first price auction implements efficient investments abstract this note shows that the first price auction fully implements efficient investments when agents make not only ex ante but also ex post investments the essential assumptions of our model are that i each agent can invest before and after participating in the auction under the same cost function and ii the cost functions are common knowledge among agents in any equilibrium of our model the most efficient agent always wins and makes the efficient level of investment

price inertia and market structure empirical evidence from austrian manufacturing 1993 price inertia and market structure empirical evidence from austrian manufacturing applied economics vol 25 no 9 pp 1175 1186

support systems for the diffusion of renewable energy technologies an investor perspective concern over climate change impacts and the projected depletion of fossil fuels has urged more governments to adopt policies that stimulate the diffusion of renewable energy technologies ret with an increasingly diverse suite of support instruments the question emerges as to which instruments or combinations are able to achieve faster more substantial diffusion results although various support instruments were extensively addressed in policy studies there is still no consensus this is partly because many policy studies take a policy maker approach in comparing support instruments leaving relationships between policy design and policy results as a black box this paper proposes an investor oriented perspective to analyze the diffusion potential of support systems for ret the main argument is that it is not the type of support instrument but rather its risk profitability characteristics that influence investor behavior and the rate of diffusion the two instruments most frequently discussed and compared are the feed in tariff and the quota model the analysis in this paper concludes that policy design is crucial while often feed in tariffs are applauded and quota system feared feed in tariffs may also bring about disappointing diffusion results when poorly designed while quota systems may be also conceived as attractive instruments for independent power producers

industry structure and the speed of price adjustment recent work has suggested that there is an association between the degree of concentration in an industry and the speed at which prices adjust to changes in prime costs cagan 8 domberger 12 13 scherer 21 p 356 and the references cited therein apart from its intrinsic interest to students of industrial economics there would seem to be three reasons for investigating this association first to see what light if any it throws upon the influence of industrial structure on the price level together with the rate and process of inflation secondly to test the assumption made in some influential studies e g godley and nordhaus 15 coutts godley and nordhaus 10 and haig and wood 18 that the size of the lag between cost and price changes is solely dependent upon the length of the fabrication production and delivery period in the various industries the third reason is a belief held by the author that distributed lag coefficients in econometric studies should be subject to analysis and not left hanging in the air as part of the development of a large scale econornetric model of the australian economy the imp model a team of researchers under the direction of dr brain at melbourne university have estimated price prime cost equations for 43 manufacturing sectors using annual data referring to the period 1948 49 1973 74 1 the estimating equation is of the form

in the aftermath of the energy crisis new zealand s energy policy in the 1970s and 1980s abstract the past decade of energy policy in new zealand is analysed with respect to the country s dependence on imported oil energy conservation programmes and the use of renewable energy resources in all cases the country has failed to meet the objectives continually set forth in energy policy documents the recent corporatization strategy of the government with respect to energy planning and management makes the possibility of achieving integrated energy planning quite dubious even recent studies calling for resilient energy plans have only added ambiguity to this situation it is only through a coordinated and centralized strategy that these deficiencies can be overcome which is quite the opposite of the present policy focus

market structure and price adjustment in the u s wholesale gasoline markets abstract the issue of sticky prices in u s wholesale gasoline market is re examined allowing for the effect of market structure due to increased market concentration caused by mergers acquisitions and joint ventures which started in the late 1990s in the u s oil industry i investigate the effects of market structure on the pattern of price adjustment based on the notion that increased market concentration leads to downward price stickiness and asymmetric short run price adjustment in the transmission of crude price changes to wholesale gasoline price i find that market concentration has an insignificant asymmetric effect on the speed of price adjustment but a significant asymmetric effect on short run price adjustments in the response of wholesale gasoline prices to crude price shocks in three u s wholesale markets furthermore the signs on the coefficients of market concentration effects on price dynamics in the models support the assertion that increased market concentration leads to downward price stickiness in only one of the three markets examined overall the results indicate that market structure does not have a strong effect on the dynamics of price adjustment

energy efficiency vs economic efficiency new zealand electricity sector reform in the context of the national energy policy objective abstract in this article i review the diverse commentaries on new zealand s ongoing electricity sector reform process within the context of the government s energy policy objective in doing so my purpose is to highlight the interactions between the concepts of energy efficiency and economic efficiency in particular i ask how do the various commentators on reform define these concepts what indicators do they use to measure them and what level of each do they prescribe as appropriate my main objective is not to decide whether any commentator is right or wrong rather i seek to identify the distinct world views or paradigms underlying the commentaries with respect to both energy efficiency and economic efficiency i conclude that economic efficiency is consistent with a supply side paradigm valuing economic growth whereas those who value energy efficiency over economic efficiency subscribe to a demand side paradigm recognising the limits to growth such a paradigm derives from the ethic of sustainability i close by posing the as yet unanswered question are these paradigms mutually exclusive

