corrective taxes under oligopoly with inter firm externalities pollution externalities between polluters should be taken into account in the design of corrective taxes when the externalities are substantial and or the number of polluters is large the effluent levies on these firms do not necessarily result in a deadweight loss consequently the second best tax exceeds the marginal social cost of pollution a more general rule is that the tax rate should be greater than the marginal social cost of pollution if and only if a marginal increase in the tax rate results in opposite effects on the changes of equilibrium emission level and output

quantitative analysis of network externalities in competing technologies the vcr case we develop a dynamic structural model of consumers choices and producers pricing in an oligopolistic market for newly introduced durable products with network externalities the model is then applied to empirically analyze the de facto standardization of the vhs format in the u s home vcr market during 1981 1988 we find i the network advantage of vhs explains at least 70 3 to 86 8 of the logarithm of relative sales of vhs to betamax in each year ii an increase in the network advantage of vhs was an engine of tipping toward the vhs format and iii in the early 1980s the network advantage of vhs was mainly due to its expected growth advantage

pigouvian taxes under imperfect competition if consumption depends on emissions the paper considers environmental regulation of a consumption good and an externality which influence demand and costs in a nonseparable way under monopoly two instruments are always required for first best the pigouvian tax is more complicated than anticipated

emission taxes and optimal refunding schemes with endogenous market structure the purpose of this paper is to investigate optimal schemes for refunding the emission tax in a free entry market where the production process generates emissions we consider the regulation by a three part tax policy the government sets an emission tax a refunding scheme and an entry license tax in contrast to the case of the two part tax refund policy under no entry we show that even if it is impossible to obtain subsidies from outside the first best outcome is always attained further the government s budget constraint is binding under the optimal schemes our result implies that the tax refund system works effectively in a market with endogenous entry

production externalities and investment caps a welfare analysis under uncertainty abstract in markets where production has adverse externalities policy makers may wish to increase welfare by imposing a cap on the aggregate industry output in this paper we examine the implications that the cap has on the firms investment equilibrium policy and on social welfare in the presence of market uncertainty in contrast with previous literature we explicitly model the present externality and then let the social planner choose the cap level maximizing welfare we find that i if the consideration of market uncertainty triggers investment at price above the social marginal cost of production then it is optimal to have no cap at all ii otherwise the cap should be set at the current aggregate industry output and a ban on further market entries should be announced

environmental policy intra industry trade and transfrontier pollution the paper discusses effects of domestic environmental policy on foreignemissions and on transboundary pollution we use a dixit stiglitz typemodel of monopolistic competition with an endogenous number of firms production generates environmental externalities which spill over to theother country it is shown that environmental policy has an impact onmarket structure at home and abroad these market structure effectsinduce changes in emissions abroad in contrast to what has been derivedin earlier contributions it turns out to be possible that tighterenvironmental standards at home lead to less emissions abroad the paperderives these results and provides the economic intuition behind them finally conditions for optimal environmental policies are derived

environmental policy under oligopoly with endogenous market structure emission taxes under both fixed number oligopoly and endogenous market structure which are the most relevant market structures for policy issues are examined in the latter case and contrary to what is expected under imperfect competition the optimal tax could exceed marginal external damages which implies that externalities generated by oligopolistic firms could be optimally controlled by overinternalizing environmental damages under endogenous market structure a scheme consisting of a license fee and a second best underinternalizing emission tax can increase social welfare as compared to the use of a single emission tax exceeding marginal damages copyright 1995 by the editors of the scandinavian journal of economics

asymmetric information signaling and environmental taxes in oligopoly abstract this paper examines the effects of signaling on environmental taxation in a two period oligopoly model in which each firm privately knows whether its technology is clean or dirty while third parties the rival firms and the regulator have only a subjective perception about this fact consequently there are both horizontal and vertical asymmetric information and each firm can strategically manipulate both the competitor s and the regulator s priors in this context we find that each firm wishes to be perceived as a technologically clean firm in period 2 whenever the regulator s ecological conscience is sufficiently high we also show that taxes under symmetric information are always positive but under asymmetric information and signaling they may be negative subsidies and lower or greater than in the symmetric information case depending on the ecological conscience of the regulator and the probability of firms being dirty finally taxes are below environmental marginal damage both under symmetric and asymmetric information and signaling reinforces such under taxation

