community development with endogenous land use controls abstract when competitive landowners developers control incorporation and zoning decisions efficient patterns of development emerge when by contrast early arrivals control policy they may impose zoning restrictions that force later entrants to pay via the property tax a disproportionate share of the cost of providing public services if new arrivals are sufficiently poor they may choose to reside outside the community while higher quality land within the community remains unoccupied this inefficient and exclusionary outcome can be an equilibrium if boundaries once drawn are irreversible the ex ante introduction of a seemingly natural compensation scheme may not remedy the problem

modeling local growth control decisions in a multi city case do spatial interactions and lobbying efforts matter our article analyzes the determinants of local growth control decisions which are modeled as the result of a political struggle between different groups of voters and organized lobbies we show that under specific hypotheses a higher homeownership rate can induce lower levels of controls considering residential choices as endogenous to growth control policies the local decisions to control growth become strategically interdependent assuming imperfect mobility we show that a spatial econometric specification can be directly derived from our theoretical model our empirical analysis concerning the determinants of the taxelocale d equipement a french local development tax is thus naturally based on spatial econometrics its results confirm the major predictions of our model

comparative statics analysis of a fully closed city abstract this paper extends the existing comparative statics analysis about open or semiclosed cities notably that of w wheaton j econom theor 9 2 223 237 1974 to a fully closed city where urban land rent is redistributed to the city population specifically we examine the effects on changes in exogenous variables such as population size agricultural rent and initial endowments on endogenous variables such as welfare level city size and rent schedule most but not all of the existing results are reestablished surprisingly it is shown that in contrast to the existing literature and perhaps to intuition the city area may shrink when the city population increases the paper also extends the existing literature by analyzing the effect of the exogenous variables on the endogenous income and the demand for transportation it is shown that under plausible assumptions the quantity of transportation demanded declines with its price

comparative statics analysis of density controls abstract the general similarity of the results of comparative statics in a semiclosed and in a fully closed city have been demonstrated by pines and sadka journal of urban economics 20 1 20 1986 the objective of this paper is to determine if the consequences of different forms of public regulation of the urban land market are also invariant with respect to the type of city the conclusion is that while there are well defined consequences of such controls on metropolitan area and land values in a semiclosed city the impacts in a fully closed city are generally ambiguous therefore proposals for the introduction of zoning and density regulation have to be city specific and take into consideration the pattern of land ownership and the extent of leakage of urban land rent income

nash equilibria in models of fiscal competition abstract this paper analyzes nash equilibria in a simple model of an economy with jurisdictions engaging in fiscal competition small number nash equilibria in which tax rates are the strategic variables are shown not to coincide with nash equilibria in which public expenditure levels are the strategic variables

a theory of growth controls a microeconomic model of individual decision making that illustrates how growth controls might arise is developed the emergence of growth controls is analyzed under a variety of assumptions about the local governmental environment including congestion effects different cost conditions and pricing schemes for public services and property tax limitations some welfare consequences of growth controls are also presented

the welfare effects of third degree price discrimination in the author examines third degree price discrimination by an upstream monopolist in an intermediate good market discrimination is motivated by the fact that downstream firms differ in their abilities to integrate backward into supply of the input the author shows that under reasonable specifications of equilibrium price discrimination leads to all buyers facing higher input prices in other cases discrimination raises some prices and lowers others the author derives conditions under which discrimination lowers welfare by reducing total output and shows that in some markets discrimination will raise welfare by preventing socially inefficient backward integration copyright 1987 by american economic association