investment incentives in procurement auctions this paper investigates firms incentives to invest in cost reduction in the first price sealed bid auction a format largely used for procurement two central features of the model are that we allow firms to be heterogeneous and that investment is observable we find that firms will tend to underinvest in cost reduction because they anticipate fiercer head on competition using the second price auction as a benchmark we also find that the first price auction will elicit less investment from market participants and that this is socially inefficient these results have implications for market design when investment is important different market institutions provide different incentives for firms to reduce costs acquire information expand and so on in short to undertake any activity that affects their competitive positions accordingly the performance of these market institutions should be judged not only from a static perspective taking firms competitive positions as given but also from a dynamic perspective auction markets are a natural competitive environment to study because there is a clear sense in which we can design such markets by choosing appropriate rules for competition in this paper we study how the first price auction fpa a format commonly used for procurement affects firms incentives to invest in cost reduction many procurement markets are characterized by a small number of participants heterogeneity among firms and low rates of turnover therefore it is interesting to investigate to what extent the format used for the auction contributes to these characteristics the basic ingredients of our model are as follows there are n firms and one of them has the opportunity prior to the auction to make an investment we model this investment as an improvement in the ex ante distribution of costs for this firm the main question we ask is what are the firm s incentives to invest given that this investment is observed by its competitors clearly the benefits of such investment depend on how the firm s competitors react in other words to determine the firm s incentive to invest we need to compare the equilibrium at the procurement stage if it makes this investment and if it does not in section 3 we derive new comparative statics results for the fpa we find that after the investment the investor s opponents will bid collectively more aggressively this result holds generally when there are only two bidders or when the investor s opponents are symmetric proposition 1 otherwise a sufficient condition is that investment changes market leadership proposition 2 in the language of industrial organization investment has a negative strategic effect in the fpa this erodes 1

production lags and price behaviour this paper explores the implications of the production lag for the firm s decisions the authors establish a significant relationship between price behavior and the length of the production lag they show that specific results in the literature are crucially dependent upon the assumption about the production lag by allowing the production time to exceed the decision period the basic framework of the earlier price inventory models is significantly extended the model thus incorporates finished goods inventories as well as goods in process inventories copyright 1992 by the london school of economics and political science

information disclosure in auctions an experiment we report experimental results on the importance of information disclosure policy in first price sealed bid auctions interaction takes place in 10 periods according to a random matching protocol and we control the level of information feedback bidders receive after each period when bidders are informed about the losing bids in previous periods prices are higher than the theoretical prediction however when this information is not revealed the bidding becomes more competitive and the bids come close to the theoretical prediction we suggest that a signaling phenomenon may be important for explaining these results 2002 elsevier science b v all rights reserved

inventory and price behaviour the point of this paper is that inventory adjustment attenuates downward pressure on price when realized demand is low because firms accumulate inventory hold overs speculating that demand will be stronger in the succeeding period when realized demand is high the firm draws down its inventories until a stock out occurs and price rises to clear the market

procurement auctions with entry of bidders abstract in procurement auctions with a fixed number of bidders there is a tradeoff between cost efficiency and rent extraction an optimal mechanism therefore entails distortions of effort laffont and tirole 1987 if potential suppliers must sink an entry investment before they can participate in the auction then decreasing the firms rent may imply reduced entry we show that if potential bidders are uninformed before entry commitment to a plain nondistortive auction is optimal in contrast if potential bidders learn all their private information before entry the optimal mechanism entails the same distortions as in laffont and tirole s static model

actively learning about demand and the dynamics of price adjustment by observing the quantity demanded at particular prices a firm may learn about the parameters of its demand curve in such an environment price changes obstruct the learning process by inducing additional noise the authors paper constructs a dynamic model where a price setting firm endogenously controls the speed of learning the model provides a possible explanation for price inertia as a stable pricing policy allows the firm to learn more rapidly which improves future expected profits furthermore even in the long run learning continues to affect the firm s optimal price copyright 1990 by royal economic society

the invariance of market innovation to the number of firms this article provides a set of conditions under which the r d undertaken in a market economy is invariant to the number or size distribution of firms and the market s allocation is efficient i e given the aggregate expenditure the market chooses socially optimal projects as in several patent race studies we assume that a winner takes all competition determines firms gains but our model differs from earlier studies in that firms are not restricted to undertake only one research project our analysis shows that how one characterizes a firm s choices and innovation technologies has a strong influence on the conclusions one draws from economic analyses of r d

