitoring can induce a sales level that is greater than the full information sales level this imposes additional selling costs on the agent and reduces that agent s rents the analysis identifies sufficient conditions for the principal to prefer price monitoring over quantity monitoring business format franchises exhibit many of the features of the setting analyzed here and the article s findings have implications for designing information systems in that sector of the economy

is having more channels really better a model of competition among commercial television broadcasters competitive behavior in commercial television broadcasting is modeled to examine program choice and the effects of more channels being available on firm strategy specifically broadcasters compete by selecting both the type and quality level of a program to offer but do not compete on price we obtain five major results first a comparison of monopoly and duopoly markets indicates that broadcasters in an industry with a larger number of competitors may provide programs of lower quality compared to broadcasters in an industry with a smaller number second in terms of viewer welfare having more channels available is not necessarily better third broadcasters tend to choose an intermediate level of differentiation in terms of the types of programs they provide resulting in a counterprogramming strategy in other words avoidance of price competition is not required for competitors to differentiate themselves from each other fourth if one broadcaster starts the evening with a higher quality higher rated program than its competitor its second program should also be of higher quality finally a broadcaster s first program should be of equal or higher quality than its second program put another way it always behooves a broadcaster to lead with its best

the environmental bias of trade policy author s shapiro joseph s abstract this paper documents a new fact then analyzes its causes and consequences in most countries import tariffs and non tariff barriers are substantially lower on dirty than on clean industries where an industry s dirtiness is defined as its carbon dioxide co2 emissions per dollar of output this difference in trade policy creates a global implicit subsidy to co2 emissions in internationally traded goods and so contributes to climate change this global implicit subsidy to co2 emissions totals several hundred billion dollars annually the greater protection of downstream industries which are relatively clean substantially accounts for this pattern the downstream pattern can be explained by theories where industries lobby for low tariffs on their inputs but final consumers are poorly organized a quantitative general equilibrium model suggests that if countries applied similar trade policies to clean and dirty goods global co2 emissions would decrease and global real income would change little

comment managing channel profits comment in a recent paper in this journal jeuland and shugan jeuland a s shugan 1983 managing channel profits marketing sci 2 summer 239 272 proposed a quantity discount schedule as a way of coordinating a channel as they put it on p 253 of their paper a quantity discount schedule which would fix the retailer s and hence the manufacturer s profits to some fixed linear function of total channel profits would lead the channel to maximize profits the purpose of this note is to show that a quantity discount schedule is not necessary for channel coordination

benefits of channel discord in the sale of durable goods minimizing strife through vertical integration is commonly seen as the holy grail for long term success in product distribution in this paper we take a different slant showing that sometimes a separated channel that embodies a degree of discord can be helpful particularly when a long term view is taken this result is shown in the context of durable goods manufacturing the quandary of durable goods production is that once demand for a certain time frame is met there is a subsequent temptation to flood the market with additional goods as such consumers are reluctant to buy immediately instead opting to wait for discounted prices this problem can be alleviated by a degree of channel discord high wholesale prices ensure future sales will slow to a trickle

frich s conjecture and the own price elasticity of the demand for food abstract frich s 1959 conjecture on the behavior of the income elasticity of the marginal utility of income is tested by means of cross country data particularly in relation to the behavior of the frisch own price elasticity of the demand for food

market forces and ceo pay shocks to ceo demand induced by ipo waves i develop a simple competitive equilibrium model and derive the prediction that ceo pay size elasticity increases when more firms compete for an inelastic supply of managers using industry level ipo waves as a proxy for increased competition for ceos i find that pay size elasticity increases by 6 with a one standard deviation increase in ipo activity this effect is stronger in specialized industries in addition increased ipo activity leads to a greater likelihood of executive transitions between firms these findings indicate that market forces play a key role in the determination of ceo pay received august 6 2015 editorial decision september 24 2016 by editor francesca cornelli

a schumpeterian model of top income inequality top income inequality rose sharply in the united states over the last 40 years but increased only slightly in france and japan why we explore a model in which heterogeneous entrepreneurs broadly

the zipf s law and the effects of free trade the case of guatemala abstract the aim of this study is to investigate the impacts of trade policy changes on the order of the size of cities and economic growth of guatemala between 1921 and 2002 the pareto coefficient was estimated and an index was used to measure the degree of urban concentration finally a model of the impact of trade liberalization on economic growth was estimated the main results obtained showed a slight growth in inequality and divergence although the urban concentration index showed a gradual decline since 1964 the golden age of the cacm by the year 2002 it was found that the urban concentration has an inverse relationship with the commercial opening and positive economic growth during the period from 1921 to 1964 it was concluded that major cities reduced their growth and that small and medium sized cities grew at a faster rate than big cities driven by the growth of international trade