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

housing price land supply and revenue from land sales in a recent study peng and wheaton empirically examine the effect of restrictive land supply on hong kong house prices however we argue that the impact of the supply of new land by the hong kong government is not as important as they maintain in accounting for the volatile house prices in hong kong we show that there is no causal relationship between land supply and housing prices our estimations based on the annual data of hong kong s public land sales find that the government acts to maximise land revenue maximisation of revenue from land sales is however consistent with the efficient allocation of resources we also show that the amount of land sales by the government and land in developers land banks tend to decrease when market interest rates increase land banking behaviour is governed by economic conditions long term land holding costs should cover interest costs

teaching tools what s wrong here what s wrong here i introduction in the interest of enhancing the economic way of thinking many professors encourage students to read the wall street journal or other business periodicals a passive role while others following kelly 1983 use business periodicals in a more specific way in both instances the objective is to inspire students to correctly apply basic economic principles to real world problems in order to make economics relevant and interesting and to increase the retention level of a conventional one year economics course research by saunders 1980 pp 10 12 supports the importance of regular reading of business periodicals for achieving the goals the passive method of using business periodicals handing out wall street journal or business week sign up sheets and occasionally making periodic references to specific articles is time efficient for the busy professor but can be counterproductive unless the professor takes time to alert students to possible errors in economic reasoning that occur more frequently than is desirable in many business articles particularly articles applying supply and demand analysis most students will make the assumption that the economic analysis reported in the press is correct in those instances where journalists or experts apply improper economic reasoning in their reporting the article may serve the undesired outcome of reinforcing similar errors in thinking by students reading the article this confusion is further compounded when in the same article errors are reported in one segment while other arguments correctly apply economic concepts the purpose of this article is to aid professors in using business periodicals in principles courses by presenting examples of three errors in applying supply and demand analysis that are frequently made both by students and authors of business articles incorrect use of supply and demand analysis as evidenced in journalistic reports has several implications that can have adverse affects on students of professors who passively use business periodicals in introductory economics courses first the student who has been careful to learn the proper terminology and logic will feel uncomfortable and begin to question their own understanding when reading from someone professional who has applied the concept incorrectly second the student who at the time of reading does not fully appreciate the principle but is attempting to apply it will unfortunately learn from the incorrect presentation and thus the article will have a negative effect on the original teaching objective finally if the error made by the author is one made frequently by students it will become harder for the student to correctly learn economic principles since the student s erroneous reasoning has been verified by the journalist or the expert while it would be impossible for a professor to monitor even the wall street journal for all cases of misreporting during a semester the professor can make the students more sophisticated readers and hopefully avoid some of the above problems by presenting examples of typical errors of reasoning students may encounter in their outside reading the professor can maintain a file of articles that have come to his her attention or use available supplements that contain examples of journalistic errors applying economic reason some brief examples of typical errors that we have recently used effectively in our classes follow ii examples the first typical error involves the failure to carefully distinguish between changes in quantity demanded quantity supplied and changes in demand supply principles of economics texts carefully distinguish between changes in quantity demanded and changes in demand the terminology when consistently applied allows a reader to easily determine whether a change in buyer behavior has resulted from a change in product price or from a change in a non price determinant of demand