the effect of dynamic competition on price cost margins this paper analyses the intertemporal adjustment process of price cost margins at the four digit standard industrial classification sic industry level our intial analysis shows the assumption that the adjustment process is consistent over all industries is inappropriate while the assumption that the adjustment process is consistent over two digit industries is supported in approximately 31 of the sample industries we proceed to analyse industry specific adjustment parameters and find that 50 of the sample are compatible with a decay of 90 of the supranormal return with four years and 85 of the sample exhibit margins that decay in approximately 10 years further analysis allows us draw some weak conclusions on the determinants of the adjustment parameter we find a change in cocentration high imports a mature market and low research and development expenditures contribute to slightly lower adjustment coefficients and a faster decay of supranormal profits finally the modelling of the adjustment

power privatization and the uk coal industry abstract this article considers the impact of power privatization on the uk coal industry it notes the key importance of fuel costs in determining the profit levels of private generators and concludes that privatization will result in a premature closure of uk coal capacity which would otherwise be competitive with imported coal after 1990 it suggests that the basis of power privatization is essentially irrational and ideological

the privatization programme and the consumer interest abstract the uk government s privatization programme has sought to free the managers of the industries from interference in the day to day running of their businesses three related assumptions seem to underly the extension of this approach to the utility industries first that the products of utility industries should as far as possible be treated as a commodity like any other second that the overriding purpose of public policy towards the utilities is to promote efficiency not equity for example third that managerially independent shareholder owned industries will be more efficient than regulated centrally planned industries consumer organizations are sceptical about these assumptions

contest with pre contest investment abstract in a standard noisy contest more competition more contestants leads to lower individual equilibrium effort we show that when contestants can make pre contest investment to enhance their competency neither equilibrium investment nor individual effort is monotonic in the number of contestants individual effort may increase with the level of participation

simple menus of contracts in cost based procurement and regulation in an influential paper jean jacques laffont and jean tirole 1986 formulated a principal agent model of cost based procurement and regulation and showed that the principal can implement the optimal mechanism by offering the agent a menu consisting of a continuum of linear contracts two related problems with applying this theory in practice have been that the economic logic and the underlying mathematics involved in calculating the optimal menu are quite complex and the principal must be able to specify the agent s entire disutility of effort function in order to calculate the optimal menu as a result the model has not been widely used in practice to either calculate actual incentive contracts or even to develop useful qualitative guidance about the nature of the optimal solution and how it is affected by various economic factors the purpose of this paper is to show that dramatically simpler menus which are easy to understand and calculate and which have lower informational requirements can at least in some cases capture a substantial share of the gains achievable by the fully optimal complex menu in particular this paper considers two item menus where one item is a cost reimbursement contract and the other item is a fixed price contract such menus are called fixed price cost reimbursement fpcr menus for the case where the agent s utility is quadratic and the agent s type is distributed uniformly it is shown that the optimal fpcr menu always captures at least three quarters of the gain that the optimal complex menu achieves where the gain is measured relative to the result of using a cost reimbursement contract this paper s research was originally motivated by a policy issue in defense procurement in the united states the department of defense dod purchases almost all major weapons systems from sole source contractors using contracting methods that essentially amount to using cost reimbursement contracts the best way to understand why dod uses costreimbursement contracting methods is that they perform precisely the function identified in laffont and tirole s principal agent model they guarantee in a situation that amounts to a bilateral monopoly that dod and the firm can reach an agreement i e they guarantee that the agent will always produce the good of course the use of cost reimbursement contracting methods

inventories and price inflexibility a firm maximizing expected discounted profits taking account of the actions of its competitors choosing price and output before stochastic demand is known and holding inventories or unfilled orders to accommodate discrepancies between output and demand is shown to respond to a change in demand by changing its output whether the demand change is transitory or permanent but by changing the price it charges only if the demand change is permanent this proposition is shown to be consistent with german data the data are qualitative the empirical analysis uses the multivariate conditional logit model the empirical results are summarized by gamma coefficients

sticky prices inventories and market power in wholesale gasoline markets a model with costly adjustment of production and costly inventories implies that wholesale gasoline prices will respond with a lag to crude oil cost shocks unlike explanations that rely upon menu costs imperfect information or long term buyer seller relationships this model predicts that futures prices for gasoline will adjust incompletely to crude oil price shocks that occur close to the expiration date of the futures contract we test and confirm this implication examining wholesale price responses in 188 gasoline markets we also find that firms with market power adjust prices more slowly than do competitive firms consistent with the model