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

a note on the size distribution of cities over time abstract the pareto law of income distribution is applied to the analysis of city size structures particular concern is focused on the pareto coefficient as a measure of interurban concentration and on how this varies through time within a nation on the basis of evidence from 12 nations it is argued that over time a nation tends to display a u shaped pattern in the degree of interurban concentration and that the higher a nation s overall level of development the more advanced it will be in the sequence of concentration consideration is given to the possibility of supporting these conclusions through cross sectional analysis among nations the various bases for the proposed temporal pattern of concentration within a nation are then explored

from gibrat s law to zipf s law through cointegration abstract this article investigates the role of cointegration in the context of urban growth processes it proposes the use of cointegration tests to distinguish between two versions of gibrat s law a standard formalization with growth shocks that are iid across time and cities and an alternative one with shocks that are only iid over time it then shows that city size distributions converge to zipf s law under the standard version of gibrat s law in contrast they are perfectly preserved under the alternative formalization an empirical application to french data provides support for non cointegrated city growth and thus for the standard formalization

reply to managing channel profits comment we welcome moorthy s comment moorthy k s 1987 managing channel profits comment marketing sci 6 fall 375 379 it provides an opportunity to clarify several issues raised in our 1983 paper that paper was motivated by one concern channel coordination we believed that channel members benefit from coordination and that many institutional arrangements such as quantity discounts are actually coordinating mechanisms we developed a simple model to demonstrate our belief for historical accuracy mcguire and staelin cited by moorthy had already independently developed a useful model of duopolistic channel competition being unaware of their working paper our model not surprisingly differed from theirs both papers provide important but different insights into channel management

urban concentration agglomeration economies and the level of economic development there is a view among planners in the developing nations that the process of economic development invariably results in the concentration of population in one or two primal cities there is also however considerable disagreement over whether this apparent relationship is either necessary or desirable proponents on the one hand argue that concentrated urbanization strongly supports industrial development through the realization of scale and agglomeration economies 2 dissenters from this view feel that urban concentration creates serious social costs and results more from historical or political forces than economic ones in this case policies aimed at decentralizing growth can achieve social objectives without sacrificing economic efficiency despite these deliberations it is surprising that there has been little or no empirical study of urban concentration on either a longitudinal or cross national basis the major related work which exists is williamson s research on economic development and income inequality 3 williamson demonstrates that as economic growth begins inequality initially increases but then diminishes in the more advanced stages of development this coincides with hirschman s4 view that industrialization eventually spreads into more backward areas reduc

allocation of goods and services in vat this paper examines the allocation of goods and services in three hypothetical rates of the planned greek value added tax vat this allocation is based on six criteria i e the revenue criterion the luxuriousness criterion the regressivity of indirect taxes the relation of goods and services the criterion of import component of domestic demand and on the social criterion when drawn together the six criteria suggest a final classification of goods and services in the greek vat based on this final classification the microeconomic bases of the vat are estimated for the average greek household and also for households of different socioeconomic characteristics

verifying a demand system by simulation abstract an intriguingly small value of the asymptotic standard error of the estimate of the income flexibility inspired us to simulate the demand system the procedure used should have more general applicability

idea generation creativity and incentives idea generation ideation is critical to the design and marketing of new products to marketing strategy and to the creation of effective advertising copy however there has been relatively little formal research on the underlying incentives with which to encourage participants to focus their energies on relevant and novel ideas several problems have been identified with traditional ideation methods for example participants often free ride on other participants efforts because rewards are typically based on the group level output of ideation sessions this paper examines whether carefully tailored ideation incentives can improve creative output i begin by studying the influence of incentives on idea generation using a formal model of the ideation process this model illustrates the effect of rewarding participants for their impact on the group and identifies a parameter that mediates this effect i then develop a practical web based asynchronous ideation game which allows the implementation and test of various incentive schemes using this system i run two experiments that demonstrate that incentives do have the capability to improve idea generation confirm the predictions from the theoretical analysis and provide additional insight on the mechanisms of ideation