teaching tools on journalists use of macroeconomic concepts teaching tools on journalists use of macroeconomic concepts five macroeconomic concepts are presented which are prominent in the business sections of newspapers but which are not given equivalent prominence in macroeconomic textbooks these are the discouraged worker phenomenon the use of inventories in forecasting the effect of changes in the money supply on the bond market and the effects of inflation and nominal interest rates in the foreign exchange market these concepts are presented via news clips illustrating the way they typically appear in the press instructors are urged to place extra emphasis on these concepts i introduction it has become common for economics textbooks and instructors to use newspaper clippings to illustrate the application of economic concepts to the real world in addition to several readings books of newspaper articles a modest journal literature has appeared on this topic kelley 1983 advocates having students make up their own economics newspaper by cutting and pasting from regular news sources wood 1985 discusses many facets of the connection between news coverage of economic events and economic education drawing on his experience as a former reporter grunin and lindauer 1986 describe a course in economic journalism boynton and deissenberg 1987 extract a macroeconomic model implicit in newspaper commentary and cochran and brown 1989 warn instructors to be alert to journalists errors for example this literature tries in a variety of ways to address a common complaint expressed cogently by fels 1970 41 we neither try nor succeed in training students to use economic principles to evaluate critically what they read in the popular press this paper extends this literature in a new direction one of the many good reasons for supplementing economic instruction with newspaper clippings is to ensure that students can interpret and evaluate newspaper commentary on economic issues it is therefore important that economic concepts prominent in news articles be given adequate stress by instructors and in a way which illustrates how these concepts are used in newspapers in this paper i note five applications of macroeconomic concepts which play prominent roles in the financial pages of newspapers primarily because of their practical implications for the business world but which are not given an equally prominent treatment by textbooks since so many of our students will find themselves in the business world after graduation and so many more will retain contact with macroeconomics solely through newspaper commentary these five concepts seem worthy of extra emphasis by instructors a second point i wish to stress is that it is not enough to provide this extra emphasis within the context of the traditional textbook development of these macroeconomic concepts the traditional presentation must be supplemented with concrete examples illustrating how they are used in newspaper commentary with particular reference to their practical implications it is not unusual for journalists to write in a cryptic metaphor laden style that can disguise the macroeconomic concept being exploited and unlike textbooks explanations are seldom offered for this reason i present these five concepts accompanied by one or two sentence newspaper clips 1 illustrating the way they typically appear in the press most of the macroeconomic concepts playing prominent roles in newspaper commentary such as the multiplier monetary policy and the phillips curve play equally prominent roles in macroeconomics textbooks the five macroeconomic concepts discussed below were singled out because their textbook treatments are not commensurate with their importance in news reports and do not stress the potential roles these concepts can play in the interpretation of business world events

strategic control of growth in a system of cities abstract this paper provides an analysis of the supply restriction model of growth controls growth controls in such a model harm consumers while enriching landowners and they will only be adopted if landowners have political power in the model this power is manifested in the city government s use of a social welfare that takes both landlord and consumer welfare into account since cities cannot be small if the supply restriction inherent in growth controls is to have an impact strategic interactions must be considered in the analysis of city choices a general model is presented and an extended example based on leontief preferences is then considered comparative static analysis of nash equilibria in the leontief case shows that perturbations of preferences or other characteristics of a single city can have important spillover effects that alter the choices of all cities in the region

on the theory of growth controls numerous empirical studies have examined the effect of growth controls on housing prices these studies have used many different techniques ranging from hedonic price model estimation to paired comparisons but have all come to the same conclusion growth controls raise the price of housing in theory there are both demand and supply side explanations which need not be mutually exclusive for these observed price differences on the supply side housing caps zoning restrictions limitations on the amount of developable land and other forms of growth control may reduce the supply of housing over time this in turn may produce scarcity effects which manifest as shifts or other changes in the housing supply curve and attendant price increases on the demand side to the extent that growth controls may reduce or internalize expected negative externalities and or congestion costs associated with growth controls may also produce amenity effects such amenity effects manifest as changes in the demand curve and likewise may be capitalized in land values and wages e g the price of a house rises as commute time falls

a comparative dynamic analysis of zoning in a growing city abstract this paper examines how zoning alters the pace and pattern of residential development in a dynamic open city it shows how zoning comparative dynamics systematically vary within and across urban areas relating predicted effects to time paths of exogenous economic variables determining bid rents binding zoning is seen to fundamentally alter development trajectories temporarily halting development at some locations while inducing leapfrog development at others zoning impacts under both perfect foresight and myopic developer behavior are derived and examined

designing development planning charges settlement patterns cost recovery and public facilities there is a large body of literature that discusses the control of settlement patterns using traditional planning instruments whilst there is some theoretical literature discussing the use of development charges to influence settlement patterns by addressing market failure there is limited literature examining how such charging is implemented in practice this paper presents the theoretical basis for development charging based on the pigouvian tradition and discusses how these charges can be calibrated it identifies the potential for second best approaches including hypothecation of revenues this approach is distinguished from infrastructure charging which is a cost recovery instrument the irish system of infrastructure charging is assessed as a means of exploring how current instrument design could be improved to align with policy aspirations using the lessons that theory provides