incentivizing r d prize or subsidies abstract this paper studies the optimal design of r d contests a sponsor e g the us department of defense or the world health organization wants to improve the quality of the winning products to do so it partitions its budget between two schemes an inducement prize and efficiency enhancing subsidies to the firms competing in the contest prizes and subsidies have different functions and they provide complementary incentives in the optimally designed contest subsidies increase while the prize decreases if the innovation process is more challenging further sensible conditions are identified under which the optimal contest implements either a handicapping scheme by preferentially subsidizing the underdog or a national champion scheme by favoring the favorite our analysis yields a number of useful implications and sheds light on an array of r d incentive schemes such as the dod s design competitions and vaccine development incentives

negotiating cultures in corporate procurement abstract in a repeated procurement problem the incumbent can undertake a relationship specific investment that generates opportunity costs of switching for the buyer we investigate the impact of the negotiating culture on investment incentives favoritism in the procurement contract allocation and buyer profit we compare a stylized competitive negotiating culture with a stylized protective culture the cultures differ in the way the buyer uses the entrance threat to exert pressure on the incumbent our main result is that the relative performance of the cultures depends non monotonically on the expensiveness of the investment

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

bundling decisions in procurement auctions with sequential tasks abstract this paper investigates the principal s bundling decision during a procurement auction for a project consisting of two sequential tasks in which task externality exists and information arrives sequentially we show that although increasing the number of bidders in the market for the second task always tilts the principal s choice toward unbundling increasing the number of consortiums that can perform both tasks tilts the principal s preference toward bundling if the externality is negative

competition for procurement contracts and underinvestment a two period model is considered in which ex ante identical firms invest in period one and in period two after they learn their costs the lowest cost firm is chosen as the winner of the contract it is found that even though firms are racing against one another they end up underinvesting relative to the ex ante socially optimal levels when the buyer is unable to credibly precommit to the second period contract

bidder solicitation adverse selection and the failure of competition we study a common value first price auction in which the number of bidders is endogenous the seller auctioneer knows the value and solicits bidders at a cost the number of bidders which is unobservable may thus depend on the true value therefore being solicited conveys information this solicitation effect may soften competition and impede information aggregation under certain conditions there is an equilibrium in which the seller solicits many bidders yet the resulting price is not competitive and fails to aggregate any information more broadly these ideas are relevant for markets with adverse selection in which informed traders initiate contacts

entry and competition effects in first price auctions theory and evidence from procurement auctions motivated by several interesting features of the highway mowing auction data from the texas department of transportation tdot we study three competing procurement auction models with endogenous entry our entry and bidding models provide several interesting implications for the first time we show that even within an independent private value paradigm as the number of potential bidders increases bidders equilibrium bidding behaviour can become less aggressive and the expected procurement cost may rise because the entry effect is always positive and may dominate the negative competition effect we then develop structural models of entry and bidding corresponding to the three models under consideration controlling for unobserved auction heterogeneity and use the recently developed semi parametric bayesian estimation method to analyse the data we select the model that best fits the data and use the corresponding structural estimates to quantify the entry effect and the competition effect with regard to the individual bids and the procurement cost copyright 2009 wiley blackwell

monetary shocks market structure and administered prices this paper examines interindustry variation in the response of prices to nominal aggregate demand disturbances this subject has been the focus of numerous investigations in recent years 7 8 9 10 11 12 13 17 and 28 a long standing motivation for this attention has been debate over gardiner means s 22 administered price ap thesis which in broad terms seems to imply that cyclical price flexibility diminishes with increases in market power more recently researchers have focused on imperfect competition as a source of price stickiness because of the importance of this mechanism for the emerging new keynesian analysis of business cycles 1 3 6 thus far however the empirical studies on this subject have reported mixed results and the relationship between imperfect competition and price flexibility remains unsettled curiously an alternative to the market power explanation of inter industry variation in cyclical price flexibility has been largely ignored in these past studies even though it lies at the heart of the new classical macro models the lucas 21 supply function lsf which is key to the striking policy results of these models predicts that output will respond more to a demand shockand by implication absolute prices will respond less in those industries with a history of greater variation in their relative demand or price industry level investigation of price movements thus provides a partial test of the lsf which like the ap thesis remains open to question this paper presents evidence on the explanatory power of both the ap and the lsf approaches we begin with a price change equation that can be derived from a standard lsf model as shown by robert gordon 15 an important feature of this specification is its distinction between anticipated and unanticipated money growth we then show that this same price equation can be given an ap interpretation relying principally on recent work of rotemberg and saloner 29 both approaches predict variation across industries in their price response to unanticipated money growth but they offer different explanations of the cause the lsf theory suggests dependence on the industry s relative demand instability the ap models suggest dependence on industry structure evidence on the competing theories is developed from annual price data on 328 four digit