long run welfare effect of energy conservation regulation we investigate the long run effect of energy conservation regulation which forces firms to raise energy saving investment above the cost minimizing level if pigovian tax is imposed additional regulation always harms social welfare under perfect competition while it can improve welfare under imperfect competition our result under imperfect competition holds regardless of whether strategies are strategic substitutes or complements in contrast to direct entry regulation

multiproduct firms and environmental policy coordination the literature that analyzes the coordination of environmental taxes by governments considers that firms produce a single good at a single plant however in practice firms tend to produce several goods at various production plants multiproduct firms these firms may organize themselves in a centralized or decentralized fashion for purposes of decision making this affects their output and pollution levels this paper sets out to analyze the coordination of environmental taxes considering multiproduct firms we find that the organizational structure chosen by the owners of the firms depends on whether or not governments coordinate with one another in setting taxes and on whether the goods produced are substitutes or complements social welfare is greater if a supranational authority sets taxes in all countries in this case joint welfare is never lower if the authority is constrained to set the same tax in all countries

the role of free entry in an oligopolistic heckscher ohlin model retaining the basic properties of the heckscher ohlin trade model namely free entry and exit fully integrated international commodity markets and the same number of sectors with that of factors the authors develop a two country model with cournot oligopoly in this economy factor price equalization and the standard heckscher ohlin theorem on comparative advantage hold between two countries which are identical except for size however autarkic prices are different even though the level of trade is zero under the free trade regime nevertheless free trade reduces the oligopoly price and increases welfare copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the identification of preferences from equilibrium prices under uncertainty the competitive equilibrium correspondence which associates equilibrium prices of commodities and assets with allocations of endowments identifies the preferences and beliefs of individuals under uncertainty this is the case even if the asset market is incomplete

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

optimal emission tax with endogenous location choice of duopolistic firms this study explores an optimal pre committed or ex ante environmental tax policy in a three stage game in which polluting firms strategically choose the location of their plants after the government has chosen the optimal emission tax rate we show not only that the optimal emission tax is non decreasing with the declining cost of relocation e g setup or fixed costs or else the progress of globalization but also that the firms may move back their relocated plants to the home country causing the resulting welfare to decline as a consequence the domestic welfare varies in a non monotonic way we also show that such a counterintuitive non monotonic relationship does not arise under time consistent ex post emission taxes

another proposition on the recoverability of cardinal utility abstract a sufficient condition on the asset return structure other than the existence of a riskless asset is derived which permits recoverability of the von neumann morgenstern cardinal utility index from asset demands

foreign direct investment local content requirement and profit taxation we develop a partial equilibrium model of foreign direct investment fdi in which identical foreign firms locate themselves in a host country to compete in an oligopolistic market for a non tradeable commodity the host country assumed to be small in the market for fdi makes use of two instruments viz a profit tax and a local content requirement to compete for fdi in the international market we assume the existence of unemployment in the host country the structure of optimal instruments and their relationship to the number and the relative efficiency levels of the domestic firms are established

border adjustments supplementing nationally determined carbon pricing as agreed on in the paris agreement each country determines its own contribution to combat climate change on a voluntary basis there is no mechanism to force a country to comply with its own nationally determined contributions this bottom up approach builds on unilateral actions and yields a kind of carbon pricing which is not necessarily identical across countries as a consequence these nationally determined climate policies have drawbacks in terms of carbon leakage and loss of competitiveness for firms producing in high carbon price countries to reduce these negative effects border adjustments bas may be appropriate subsequent to more stringent environmental regulation we model a three stage game involving carbon price competition in the first stage the introduction of bas in the second stage and oligopolistic competition between firms in the third stage strategic trade theory suggests that the qualitative results about the optimal ba policy may vary with the underlying type of competition namely bertrand and cournot competition however our results are similar for both types of competition we conclude that bas are suitable for supporting a more stringent environmental policy moreover we find that anticipation of the implementation of bas in the second stage yields higher average carbon prices in the first stage since high carbon price countries increase their carbon prices whereas the other countries partially offset