designing optimal sales contests a theoretical perspective sales contests are commonly used by firms as a short term motivational device to increase salespeople s efforts conceptually sales contests and piece rate schemes such as salary commission or quotas differ in that in sales contests payment to salespeople is based on relative rather than absolute sales levels using the agency theoretic framework where the firm is risk neutral and the salespeople are risk averse we examine how a firm should design an optimal contest to maximize its profit through stimulating salespeople s efforts specifically we investigate how many salespeople should be given awards and how the reward should be allocated between the winners three commonly used sales contest formats are studied in the first format termed as rank order tournament there are many winners and the amount of reward is based on relative rank achieved with larger amounts awarded to higher ranks we also examine two special cases of rank ordered tournament a multiple winners format where the reward is shared equally and a winner take all format where a single winner gets the entire reward we model salespeople s behavior by considering utility of the reward from achieving one of the winning ranks in the contest and assessing incremental chances of winning by exerting more effort the analysis was done for two situations based on whether the total reward is large enough for salespeople to participate in the effort maximizing sales contest or not the analysis shows that factors impacting contest design include the salespeople s degree of risk aversion number of salespeople competing in the contest and degree of sales uncertainty which reflects strength of the sales effort relationship the results show that salespeople exert lower effort when there are larger numbers of participants or when sales uncertainty is high we find that the rank order tournament is superior to the multiple winners contest format in a multiple winners format the salesperson whose performance is just sufficient to win is better off than any of the other winners as he exerts the least effort to win but obtains as high a reward as any other winners specific recommendations on contest designs are obtained assuming that sales follow either a logistic or uniform distribution assuming that sales outcome is logistically distributed and the contest budget is high enough to ensure participation our analysis shows that the total number of winners in a sales contest should not exceed half the number of the contestants this result is due to the symmetric nature of the logistic distribution our analysis also indicates that the total number of winners should be increased and the spread decreased when salespeople are more risk averse when salespeople are more risk averse their marginal values for higher rewards become smaller the spread should increase with ranks when rate of risk tolerance is high and decrease with ranks when the rate of risk tolerance is lower in the extreme case of risk neutral salespeople the optimal design is a winner take all format we also conclude that since the probability of winning the contest decreases with number of contestants the optimal number of winners should increase and interrank spread decrease when there are a larger number of participants if the firm does not allocate a large enough budget for salespeople to participate in the effort maximizing sales contest then the firm may increase the number of winners to more than half the sales force increasing the number of winners and decreasing the spread are required to encourage the salespeople to participate particularly when there are many participants who are risk averse a counterintuitive result is that the number of winners should be reduced and the spread increased when sales uncertainty is high increasing sales uncertainty leads to lower equilibrium effort levels while keeping the expected utility of the contest rewards the same therefore increased uncertainty results in higher participation incentive the firm should thus relatively reduce the number of winners in high uncertainty situations under the assumption of uniformly distributed sales the recommendation is that a winner take all contest induces maximum efforts regardless of the level of risk aversion number of players or the degree of uncertainty when the winner take all format does not meet the participation constraint our analysis recommends offering a big reward to the top salesperson and a small reward to many other sales people the small reward should be just sufficient to ensure that all salespeople participate consistent with logistic distribution the spread should decrease when salespeople are more risk averse or there are more players but should increase when sales uncertainty is larger these results highlight that some of the conclusions drawn may be sensitive to distributional assumptions

an empirical analysis of territorial encroachment within franchised and company owned branded chains franchisees within large branded chains loudly complain of a form of channel conflict known as encroachment or impact encroachment occurs when franchisors add new units of their brand proximately to their franchisees existing units franchisees claim that their revenues have substantially decreased as a result of encroaching same brand entry the topic of encroachment has not only dominated franchisee association agendas and trade journal headlines but has also become a hot topic for politicians and policymakers yet until now evidence of encroachment has been strictly anecdotal this paper provides the first systematic evidence of encroachment using revenue data from the texas lodging industry in the 1990s i find that when franchisors approve new same brand units in the vicinity of incumbent units these new units cannibalize the incumbents revenues in contrast to the result for franchisors the addition of a new unit by company owned brands in the vicinity of same brand units is associated with an increase in the incumbents revenues this contrast suggests that encroaching behavior is caused by incentives that result from the governance form of franchising and is not simply an outcome that accompanies all expansion this finding informs theory on governance forms and exclusive territories implications for practitioners and policy are also discussed