split award contracts with investment abstract this paper studies procurement contracts where a buyer can either divide full production among multiple suppliers or award the entire production to a single supplier we examine the effect of using multiple suppliers on investment incentives in a framework of generalized second price auctions with pre auction investment we show that the optimality of split award depends on the socially efficient number of firms at the investment stage when that number is greater than one sole sourcing is buyer optimal when that number is one split award lowers the buyer procurement cost

design competition through multidimensional auctions this article studies design competition in government procurement by developing a model of two dimensional auctions wherefirms bid on both price and quality and bids are evaluated by a scoring rule designed by a buyer three auction schemes first score second score and second preferred offer are introduced and related to actual practices if the buyer can commit to a scoring rule in his best interest the resulting optimal scoring rule underrewards quality relative to the buyer s utility function and implements the optimal outcome for the buyer underfirst and second score auctions absent the commitment power the onlyfeasible scoring rule is the buyer s utility function under which 1 all three schemes yield the same expected utility to the buyer and 2 first and second score auctions induce the first best level of quality which turns out to be excessive from the buyer s point of view

dynamic competition and price adjustments the link between price rigidity and market structure has long been a topic of interest to researchers in both macroeconomics and industrial organization research on this subject with its antecedents in the widely debated topic of administered inflation has gone through several stages in recent years the focus of research has been on explaining the speed of price adjustment 8 7 11 4 2 3 a parallel line of research has been on the role of entry in disciplining the price behavior of incumbent firms 15 14 5 the current study extends previous work on price adjustment in several important ways most importantly we introduce dynamic elements of competition as measured by several disaggregated measures of domestic and import entry we are able to evaluate the extent to which price effects of entry into u s manufacturing are due to changes in desired prices or to changes in the speed of adjustment to desired prices we depart from previous studies in that we use pooled data to estimate by nonlinear regression methods both the desired target price change and the speed of adjustment across industries

market structures price cost margins and unionism an empirical note abstract empirical results show the existence of a non linear relationship between concentration and price cost margins a non linear specification provides substantial evidence that unions reduce profits especially in more oligopolistic industries

optimal price adjustment under imperfect information abstract variations in cost and demand do not have symmetrical impact on the optimal price of the imperfectly competitive firm this asymmetry is not so important as long as information regarding both cost and demand is sufficient however it becomes crucially important in case of incomplete information usually firms have more complete or harder information on cost than on demand this difference in information status on the cost and on the demand side can explain both cost based pricing and slow price adjustment to demand in an optimizing framework with bayesian learning about changed demand conditions

price transmission and local market power empirical evidence from the austrian gasoline market we analyse the impact of local market power on price margins and different dimensions of price adjustment dynamics speed and asymmetry of price transmission using data for a large number of indiv

efficient investments in the implementation problem abstract this paper identifies a condition for an efficient social choice rule to be fully implementable when we take into account investment efficiency to do so we extend the standard implementation problem to include endogenous ex ante and ex post investments in our problem the social planner aims to achieve efficiency in every equilibrium of a dynamic game in which agents strategically make investments before and after playing the mechanism our main theorem shows that a novel condition commitment proofness is sufficient and necessary for an efficient social choice rule to be implementable in subgame perfect equilibria the availability of ex post investments is crucial in our model there is no social choice rule that is efficient and implementable in subgame perfect equilibria without ex post investments we also show that our positive result continues to hold in the incomplete information setting

auctionin entry into tournaments a research tournament model with heterogeneous contestants is presented for a large class of contests the optimal number of competitors is two this insight makes designing the tournament easier and highlights the importance of selecting highly qualified contestants while customary uniform price and discriminatory price auctions are intuitively appealing mechanisms for solving this adverse selection problem in practice they generally will not be efficient mechanism for selecting contestants instead we propose an alternative auction format that is equally simple to implement and efficiently selects the most qualified contestants to compete regardless of the form of contestant heterogeneity

anatomy of a future energy crisis restructuring and the energy sector in new zealand abstract up until the mid 1980s new zealand had been characterized by an economy that was heavily protected extensively regulated and in which production was subsidized to a considerable extent in 1984 the government embarked upon a programme of extensive public sector and economic restructuring described by some as being among the most wide reaching and radical in new zealand s history for the energy sector the restructuring has meant a move away from an administrative infrastructure of the 1970s and 1980s that was strongly centralized and government led to one that is based much more on market forces energy development production and delivery have been corporatized and privatized the energy sector has been largely deregulated and government has disavowed itself of responsibility for energy resource management and policy the primary motivation that underlies all of the reform is economic efficiency concerns are widely held however for the implications that follow from this restructuring of the energy sector for the efficient management of energy resources security of supply long term management of the sector and for the maintenance of environmental quality it is possible that greater economic efficiencies might be achieved although this is by no means certain but it would seem that specific characteristics of the restructuring will militate strongly against the achievement of other objectives in the sector recommendations for amendment refer to the need to strike a sensible balance between market forces and government involvement

