equality of opportunity and optimal cash and in kind policies abstract this paper examines the argument for public provision of certain private goods like education and health based on equality of opportunity by studying the utility possibility frontier of a society in which there is a concern for the distribution of these goods a given quality of education or health services can be consumed for free in the public sector but people can opt out and purchase their desired quality levels in the private sector some of the conclusions are i a pure cash transfer is optimal when the utility redistribution is either sufficiently small or large ii if and only if both the equality of opportunity concern and the utility redistribution are large enough can an in kind program which attracts the whole population be justified iii even when everybody chooses the in kind program it may be optimal to perform some additional utility redistribution by increasing the size of such program

equilibrium parallel import policies and international market structure in a north south vertically differentiated duopoly the analysis in this paper derives equilibrium government policies towards parallel imports by incorporating strategic interaction at the policy setting stage and the product market the model sheds new light on i the effects of parallel import policies on pricing behavior of firms and ii the interdependence of national parallel import policies if demand asymmetry across countries is sufficiently large the north forbids parallel imports to ensure its firm sells in the south thereby generating international price discrimination the south s most preferred market outcome as the equilibrium when demand structures are relatively similar across countries the north permits parallel imports and uniform pricing its most preferred market outcome obtains

retailers as agents and the limits of parallel trade abstract the volume of retail level parallel trade is surprisingly small despite persistent international price differences we offer an agency based explanation by considering competition between an original home manufacturer and a foreign retailer the model endogenizes the role of the retailer as an agent with private information on the perceived quality of the good in its own market the manufacturer cannot control the retailer once the latter has ordered its sales quantity but it can limit the initial offer if parallel trade is permitted this offer will fall if there is incomplete information resulting in a small or zero volume of parallel trade this outcome makes both the original producer and foreign consumers worse off while offering little benefit to home consumers compared to the case where such trade is banned

international effects of national regulations external reference pricing and price controls under external reference pricing erp the price that a government permits a firm to charge in its market depends upon the firm s prices in other countries in a two country home and foreign model where demand is asymmetric across countries we show that home s unilaterally optimal erp policy permits the home firm to engage in a threshold level of international price discrimination above which it is just willing to export if the firm faces a price control abroad or bargains over price with the foreign government an erp policy can even yield higher home welfare than a direct price control

an elementary proposition concerning parallel imports abstract this paper demonstrates that when countries individually choose whether or not to prohibit parallel imports a global nash equilibrium involves the permitting of parallel importing into all relevant foreign markets i e global uniform pricing this result is sensitive in a straightforward way to the tariff setting powers of countries and to the specification of a government s objective function i e political economy considerations we also show that when countries can prevent parallel exports then any nash equilibrium involves global price discrimination

endogenous trade policy under foreign direct investment abstract using bernheim and whinston 1986 common agency game we endogenize trade policy in a duopoly composed of a domestic firm and a foreign firm where both firms influence the domestic government s trade policy via their contributions the foreign firm can jump over trade restrictions by undertaking foreign direct investment fdi in the domestic market the government prefers a voluntary export restraint ver to a tariff for two reasons first a ver leads to higher contributions from the foreign firm than a tariff second a ver provides a higher level of protection to the domestic firm without generating fdi by the foreign firm

the wealth effects of premium subsidies on moral hazard in insurance markets abstract insurance premium subsidies are present in many insurance markets the swiss government for example paid out chf 4 26 billion or 0 72 of the swiss gdp for health insurance premium subsidies in 2011 analyses of premium subsidies have often highlighted that the increased insurance demand due to premium subsidies increases the effects of moral hazard in the market other consequences of premium subsidies however have mostly been neglected by the literature we show in our theoretical model that the wealth effects of premium subsidies decrease the sensitivity of the insured towards the monetary consequences of losses this leads to less prevention efforts by the insured and thus increases moral hazard in the market the effect is preserved if the subsidy is financed through proportional taxation using two alternative models we show that providing state dependent subsidies can either increase or reverse this effect depending on which state subsidies are paid we argue that whether demand effects or wealth effects of premium subsidies will dominate the insured s behavior depends on the market structure

strategic competition and optimal parallel import policy this paper shows that parallel import policy can act as an instrument of strategic trade policy we demonstrate this result in two country international duopoly where a domestic monopolist competes with a rival rm in the foreign market if it chooses to incur the xed investment cost of exporting the two rms sell horizontally dierentiated goods and compete in prices when the foreign market is signi cantly larger than the domestic one the home rm gains if it is unable to price discriminate its desire to not deviate too far from its optimal monopoly price in the domestic market makes it credibly less aggressive in price competition abroad which softens price competition and raises pro ts on the other hand when the foreign market is not signi cantly larger it is optimal for the home country to forbid parallel imports since international price discrimination yields higher pro ts to the home rm we draw out the implications of the two types of parallel import policies for global welfare

parallel imports demand dispersion and international price discrimination parallel imports goods imported by unauthorized resellers are advocated worldwide for undermining international price discrimination for a continuum of markets we find that uniform pricing by a monopolist yields lower global welfare than third degree discrimination if demand dispersion across markets is large though uniform pricing avoids output misallocation too many markets go unserved mixed systems permitting discrimination across but not within designated groups of markets yield significantly higher welfare than uniform pricing or unrestricted multimarket discrimination and can pareto dominate uniform pricing thus while parallel imports might benefit some countries our results weaken the multilateral case for allowing them

pricing with cookies behavior based price discrimination and spatial competition we present a model of dynamic competition between two firms where firms gather customer information through first period purchase this creates asymmetric information in the second period whereby a