lobbying political competition and local land supply recent evidence from spain abstract we analyze whether local land supply is influenced by the degree of political competition and interpret the findings as indications of the influence wielded by land developer lobbies we use a new database including both political and land supply data for more than 2 000 spanish municipalities for the period 2003 2007 in spain land use policies are largely a local responsibility with municipalities needing periodically to pass comprehensive land use plans the main policy variable in these plans and the one analyzed here is the amount of land classified for potential development we measure local political competition as the margin of victory of the incumbent government this variable is however potentially endogenous since not only do votes affect policy but also policy is expected to affect votes to deal with this problem we instrument this variable using the votes at the first national legislative elections following the re establishment of democracy and votes actually obtained regionally at the same type of election the results indicate that stiffer political competition does indeed reduce the amount of new land designated for development this effect is found to be most marked in suburbs in towns with a high percentage of commuters and homeowners and in municipalities governed by the left

cost manipulation games in oligopoly with costs of manipulating we analyze a class of two stage games where rival firms incur real resource costs in manipulating their marginal costs so as to influence the outcome of the game they want to play in stage two marginal costs may be manipulated by various means such as redistribution of productive assets choice of location or creation of an internal input market a general formulation of the game is provided and several applications are analyzed we show that the optimal allocation of resources within an oligopoly can be asymmetric even for ex ante symmetric firms this is an additional explanation of heterogeneity in oligopoly

a theory of development controls in a small city abstract this paper analyzes the implications of an institutional structure in which current residents of an urban area have the power to exercise control over the level and pattern of new residential development we develop a general equilibrium spatial model of a small urban area in which the current residents can control new residential development through a zoning policy determined by majority vote the current residents are modeled explicitly as home owners and are allowed to be arbitrarily different in tastes and endowments the urban government is assumed to provide a public good for its residents the level of which is also determined by majority vote the optimal development control policy from the point of view of a particular current resident is determined and the allocation resulting from a majority vote of the current residents is described for both head tax and property tax systems efficient development control policies are also analyzed

the welfare economics of land use planning abstract this paper presents an empirical methodology for the evaluation of the benefits and costs of land use planning the technique is applied in the context of the town and country planning system of the uk and examines the gross and net benefits of land use regulation and their distribution across income groups the results show that the welfare and distributional impacts can be large

price discrimination and social welfare studies the effect of price discrimination on social welfare using methods from duality theory features of the reservation model presented quasi linear utility and consumers surplus upper and lower bounds on welfare change bounds on welfare change with optimal price discrimination from ebsco

assessing the relative merits of development charges and transferable development rights in an uncertain world traditionally regulatory instruments have been used to achieve planning objectives however emerging market based policy instruments such as transferable development rights a quantity based app

urban growth controls transitional dynamics of development fees and growth boundaries abstract this paper investigates how development fees and urban growth boundaries affect urban development when the short run construction supply function is upward sloped i e convex development costs whereas the policies are equivalent in the traditional static model dynamic analysis reveals important differences out of the steady state in particular the development fee that is efficient in the steady state is also dynamically efficient in contrast the long run efficient urban growth boundary generates inefficiently fast development out of the steady state the results are robust with or without location rents and perfect or myopic foresight assumptions

urban growth controls and intercity commuting abstract this paper incorporates the possibility of intercity commuting ic in a growth control model as controls restrict the labor supply the wage rate increases in the city land rents capitalize the wage differential but when this differential reaches the ic cost ic starts to occur keeping wages constant thus if controls are adopted in the benefit of landowners ic weakens the incentive for tighter controls compared to case where ic is not possible however if firms profits which decrease with higher wages are also taken into consideration in the choice of controls then the possibility of ic may induce tighter controls

land taxation and the henry george theorem under uncertainty abstract this paper considers land taxation under uncertainty at an optimal population of a jurisdiction aggregate land rents of a jurisdiction equal expenditures on a public good dubbed the henry george theorem as a consequence the public good in a jurisdiction should be financed only by land taxes however in the presence of uncertainty the size of population serves as insurance it is thus efficient to increase the size of population beyond the optimal level with certainty and land rents exceed public good costs