optimal design of research contests procurement of an innovation often requires substantial effort by potential suppliers motivating effort may be difficult if the level of effort and quality of the resulting innovation are unverifiable if innovators cannot benefit directly by marketing their innovations and if the buyer cannot extract up front payments from suppliers we study the use of contests to procure an innovation in such an environment an auction in which two suppliers are invited to innovate and then bid their prizes is optimal in a large class of contests if contestants are asymmetric it is optimal to handicap the most efficient one

price adjustments by a gasoline retail chain we use daily data to examine price responses in the swedish gasoline market to changes in the rotterdam spot price exchange rates and taxes the distribution of price adjustments by a leading retail chain for the period january 1980 to december 1996 is symmetric with no small adjustments an error correction model shows that in the short run prices gradually move towards the long run equilibrium in response to cost shocks there is some evidence that also in the short run prices are stickier downwards than upwards prices respond more rapidly to exchange rate movements than to the spot market price our analysis emphasizes that to fully understand price adjustments it is necessary to examine data sets where the sample frequency at least matches that of price adjustments

industrial structure concentration and the speed of price adjustment it is argued that the relationship between market structure and the speed of price adjustment involves two distinct forces with opposing directions t he leadership effect and the industry profitability effect the direction of the relationship will depend on the relative importance of these effects estimation of an equation explaining the speed of price adjustment in terms of industrial concentration and the length of the production period provided evidence of negative effects for bo th the above variables copyright 1988 by blackwell publishing ltd

market failure and energy policy a rationale for selective conservation abstract appropriate activities for the government in the energy sector of the us economy are suggested on the basis of market failures in this sector alleged market failures are explored and specifically targeted remedies proposed where indicated the resulting government policies can be characterized as selectively conservationist designed to induce lower levels of use of particular fuels sometimes in particular industries

simple cost sharing contracts we extend rogerson s 2003 intriguing analysis of the performance of simple procurement contracts to consider settings where the supplier s innate production cost is not necessarily distributed uniformly although the simple contract that rogerson analyzes performs remarkably well when the smaller cost realizations are relatively likely it can perform poorly when the larger cost realizations are relatively likely we show that in all settings under consideration though a fairly simple pair of contracts one that involves linear cost sharing and one that involves full cost reimbursement can always secure more than 73 of the gain achieved with a fully optimal contract

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

cost reducing investment optimal procurement and implementation by auctions the authors analyze a model in which potential suppliers invest in research and development r d and then compete for a procurement contract from a buyer if the buyer is able to commit to a procurement mechanism before the investment stage the full information solution can be uniquely implemented by first price and second price sealed bid auction mechanisms when the r d technology exhibits decreasing returns to scale if the procurement mechanisms and the levels of investment are chosen simultaneously the full information solution cannot be implemented the authors discuss how the second best equilibrium contract varies with the number of suppliers copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

entry and r d in procurement contracting abstract a model of competitive procurement and contracting is presented in this paper the key features of the model include precontract r d an endogenous number of homogeneous firms and sealed bid auction rules both diminishing and constant returns to scale drs and crs in r d expenditure technologies are considered i find that the sealed bid first price auction fpa is equivalent to the second price auction spa under drs technology the revenue equivalence theorems breaks down under crs because multiple equilibria arise in the r d stage when spa is used howerer spa yields a unique perfect equilibrium given sufficient heterogeneity among potential firms the free entry perfect equilibrium is also characterized the buyer prefers free entry through an appropriate selection of the reservation price

enhancing energy price stability through consistent and balanced energy technology r d abstract despite the significant decline in energy prices and the large budget deficit the us government must maintain a well balanced energy technology development programme ranging from basic science through to the demonstration of technical feasibility and technology transfer having technology in technical readiness before an energy price shock will moderate economic problems due to the price shock and thereby promote economic stability based on evolving knowledge about the relationships among energy prices technology commercialization and recessions and depressions development of efficient energy technologies must be far better managed by government and the private sector during both normal economic growth and energy crisis

avoided cost contracts can undermine least cost planning abstract utilities and regulatory agencies are increasingly turning to non utility sources of electric power in the usa many contracts with independent power producers ipps contain indexing terms under which an ipp s energy rates vary in response to energy cost changes on the purchasing utility system such indexing is often used to ensure that ipp rates track utility avoided costs unfortunately such indexing can undermine least cost planning if utility decisions can alter established ipp rates such indexing can also cause ratepayer interests to conflict with those of society the use of regional cost indices can solve the utility planning problem preventing the conflict between ratepayers and society however may require some use of cost based rather than value based ratemaking for ipps