environmental tax in a green market we examine the impact of an emission tax in a green market characterized by consumers environmental awareness and competition between firms for both environmental quality and product prices the unique aspect of this model comes from the assumption that the cost for an increase in quality is fixed we show that the emission tax improves welfare thanks to a decline in pollution and despite an accentuation of product differentiation the higher the marginal environmental damage is the higher the optimal tax will be the optimal tax however becomes lower than the marginal damage when the market is not too large finally when marginal environmental damage is not too low the optimal tax leads to a green product monopoly

environmental policy in a green market this paper studies the impact of some frequently used environmental policies in a duopolistic market where purchasers are willing to pay more for less polluting goods when consumers differ in their environmental awareness a cleaner and a dirtier variant coexist in equilibrium the higher the average willingness to pay for the good the lower are variants unit emissions but the higher are industrial aggregate effluents a maximum unit emission standard reduces unit emissions of both variants but boosts firms sales and consequently increases industrial aggregate emissions as a result social welfare may be reduced we also explore the effects of technological subsidies and product charges including differentiation of charges

the effect of production versus consumption based emission tax under demand uncertainty abstract emission tax is an instrument widely adopted by countries and regions to incentivize emission abatement by emission intensive firms including manufacturers however policies differ in how they allocate emission responsibilities among stakeholders for example the chile emission tax directly penalizes manufacturers for the emissions they generate during their production production based emission tax whereas the sweden electricity emission tax penalizes the consumption of electricity rather than its production consumption based emission tax these two methods have potentially varying implications on manufacturers profits their emission abatement decisions as well as the resulting emission levels especially when demand uncertainty is involved in this paper we investigate the impact of the two distinct methods by studying a profit maximizing manufacturer facing stochastic demand under either production or consumption based emission tax the manufacturer s optimal decisions on its selling price production quantity and emission abatement investment are derived perhaps surprisingly we show that under either tax it is possible for an increase in the emission tax to discourage the manufacturer from investing in emission abatement the impact of tax rate abatement technology efficiency and demand uncertainty on the manufacturer s profitability and abatement decision are also studied interestingly higher demand uncertainty may motivate the manufacturer to invest more in emission abatement under production based emission tax using a numerical example of an electricity power generator we offer further insights into the comparison between the two taxes and find that there exist cases for either tax to dominate the other in terms of both profit and emissions

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

the effect of content on global internet adoption and the global digital divide a country s human capital and economic productivity increasingly depend on the internet as a result of its expanding role in providing information and communications this has prompted a search for ways to increase internet adoption and narrow its disparity across countries the global digital divide previous work has focused on demographic economic and infrastructure determinants of internet access that are difficult to change in the short run internet content increases adoption and can be changed more quickly however the magnitude of its impact and therefore its effectiveness as a policy and strategy tool has until now been unknown quantifying the role of content is challenging because of feedback network effects between content and adoption more content stimulates adoption which in turn increases the incentive to create content we develop a methodology to overcome this endogeneity problem we find a statistically and economically significant effect implying that policies promoting content creation can substantially increase adoption because it is ubiquitous internet content is also useful to effect social change across countries content has a greater effect on adoption in countries with more disparate languages making it a useful tool to overcome linguistic isolation our results offer guidance for policymakers on country characteristics that influence adoption s responsiveness to content and for internet firms on where to expand internationally and how to quantify content investments this paper was accepted by lorin hitt information systems