why parallel trade may raise producers profits abstract this paper shows that a manufacturer may benefit from parallel trade in addition to an intuitive condition about the effect of demand shocks this occurs when competitive retailers must order inventories before they know the realization of demand and for products whose sale value drops at the end of the demand period for these types of products letting retailers trade unsold inventories generally results in larger orders placed with the manufacturer and higher manufacturer profit the model provides a simple explanation as to why the volume of parallel trade is now very large and accepted by manufacturers for some products such as automobiles clothes toys consumer electronics musical recordings cosmetics and perfumes

the impact of parallel imports on investments in cost reducing research and development abstract we develop a two country model of endogenous investment in process innovation by a manufacturer facing competition from parallel imports pi we find that the distortions associated with pi inhibit innovation however the difference between the manufacturer s expected profits under successful and failed innovation is u shaped in the cost of engaging in pi thus the reduction in r d investment depends on both legality of pi and transport costs the reduction in innovation could harm global welfare depending on whether the manufacturer was deterring pi with a high wholesale price if so banning such trade would raise expected welfare

self insurance against natural disasters abstract expenditures on self insurance to mitigate the effects of natural disasters on the value of private assets are examined in a model where individuals are partially insured against financial loss by a public relief program and where private insurance is unavailable the model predicts that optimal private expenditures on self insurance will be excessive or insufficient according to the nature of the technology by which individuals protect their assets the comparative static effects of variations in the level of public compensation individual wealth and attitudes toward risk and the degree of environmental uncertainty on self insurance expenditures and on the magnitude and frequency of public compensation are also characterized and their implications for remedial government policies are examined

parallel imports and repair services abstract this study explores the welfare effects of parallel imports when the producer may refuse to provide repair services for parallel imported units which reduces the degree of price convergence between countries if the probability of the product s breakdown is endogenously determined by the producer permitting parallel imports could increase the probability because a higher probability leads to a larger price gap as a result it is possible that prices increase and welfare deteriorates in both countries this negative welfare effect is more likely to emerge as the liberalization of trade in goods proceeds the prohibition of service discrimination recovers the positive welfare effect

vertical distribution parallel trade and price divergence in integrated markets we develop a model of vertical pricing in which an original manufacturer sets wholesale prices in two markets that are integrated at the distributor level by parallel imports pi the manufacturing rm needs to set these two prices to balance three competing interests restricting competition in the pi recipient market avoiding resource wastes due to actual trade and reducing the double markup problem in the pi source nation

altruism the samaritan s dilemma and government transfer policy this paper shows that altruism provides an efficiency rationale for public provision of insurance to the poor the framework is one in which there are rich altruists and risk averse poor who face some possibility of loss the government represents the rich and makes transfers on their behalf with unconditional transfers the poor may forgo insurance and rely on private charity to bail them out in the event of loss this reliance on private charity has adverse efficiency effects these may be avoided if the government makes in kind transfers of insurance copyright 1995 by american economic association

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

behavior based pricing an analysis of the impact of peer induced fairness firms tracking consumer purchase information often use behavior based pricing bbp i e price discriminate between consumers based on preferences revealed from purchase histories however behavioral research has shown that such pricing practices can lead to perceptions of unfairness when consumers are charged a higher price than other consumers for the same product this paper studies the impact of consumers fairness concerns on firms behavior based pricing strategy profits consumer surplus and social welfare prior research shows that bbp often yields lower profits than profits without customer recognition or behavior based price discrimination by contrast we find that firms profits from conducting bbp increase with consumers fairness concerns when fairness concerns are sufficiently strong practicing bbp is more profitable than without customer recognition however consumers fairness concerns decrease consumer surplus in addition when consumers fairness concerns are sufficiently stron

the life insurance market asymmetric information revisited abstract this paper finds evidence for the presence of asymmetric information in the life insurance market a conclusion contrasting with the existing literature in particular we find a significant and positive correlation between the decision to purchase life insurance and subsequent mortality conditional on risk classification individuals who died within a 12 year time window after a base year were 19 more likely to have taken up life insurance in that base year than were those who survived the time window moreover as might be expected when individuals have residual private information we find that the earlier an individual died the more likely she was to have initially bought insurance the primary factor driving the difference between our and the prior literature s findings is that we focus on a sample of potential new buyers rather than on the entire cross section to address the sample selection problem induced by potential mortality differences between those with and those without coverage

parallel trade international exhaustion and intellectual property rights a welfare analysis this paper analyses the issue of parallel trade arbitrage for products protected by intellectual property rights many countries have traditionally allowed owners of intellectual property rights to prohibit arbitrage in the face of international price discrimination in a well known paper malueg and schwartz 1994 showed that this policy decreases social welfare when the same markets are served in both regimes with and without arbitrage their model considered only the setting of prices and not investment in product development we consider a two stage game where firms choose quality first and then prices since the threat of arbitrage ex post reduces the incentive to invest ex ante the net benefits of parallel trade may vanish we also show that the size of the welfare effects is significantly affected by the presence of a generic product which represents a form of competition for the monopolist the monopolist will introduce a fighting brand to compete with the generic which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments

insurance design in the presence of safety nets abstract safety net assistance and insurance exist to manage risk and improve welfare this shared goal may lead to crowding out in a new approach this paper analyzes the interaction of assistance with two dimensions of insurance design level of coverage and types of risks covered in a society of risk averse vulnerable individuals and risk neutral assistance providers pareto improvements in welfare are achieved through incompleteness in the types of risks covered the results imply that safety nets promote demand for and the emergence of incomplete insurance these results have a wide application to insurance markets where safety nets are available including health care disaster aid and social welfare