effects of urban growth controls on intercity commuting this paper presents an empirical study of the effects of urban growth controls on the intercity commuting of workers growth controls land use regulations that attempt to restrict population growth and urban sprawl have increased housing prices and diverted population growth to uncontrolled cities it has been suggested that resulting changes in local labour supply might stimulate intercity commuting from uncontrolled to controlled cities to test this hypothesis a gravity model of commuting flows between places in california is estimated using alternative econometric methods ols heckman selection and count data the possibility of spatial dependence in commuting flows is also taken into consideration results suggest larger commuting flows to destination places that restrict residential growth

expansionary zoning and the strategic behaviour of local governments this paper analyses the extent to which local land supply is the result of strategic interaction among nearby local governments in a setting of limited tax instruments to raise revenues and interj

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

property value capitalization and municipal open space referenda this paper first develops a theory of demand for land conservation in the presence of price effects due to both amenity creation and housing supply restriction three hypotheses designed to distinguish demand for amenities from homeowner rent seeking are based upon 1 renters 2 the quality of another locally provided good schools and 3 spatial autocorrelation of funding across municipalities econometric results suggest an observable degree of demand for open space measures is nonenvironmental in motivation efficiency and policy implications are discussed along with a recommendation for benefit cost analysis capable of separating nonrival amenities from other interests to certify open space measures jel h41 q24

testing for strategic interaction among local governments the case of growth controls this paper helps to fill a gap in the public economics literature by providing empirical evidence on strategic interaction among local governments using the methodology of case et al journal of public economics 52 285 307 1993 the paper focuses on the adoption of growth control measures by cities in california and looks for evidence of policy interdependence in these choices the data are drawn from an elaborate survey of growth control practices in california cities conducted by glickfeld and levine regional growth local reaction lincoln institute of land policy cambridge ma 1992 the survey results are used to compute an index of the stringency of growth controls in each city which serves as the dependent variable for the study

growth controls real options and land development abstract many urban growth controls attempt to check sprawl by restricting allowable new housing densities however land may be undeveloped to preserve its real option value real options in land markets arise from uncertainty as to the optimum use of a site by limiting allowable development choices growth controls can narrow real options and potentially accelerate investment this paper examines the effect of price volatility a generator of option value on the timing of development after the imposition of an urban growth boundary ugb around seattle while the net effect of the ugb is to lower the likelihood of new housing outside the boundary by between 28 and 39 price volatility is no longer a deterrent to development

infrastructure financing and urban development abstract historically additions to public infrastructure necessitated by urban growth have been financed under a cost sharing approach in the last several decades however financing of growth has increasingly relied on land use exactions where new residents pay for the cost of incremental infrastructure despite the emergence of a formal growth control literature there has been virtually no formal analysis of the connection between infrastructure financing and urban development to provide such an analysis this paper investigates three different schemes for financing incremental infrastructure within an urban growth model the analysis compares an impact fee scheme to two types of cost sharing schemes deriving the effects on urban growth and land values of switching to the impact fee scheme the efficient financing scheme is also identified

input price discrimination with downstream cournot competitors abstract this paper addresses third degree price discrimination in input markets i decompose the upstream monopolist s profit into two parts one that depends on average input prices and one that depends on their distribution this decomposition is useful in comparing the welfare properties of price discrimination against uniform pricing under reasonable assumptions input price discrimination negatively affects both consumer surplus and total welfare