relative prices concentration and money growth comment in a recent article in this review 1983 henry chappell and john addison provide new evidence on the administered pricing thesis that links an industry s price behavior over the business cycle to its structural features most notably some measure s of the monopoly power possessed by firms in that industry the approach taken by chappell and addison c a is both sensible and novel essentially they regress aggregate inflation measures for different groups of manufacturing industries on a distributed lag in monetary growth the industry groups are distinguished by their degree of concentration low medium or high and the validity of the administered pricing thesis is then tested by comparing the time pattern of response in each group to monetary impulses chappell addison conclude that this test reveals no clear response differences between the sectors of varying concentration and hence reject the hypothesis of concentrationrelated administered prices the purpose of this comment is to show that the c a conclusions are overly strong their focus on the mean lag as the sole basis of interindustry comparisons obscures important differences in the pricing performance of the lowand high concentrated sectors more fundamentally the c a test is risspecified in that it fails to differentiate between the expected and unexpected components of money growth as suggested by robert barro 1977 when the analysis allows for these modifications the c a data reveal considerable support for the administered pricing hypothesis 1 the chappell addison model

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

dynamic model for market competition and price rigidity abstractthis article presents a price floor model in which durability unit costs and production period are factors in explaining price rigidity this article elaborates that cost structure plays an essential role in resolving the inconclusive relationship between market concentration and price rigidity when the industry is characterized by decreasing returns of scale the degree of price flexibility decreases as market competition intensifies the reverse is true when the industry exhibits increasing returns of scale the factors that cause price rigidity also foster price adjustment asymmetry and price adjustment lag during times of recession the model exhibits upward price flexibility as costs increase but downward price rigidity as costs decrease even under forward looking expectations the way in which firms adjust prices could look as though they have adaptive expectations if price stickiness is a characteristic of market competition then public policies determined by price level could be too

collusive price rigidity under price matching punishments by analysing an infinitely repeated game where unit costs alternate stochastically between low and high states and where firms follow a price matching punishment strategy we demonstrate that the best collusive prices are rigid over time when the two cost levels are sufficiently close this provides game theoretic support for the results of the kinked demand curve in contrast to the kinked demand curve it also generates predictions regarding the level and the determinants of the best collusive price which in turn has implications for the corresponding collusive profits the relationships between such price rigidity and the expected duration of a high cost phase the degree of product differentiation and the number of firms in the market are also investigated

holiday price rigidity and cost of price adjustment the thanksgiving christmas holiday period is a major sales period for us retailers due to higher store traffic tasks such as restocking shelves handling customers questions and inquiries running cash registers cleaning and bagging become more urgent during holidays as a result the holiday period opportunity cost of price adjustment may increase dramatically for retail stores which should lead to greater price rigidity during holidays we test this prediction using weekly retail scanner price data from a major midwestern supermarket chain we find that indeed prices are more rigid during holiday periods than non holiday periods for example the econometric model we estimate suggests that the probability of a price change is lower during holiday periods even after accounting for cost changes moreover we find that the probability of a price change increases with the size of the cost change during both the holiday as well as non holiday periods we argue that these findings are best explained by higher price adjustment costs menu cost the retailers face during the holiday periods our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure industry concentration the nature of long term relationships contractual arrangements etc do not vary between holiday and nonholiday periods we therefore are able to rule out these commonly used alternative explanations for the price rigidity and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

incentive and sampling effects in procurement auctions with endogenous number of bidders abstract we study an auction contest for a procurement of innovation firms exert effort and the resulting quality of innovation is ex ante uncertain given this uncertainty there is a trade off regarding the number of participating firms in the contest increasing the number of firms reduces each firm s chance of winning the auction leading the firms to reduce effort level meanwhile the chance of obtaining a high quality of innovation increases with the number of firms due to the randomness of the quality thus the procurer faces a nontrivial problem of how many firms to invite we show that in the high level of randomness it is optimal for the procurer to invite many firms as the randomness vanishes however inviting only two firms is optimal we also show that a fixed prize tournament may outperform the auction when the randomness is large

auctions when bidders prepare by investing in ideas abstract we consider auctions assuming bidders spend resources to increase their valuations standard auctions are efficient yet reserve price requirements entail a double inefficiency moreover optimal auctions differ from the well known static optimum finally we sketch the impact of information spillovers