green tax reform in an oligopolistic industry oecd countries reduce or eliminate certain taxes when they introduce new environmental taxes the purpose of this paper is to analyze the incidence of such green tax reform in an oligopolistic industry the paper shows that a rise in taxes could result in the expansion of the aggregate pollution in the presence of a large technology gap the paper further shows that the government loses tax revenue as a result of the green tax reform if it continues to apply the same environmental standard this implies that the government needs to raise environmental standards to keep the existing level of public spending after a green tax reform

projecting the economic impact of the internet in this paper we analyze the impact of the internet on the performance of the economy and the standard of living of average americans our analyses illustrate that even though the stock market s speculative bubble has burst the internet will continue to have a significant impact on old economy industries and as a result generate real benefits for the overall economy this abstract was borrowed from another version of this item

the economics of casino taxation in this article a model of the costs of a casino is developed that focuses on the implications for economic welfare of different taxation schemes for casinos the situation being considered is in a country where casinos cater exclusively to foreign tourists the goal of the country is to determine the maximum amount of taxes that can be extracted from the activities of this sector under different systems of taxation when the price of gambling is set by regulation above its competitive level the economic losses created by excessive investment in the sector can be reduced by taxation a turnover tax on the amount gambled can maximize both tax revenue and the economic welfare of the country due to administrative constraints a number of countries rely on the taxation of the casinos fixed assets or a combination of a turnover tax and a tax on fixed costs the model is applied to the situation in north cyprus the annual economic efficiency loss from its poorly designed tax policies on casino gambling is

environmental research joint ventures under emission taxes the effect of environmentalpolicy depends crucially on the strategicbehavior of firms firms can undertakepollution abatement innovation cooperativelythrough environmental r d joint ventures rjvs environmental rjvs have not onlyenvironmental but also economic impacts threetypes of environmental rjv are discussed inthis paper r d cartelization in which firmschoose r d efforts to maximize the jointprofit rjv competition in which firms sharethe r d fruits to maximize their own profits and rjv cartelization in which firms share r dfruits and maximize the joint profit an r dcartelization minimizes output quantities maximizes the total emission and minimizes thesocial surplus an rjv cartelization with asufficiently high spillover coefficientmaximizes r d efforts minimizes the totalemission and maximizes the social surplus

efficiency inducing taxation for polluting oligopolists abstract we show that there exists a time independent tax rule that guides polluting oligopolists to achieve the socially optimum production path the optimal tax is dependent on the current pollution stock and it may be negative when the pollution stock is low a surprising result is that the optimal tax rule may give firms a subsidy for an initial time interval even though under laissez faire their output always exceeds the socially optimal output this subsidy however induces firms to produce less than they would under laissez faire

the equivalence of emission tax with tax revenue refund and emission intensity regulation abstract this study examines policies balancing emissions reduction and promotion of consumption we show the equivalence of emission intensity regulation coupled with tradable emission permits and the combination of an emission tax and refunding of the tax revenue to consumers

carbon taxation and market structure a cge analysis for russia abstract russia is one of the world s major sources of carbon based energy as well as one its most intensive users introducing carbon taxes can lead to a reduction in emissions and encourage investment in energy efficiency we investigate the economic effects of carbon taxes on the russian economy under perfect competition and a cournot oligopoly in output markets the main findings are i substituting carbon taxes for labour taxes can yield a strong double dividend in russia however welfare gains strongly depend on the labour supply elasticity and elasticities of substitution between capital labour and energy ii under the assumption of a cournot oligopoly with homogenous products and symmetric firms in the markets for natural gas petroleum and chemical products metals and minerals welfare costs of the environmental tax reform can be higher than under perfect competition this is because introducing carbon taxes leads to a reduction in already sub optimal output thereby exacerbating pre existing distortions arising from imperfect competition iii furthermore increases in energy costs can result in higher mark ups in some markets because of less competition resulting from firms exit