teaching tools teaching methods in undergraduate economics i introduction in 1970 nobel laureate george stigler argued that economics belongs in everyone s education once we have learned how to teach it but because the logic of economics is not easy to learn or teach he concluded that economics is not yet ready to be made a part of the basic curriculum of all educated men p 80 we now have new models for teaching economics in fact as in other areas of economics we have competing models with new approaches being offered to supplement extensively if not replace entirely the lecture pedagogy used nearly exclusively by economists at the time stigler s comments were published yet in major commission and committee reports and daily conversations held in faculty lounges around the world alternatives to the lecture approach in which the teacher often serves as a preacher and students as passive receptacles into which great thoughts and wisdom are poured still appear to be either unknown or tacitly dismissed as unworkable in this journal for example mccloskey 1992 tells of an exchange between george stigler and milton friedman friedman argued that while individuals pursue their self interest they are often ignorant and require education to see that something they thought was in their personal or national interest was not e g tariffs and quotas stigler called friedman a preacher he argued that people find their own self interest with or without education and that no amount of preaching or lecturing about economics would change that self interest in the report of the commission on graduate education in economics by krueger et al 1991 considerable attention was given to bringing real world issues into the classroom but the commission s assumed instructional mode was still the lecture it is our impression that most ph d programs devote little or no attention to teaching or encouraging the development of expository skills we suspect the lack of emphasis on communication in most ph d programs reflects partly the scarcity of teaching time partly instructors lack of confidence in their ability to teach communications skills and partly a judgment that the appropriate style of professional communication is something students can figure out for themselves by watching their teachers p 1049 the report of the committee on college faculty by kasper et al 1991 representing the nation s premiere liberal arts colleges emphasized the need for breadth in content coverage in economists graduate training but did not even mention the need for breadth in instructional methods or training in those areas despite these intentional or unintentional slights in literature from the past twenty five years we found that many economists have spent a great deal of time developing and applying new teaching methods to actively engage students in the learning process in what follows we summarize those alternative approaches to make it easier for others to consider and access these articles on innovative instructional methods in economics ii classroom games simulations and laboratories although edward chamberlin and others working in the area of imperfect competition were developing artificial markets in the classroom as early as the 1940s joseph and saunders 1970 were perhaps the first economists to publish an extensive account on how to use such games to teach basic economic concepts the approach soon proved to be quite popular at least with the developers of these activities the national council on economic education then known as the joint council on economic education published the first edition of its guide to games and simulations for teaching economics in 1971 written by lewis and wentworth with references to some ninety different activities and publications in recent years commercially published games and simulations in economics have continued to appear often featuring mainframe econometric models or microcomputer programs written specifically as a classroom simulation

third degree price discrimination in input markets output and welfare if price discrimination is realized the economy shifts from one equilibrium to another it clearly involves welfare effects the price discriminator clearly gains some consumers may also gain from the price cut but others may lose faced with higher prices etc traditionally the change in social welfare is known to be closely related to the change in total output in the case of third degree price discrimination it is well known that an increase in total output is a necessary condition for welfare improvement richard schmalensee 1981 proves this fact in a model in which the monopolist with constant marginal cost can perfectly separate markets further hal r varian 1985 extends this result to the case of interdependent markets permnitting increasing marginal cost of the monopolist and finally the assumption of nondecreasing marginal cost is eliminated by marius schwartz 1990 roughly speaking this proposition says that if there is a welfare gain from price discrimination there has to be some gain to offset the distortion involved on the other hand the vast majority of legal and other policy disputes over the price discrimination concern input markets not final good markets thus it seems important to investigate the situation in which a discriminating monopolist is not a final good supplier but an input supplier and the buyers of the input are downstream producers of a final good as is assumed in this paper if the downstream firms have different technologies their input demand functions will be different and thus the monopolist has an incentive to price discriminate in this scenario michael l katz 1987 and patrick degraba 1990 study the effect of inputmarket price discrimination and show that price discrimination always lowers welfare because it involves the distortion that a lower cost downstream firm is assigned a higher price unfortunately in their simple settings on the technology of downstream industry price discrimination can never change total output of the input or of the final good 1 thus we must say that welfare effect of input market price discrimination remains open to question if it has some effect on total output in particular we are curious as to whether we can obtain some close relationship between the changes in welfare and total output as we have obtained in the final good market settings with this motivation we will construct a model which involves change in total output of the final good in the next section the model and assumptions are provided in section ii after we extend the result of katz 1987 and degraba 1990 we find a relationship between the changes in welfare and total output strikingly it states that an increase in the total output of the final good is a sufficient condition for welfare deterioration this result contrasts with that obtained by schmalensee 1981 varian 1985 and schwartz 1990 from usual models of price discrimination in a final good market section iii concludes the analysis