some political economy aspects of macroeconomic linkages with agriculture though the political process leading to the 1985 farm bill has shunned proposals for significant policy change commentators on u s food and agricultural policy continue to characterize the current policy environment as arriving at a turning point where fundamental realignment of policy is possible among the factors indicating a need for change macroeconomic linkages have been singled out as primary sources of increasing difficulty in agricultural policy management implicit in this view is the idea that a heightened importance of macroeconomic factors represents a structural change in long term patterns of development for the sector that has rendered current policies anachronistic to advance such an idea is to ignore the historical record macroeconomic disturbances and their links to the agriculture sector are central in any historical account of the policy developments leading to direct federal government intervention in the agriculture sector for example the organized agricultural interest groups that emerged during the populist protest of the late nineteenth century were motivated in part in response to the monetary restriction associated with the greenback period and the return to fixed exchange rates under the gold standard in 1879 friedman and schwartz continued price deflation into the mid 1890s and real interest rates that are estimated to have averaged 8 5 in the period 1870 89 summers p 212 proved particularly burdensome to debtridden farmers the demands of the various farmer movements thus consisted of easy money or an elastic currency created by government action government funds for farm mortgages and the subtreasury scheme for creation of government paper money with stored crops as collateral the discontent voiced by farmers over the macroeconomic policies of the nineteenth century can be associated with later institutional changes that organized the federal reserve in 1913 and created the federal land banks in 1916 agricultural price support through provision of loans against crops was not achieved until 1933 with the creation of the commodity credit corporation reiter and hughes pp 1415 16 that policy change along with other provisions for federal government intervention included in the agricultural adjustment act followed a farm crisis that had its origins in macroeconomic adjustments after world war i exports of agricultural products had expanded rapidly in the united states to supply the wartime needs of europe rapid inflation accompanied the export expansion and land prices and farm mortgage debt increased this exacerbated farm sector adjustments when production was restored in europe and when world liquidity was restricted as u s lending to europe was curtailed overcapacity in world primary product markets persisted and the combination of raw material overproduction and monetary deflation that occurred has been cited as a factor generating the broader economic collapse of the 1930s kindleberger pp 98 107 unified political activity by farmers was also intense in the aftermath of world war i the congressional farm bloc coalition of republicans and democrats came into existence in 1921 and sponsored legislation e g the capper volstead act of 1922 and the agricultural credit acts of 1923 aimed at improving farm conditions through promotion of cooperatives and expansion of credit however as the relative purchasing power of farmers continued to decline through the 1920s the farm lobby organized around the theme of equality for agriculture and demanded more margaret s andrews is a resident fellow national center for food and agricultural policy resources for the future gordon rausser is a professor department of agricultdral and resource economics university of california berkeley giannini foundation paper no 785

inventories and sticky prices more on the microfoundations of macroeconomics the role of inventories in making prices sticky is studied by analyzing a dynamic linear quadratic model of a monopoly firm facing stochastic demand but able to store its finished goods in inventory it is shown that in contrast to the usual presumption firms that exhibit the smallest output responses to demand fluctuations may also exhibit the smallest price fluctuations specifically firms which have very flexible inventory storage facilities or are subjected to very transitory demand shocks will rely on inventories as buffers and will change neither production nor price very much on the other hand firms which have very inflexible storage facilities or whose demand shocks are quite permanent will display large swings in both price and output the standard assumption about inventory carrying costs that has been used in the literature that they are linear is shown to imply that production is impervious to fluctuations in demand it is also established that prices may respond more strongly to positive demand shocks than to negative ones if it is impossible to hold negative inventories i e to have unfilled orders the model offers an explanation for stickiness in relative prices however under certain circumstances it may help explain the persistence of inflation this abstract was borrowed from another version of this item

privatization of the esi broadening the debate abstract the debate over the privatization of electricity in the uk has been conducted across too narrow a terrain being primarily concerned with regulation for optimality in the context of static if uncertain conditions of supply and demand insufficient account has been taken of dynamic agencies in formulating and bringing about progressive industrial change something of great importance in the light of their weakness in the uk context consequently a number of deficiencies in the uk esi have been neglected in the debate over privatization and are not liable to be rectified by it in practice

digging for golden carrots an analysis of research tournaments contracting for research is often infeasible because research inputs are unobservable and research outcomes cannot be verified by a court sponsoring a research tournament can resolve these problems a model is presented in which contestants compete to find the innovation of highest value to the tournament sponsor the winner receives a prespecified prize the tournament game has a unique subgame perfect equilibrium free entry is not optimal because equilibrium effort by each researcher decreases in the number of contestants an optimally designed research tournament balances the probability of overshooting the first best quality level against the probability of falling short copyright 1995 by american economic association