entry barriers and economic welfare the relationship between economic welfare and the number of firms in a quasi cournot market is examined in the first place we presuppose the existence of a strong first best government that can enforce the marginal cost principle to the firms along with regulating the number of firms it is shown that there exist excessive number of firms at the free entry quasicournot equilibrium vis a vis the first best welfare maximizing number of firms the thrust of this result essentially survives even if we replace a utopian first best government by a secondbest government that leaves the firms to pursue their respective profit maximization freely and engages solely in regulating the number of firms it can be shown that the excess entry prevails again in this second best world recent studies in the theoretical industrial organization literature have uncovered several instances which cast serious doubt on the reasonableness of a widespread belief that increasing competition will increase welfare stiglitz 1981 p 184 it has been shown that there are cases which are not altogether unreasonable where social welfare will be increased by strengthening rather than weakening the protection of incumbent firms from the threat of potential entry this is in sharp contrast with the traditional belief 2 what is not known however is how robust these pathologies in fact are we intend to settle this problem by proving two excess entry theorems in the quasi cournot parametric conjectural variations homogeneous oligopoly model seade 1980a b in the first place we presuppose the existence of a strong first best government that could costlessly enforce the marginal cost pricing principle by firms in an oligopolistic market and regulate entry in pursuit of first best social welfare optimization it is shown that the number of firms at the free entry equilibrium exceeds the first best welfare optimizing number of firms the result has already been noted by von weizsacker 1980a b and others in terms of numerical examples our theorem 1 asserts that this phenomenon always holds true for the family of quasi cournot models at hand an implication of this result is that the existence of entry barriers which protect incumbent firms from potential competitors is not necessarily welfare decreasing in sharp contrast with the traditional belief a problem remains with theorem 1 however in that an omnipotent first best government does not exist in reality and the first best ideal is unrealizable in the actual economy therefore even if the intervention by a first best government with a view to restricting the number of firms within an industry may be welfare improving it does

environmental taxation and strategic commitment in duopoly models in this paper we address the issue of optimalenvironmental taxation under imperfect competition the problem is analysed for three different types ofduopoly models the cournot open and closed loopmodels and the stackelberg model we explicitlyanalyse the role of strategic behaviour each firm hasto make a choice of output level and of the level ofa strategic variable the choice of this strategicvariable affects both marginal cost and emissions wecompare the properties of these three duopoly models and derive and compare optimal environmental taxes weshow that whether the optimal tax is lower or higherthan marginal environmental costs depends on theinformation transmission and the effect of thestrategic variable on marginal costs in addition thedifferences in market shares and the influence of thetax on the cost structure play important roles indetermining optimal emission taxes

does the new economy measure up to the great inventions of the past abstract during the four years 1995 99 u s productivity growth experienced a strong revival and achieved growth rates exceeding that of the golden age of 1913 72 accordingly many observers have declared the new economy to be an industrial revolution even more important than the second industrial revolution of 1860 1900 which made the golden age of productivity growth possible this paper dissects the recent productivity revival subtracts out a cyclical component and concludes that there is no revival of the productivity growth trend in the 88 percent of the private economy lying outside of the durables manufacturing sector the paper explains this surprising finding by pointing to limitations in computers and the internet in comparison with the great inventions of the past

monopoly regulation in the presence of consumer demand reduction abstract i study a monopoly regulation in the setting where consumers can engage in demand reducing investments i first show that when the regulator ignores the consumers investments the excess investment occurs next i analyze the case where the regulator takes consumers investments into account and compare the optimal policy under asymmetric information with the first best policy optimal policy results in higher average price higher level of consumer investment but lower prices for efficient firms compared to the first best

when does environmental regulation facilitate entry deterring practices abstract this paper evaluates the welfare benefits of introducing environmental regulation in a market that is subject to the threat of entry we consider complete and incomplete information settings where potential entrants use the regulator s tax policy and the incumbent s output decisions in order to infer the incumbent s cost structure when the regulator is absent we show that firms entry deterring practices increase pollution relative to complete information hence under certain conditions environmental regulation becomes more beneficial in incomplete than in complete information contexts our results therefore identify under which cases an under or over estimation of the welfare benefits of environmental regulation arises from ignoring the information setting in which firms interact we also examine how this estimation error increases as firms become more symmetric in their production costs