when are nash equilibria independent of the distribution of agents characteristics author s bergstrom ted varian hal r abstract we present examples of nash equilibria that do not vary with the distribution of a parameter across agents and then offer a general theorem that characterizes this independence

the qualitative economics of development control abstract this paper examines space supply restrictions and containment policies in the context of a monocentric urban model with several classes results are obtained concerning the qualitative effects of such policies on space i e land values and locations of the various groups

equilibrium and migration in dynamic models of housing markets abstract this paper presents a model of a regional housing market where households choose among competing employment opportunities offered by cities within a given system the equilibrium requirement imposed in the model requires that households be indifferent among all locations both within their current city and other cities within the region rather than in terms of exogenously determined utility or populations this construction allows the characterization of equilibrium in terms of potentially observable variables related to household income given that equilibrium can be defined in this more general manner it is natural to identify ways in which the predictions will differ from those generated by existing models capozza and helsley s j urban econ 28 1990 180 203 model of land conversion is evaluated in this context in this setting the option value associated with the ability to delay development depends directly on the degree to which the income processes are correlated across cities also increased idiosyncratic income risk does not necessarily lead to larger option values

input market price discrimination and the choice of technology recent concerns over the effects of the robinson patman act and so called priceprotection policies such as most favoredcustomer clauses mfc s 2 on market performance have given economists new reasons to examine the welfare effects of third degree price discrimination in order to assess these effects correctly it is imperative that one understand how price discrimination influences market behavior joan robinson s 1933 work launched the formal inquiry into the welfare effects of third degree price discrimination building on the intuition presented by arthur pigou 1932 she showed that if a monopolist faces two independent linear demand curves the use of price discrimination will not affect industry output but will reduce welfare richard schmalensee 1981 extends these results to nonlinear demand curves and shows that an increase in total industry output is a necessary condition for price discrimination to be welfare improving hal varian 1985 broadens these results by deriving upper and lower bounds on the welfare change due to the use of price discrimination he shows that these results can be applied to markets in which there are nonzero cross price effects all of this work examines how the ability of a monopolist to price discriminate will affect the market outcome when all other characteristics of the market are treated as exogenous recently two lines of research have extended this inquiry beyond the case of a monopolist in a market with exogenously fixed parameters the first line considers the case of oligopoly the work of charles holt and david scheffman 1985 and thomas cooper 1986 has shown that restrictions on price discrimination imposed by the use of mfc s can facilitate collusion between oligopolists attempting to restrict output this implies that third degree price discrimination can be welfare improving the second line of research shows that price discrimination by a firm can affect nonprice decisions made by other market participants thus affecting the market outcome michael katz 1987 presents a model in which a large firm s ability to vertically integrate backward into the production of an input allows it to obtain a lower per unit price from the supplier of the input than can be obtained by smaller firms without this ability he shows that third degree price discrimination reduces welfare unless it prevents inefficient backward integration degraba 1987 shows that the use or nonuse of price discrimination by a national firm can affect nonprice decisions made by local firms that compete with the national firm in this situation third degree price discrimination is welfare reducing because it induces local firms to produce a product that is overly differentiated from the product of the national firm in all of the work cited above price discrimination is important when sellers set prices in separate markets or charge different prices to different customers in the same market the following analysis which can be considered a contribution to the second line of research suggests that price discrimination can be important even when a seller faces a single market in which all customers are identical the intuition behind this result is that nonprice decisions made by downstream producers such as the choice of technology can be affected by the use or johnson graduate school of management cornell university ithaca ny 14853 i thank robert frank robert smiley richard thaler and the participants of the jgsm applied microeconomics workshop for their helpful comments see william baldwin 1987 pp 438 40 for a good summary of the debate 2see john kwoka and lawrence white 1989 pp 196 7