new economic theories this paper analyses some of the most important spillovers of recent developments of economic theory into environmental economics attention is given to the anlaysis of sustainable economic development paths where endogenous growth models are used the implications of environmental dumping and more generally of policies concerning global environmental issues where new trade theories are very useful and the effectiveness of environmental policy instruments when markets are imperfectly competitive where industrial organisation theory is employed the paper does not only note recent developments in environmental economics but also relates these to the previous environmental economics literature thus it can be assessed whether new results actually improve our knowledge of crucial economic and environmental issues

taxing incumbent monopoly to foster entry abstract this paper investigates whether it is welfare enhancing to tax the output of a monopoly in order to foster cost inefficient entry this question is of particular concern in the energy markets dominated by cartel like affiliations opec and oil russia s gas exports to europe and the interest and practice to stimulate the development of alternative fuels making the realistic assumption that none of the players can commit to future policies subsidies are not a viable strategy for the government a tax cannot be first best but can be second best if the government cannot force the incumbent monopoly to sell its output at no profit and if the incumbent s profit is discounted however stimulating supply by improving the conditions for entry is not the prime concern of taxation after all it lowers aggregate supplies and may even lower the entrant s supply but to accrue parts of the monopoly rent

competition and regulation in vertically related markets in an industry where naturally monopolistic and competitive activities are vertically related should the natural monopolist be allowed also to operate in the deregulated competitive sector unlike much of the literature on vertical integration this paper assumes that monopoly pricing behaviour is regulated and therefore the effect of vertical integration on the task of regulation is central to the analysis in the model there is both imperfect information and imperfect competition when vertical integration by the monopolist is allowed the regulator s task is made harder insofar as the monopolist has anticompetitive incentives to raise rivals costs on the other hand integration may lead to there being fewer firms in the deregulated sector and hence less duplication of fixed costs the overall welfare comparison between separation and integration is ambiguous as two simple examples illustrate various extensions to the analysis are also considered one of the central questions in debates on regulatory reform is how to organize industries that contain both naturally monopolistic and potentially competitive activities electricity transmission and distribution are characterized by natural monopoly cost conditions but electricity generation is not in the gas industry pipeline services may be naturally monopolistic but supply to larger customers is not in telecommunications natural monopoly is more a feature of local network operations than of long distance operations and is not present in apparatus manufacture and supply or in the provision of value added services in railways while the infrastructure of track and stations is naturally monopolistic the supply of train services might not be policy developments notably those associated with privatization in britain and deregulation in the united states have sometimes led to radical structural reform in these industries at t for decades a vertically integrated monopolist was required under the 1982 settlement of its long running antitrust case against the u s government to divest itself of its local network operations the central electricity generating board cegb in england and wales was restructured both vertically transmission grid activities were separated from generation and horizontally before privatization in 1990 1991 by contrast british telecom was privatized as a vertically integrated dominant firm bt now faces competition from mercury and others especially in the long distance market but its dominance of local network operations might affect competition there and in other areas such as apparatus supply the local network monopoly would of course have to be regulated in any event but its link via ownership to vertically related and potentially competitive activities poses additional regulatory questions many of the efforts of the regulatory body oftel notably in relation to interconnection between bt s and rivals 1 for a general account of the theory and british experience of regulatory reform in the utility industries

helping minor firms reduces welfare the effect on national welfare of uneven technical progress and eli mination of a firm is analyzed under the existence of a cournot oligopolistic sector an increase in the share of an inefficient firm owing to its innovations results in a shift of production from more efficient firms to the inefficient firm causing a less efficie nt allocation of production it may decrease welfare even though the innovation itself is beneficial conversely policies keeping ineffic ient firms from innovations or eliminating them may increase welfare though they make the market structure more oligopolistic copyright 1988 by royal economic society

feed in subsidies taxation and inefficient entry we study energy markets with dirty production and lumpy entry costs of clean production renewables for intermediate entry costs markets yield inefficient production and inefficient entry a mix of three popular regulatory instruments polluter taxation feed in subsidies for renewables and consumption taxation cannot correct these market failures for larger entry costs the instruments are imperfect because they affect marginal incentives whereas entry is a lumpy fixed cost problem whenever the first best is implementable feed in subsidies and consumption taxes are redundant the second best requires feed in subsidies or consumption taxes in addition to a pollution tax and overshoots first best levels given production levels the instruments do not affect the regulator s budget

the economics of attribute based regulation theory and evidence from fuel economy standards in many countries fuel economy standards mandate that vehicles meet a certain fuel economy but heavier or larger vehicles are allowed to meet a lower standard this has the perverse implication of allowing automakers to meet standards either by improving fuel economy or by increasing weight which lowers fuel economy and increases externalities related to accidents this is but one example of an attribute based regulation in which the regulation imposed on a product depends on both the externality it creates and some other attribute attribute basing potentially motivates rms and individuals to strategically alter the attribute thereby endogenously altering the stringency of the regulation this paper develops a theory of attribute basing to demonstrate the costs and benets of its use the paper then empirically examines the consequences of attribute based fuel economy standards in japan where fuel economy standards are a notched attribute based function of vehicle weight we use cross sectional and panel techniques to demonstrate that attribute based regulation has signicantly altered the distribution of vehicle weight in japan where 10 of vehicles bunch at weight notches for cars whose weight is altered in response to the policy we estimate that the alteration generates a welfare loss from the exacerbation of weight related externalities of 1 500 per unit sold which translates into a 700 million annual loss across the japanese auto market

recovering cardinal utility individual choice under uncertainty depends on an agent s attitudes towards risk typically represented by his von neumann morgenstern cardinal utility function u this function is of course an unobservable characteristic what is at least in principal observable is the agent s demand for alternative assets problems of prediction and welfare often require conclusions to be drawn concerning the unobservable characteristics based on observable behaviour to predict the response to a change in the stochastic production plan of a firm or to determine the compensation necessary so as to avoid a loss in welfare due to a change in the capital tax structure knowledge of an agent s attitude towards risk is required it is the purpose of the present paper to demonstrate that as long as the joint distribution of returns of the available assets is known the cardinal utility function can be recovered without ambiguity from asset demands provided that the set of available assets contains a riskless asset the distinguishing characteristic of the recoverability problem as posed here is the possible incompleteness of markets in a framework of complete markets if nominal income and prices vary independently the range of the demand correspondence can be assumed to cover an open subset of the consumption set the utility function can then be immediately recovered up to a monotone transformation over this range given mild regularity conditions on demand behaviour given incomplete markets however this argument fails since the choice set is a lower dimensional subspace of state space we learn only about the agent s preferences within this subspace we show that the existence of a riskless asset and some risky asset implies recoverability of von neumannmorgenstern preferences even if markets are incomplete in the presence of a riskless asset any positive riskless level a of wealth is demanded for some asset prices using arguments from pratt 1964 the ratio u a u a can be recovered without ambiguity for all positive resp non negative values of a and hence an integration argument can be used to recover the cardinal utility function u up to a positive affine transformation beyond the argument based on knowledge of the asset demand correspondence we explore an alternative approach to recoverability we demonstrate that knowledge of the portfolio indifference surfaces permits recovery of the cardinal utility function provided there is a riskless asset the intuition here is that the agent s risk aversion is directly related to the curvature of the indifference curve around the riskless point and the variance of the risky asset s that this approach is in general equivalent to the demand correspondence approach is well known we give a brief proof for twice continuously differentiable and strictly monotone utility functions we point out two results concerning the informational requirements of the argument for recoverability specifically the argument does not require complete knowledge of the distribution of returns independently of the asset demands instead it suffices to know the mean and variance of the returns to just one asset other than the riskless and the return of the riskless asset furthermore if the demand for assets is known only on a subset of the