telephone demand over the atlantic evidence from country pair data international calls include consumption and financial externalities theoretical analysis predicts that the volume of outbound and inbound calls is a function of originating country price own price and terminating country price cross price analysis of annual data for minutes of calling between the u s and seventeen west european countries from 1979 to 1986 reveals negative own price effects in both directions with inbound calls more elastic cross price effects are generally not statistically significant the findings are consistent with arbitrage and call externality motivation that cancel each other level of gdp number of telephones and telex prices are statistically significant copyright 1992 by blackwell publishing ltd

bill and keep vs cost based access pricing revisited abstract we study network competition with two part tariffs and termination based price discrimination in the presence of call externalities we show that both the collusive and the welfare maximizing access charges fall below marginal cost moreover bill and keep arrangements are welfare improving compared with cost based access pricing

limited liability and incentive contracting with ex ante action choices abstract this article examines a principal agent model of financial contracting in which a risk neutral entrepreneur agent makes an unobservable ex ante effort choice while employing the investment funds of a risk neutral investor principal the key innovation is that the investment contract is subject to statutory liability limits given these liability limits two settings are considered one in which the investor payoff function is also constrained to be monotonically nondecreasing in firm profit and another in which no such monotonic contract constraint is imposed in the former case a standard debt contract is shown to emerge and a first best effort choice is not achieved in the latter setting the optimum is characterized by a live or die payoff function and a first best effort level may or may not be realized

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

two monies two markets variability and the option to segment abstract this paper examines the decision to create barriers to arbitrage for a firm selling on two national markets real exchange rate changes affect the incentives to create such barriers since they influence the optimal prices sunk costs of market segmentation imply that the option to segment markets is more valuable the greater the variability of the real exchange rate if a monetary union reduces future real exchange rate variability it could thus stimulate market integration

network competition and interconnection with heterogeneous subscribers abstract this paper analyses two way access pricing in a telecommunications market where consumers are heterogeneous in their demand for calls and firms are allowed to use non linear tariffs we first investigate how the presence of access charges affects the tariffs offered by firms in symmetric equilibrium next we show that under certain conditions each firm s profit is independent of the level of reciprocal access charge and therefore collusion using access charges is not sustainable this result suggests that efficient call allocations can be achieved under a minimal regulatory intervention i e recommending firms set access charges equal to call termination cost

incomplete contracts and strategic ambiguity why are observed contracts so often incomplete in the sense that they leave contracting parties obligations vague or unspecified traditional answers to this question invoke transaction costs or bounded rationality in contrast the authors argue that such incompleteness is often an essential feature of a well designed contract specifically once some aspects of performance are unverifiable it is often optimal to leave other verifiable aspects of performance unspecified the authors explore the conditions under which this occurs and investigate the structure of optimal contracts when these conditions are satisfied copyright 1998 by american economic association

subjective performance measures in optimal incentive contracts objective measures of performance are seldom perfect in response incentive contracts often include important subjective components that mitigate incentive distortions caused by imperfect objective measures this paper explores the combined use of subjective and objective performance measures in respectively implicit and explicit incentive contracts naturally objective and subjective measures often are substitutes sometimes strikingly so we show that if objective measures are sufficiently close to perfect then no implicit contracts are feasible because the firm s fallback position after reneging on an implicit contract is too attractive we also show however that objective and subjective measures can reinforce each other if objective measures become more accurate then in some circumstances the optimal contract puts more weight on subjective measures because the improved objective measures increase the value of the ongoing relationship and so reduce the firm s incentive to renege we also analyze the use of subjective weights on objective performance measures and provide case study evidence consistent with our analyses

relational contracts and the theory of the firm relational contracts informal agreements sustained by the value of future relationships are prevalent within and between firms we develop repeated game models showing why and how relational contracts within firms vertical integration differ from those between nonintegration we show that integration affects the parties temptations to renege on a given relational contract and hence affects the best relational contract the parties can sustain in this sense the integration decision can be an instrument in the service of the parties relationship our approach also has implications for joint ventures alliances and networks and for the role of management within and between firms

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

nonlinear pricing in markets with interdependent demand this paper provides a mathematical framework for modeling demand and determining optimal price schedules in markets which have demand externalities and can sustain nonlinear pricing these fundamental economic concepts appear in the marketplace in the form of mutual buyers benefits and quantity discounts the theory addressing these aspects is relevant to a wide variety of goods and services examples include tariffs for electronic communications services pricing of franchises and royalty fees for copyrighted material and patents this paper builds on several previous results from microeconomics and extends nonlinear pricing to markets with demand externalities the implications of this price structure are compared to results obtained for flat rates and two part tariffs in a similar context a case study is described in which the results were applied to planning the startup of a new electronic communications service

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

economic integration and rules of origin under international oligopoly free trade agreements ftas have rules of origin roos to prevent tariff circumvention by firms of non member countries this paper points out that in imperfectly competitive markets roos have another role overlooked in the existing literature instead of focusing on the impacts of roos in the intermediate good markets we draw our attention to the final good markets to examine the effects of roos we find that under some conditions roos benefi tb othfirms at the expense of consumers under some other conditions roos benefi tt hefirm producing outside the fta and hurt the firm producing inside the fta

optimal procurement contracts under a binding budget constraint the traditional literature on agency models predicts that for zero liability contracts it is optimal for the principal to pay for the information he cannot observe however this principle is not valid for a set of contracts mostly used by government agencies whose distinguishing feature is represented by a stringent budget constraint for the principal this paper shows that in this environment the principal will either choose a structure exibiting pooling or a bargaining solution the bargaining solution represents the analytical proof to the intuition of the difficulty in implementing procurement contracts stated by laffont and tirole 1993

the existence of self enforcing implicit contracts implicit contracts are nontrivial nash equilibria to the post hiring trading game between a worker and the employer these are supported by intrafirm rather than labor market reputations the existence of an implicit contract that supports efficient trade is proved in a simple model

the interaction of implicit and explicit contracts in repeated agency abstract in a repeated principal agent model in which the agent s actions are observable to the principal but not verifiable in court the agent s incentives derive both from salary payments based on verifiable signals and from implicit promises by the principal of bonuses for good behavior explicit short term contracts are designed to enhance the effectiveness of the infinite horizon implicit contract between principal and agent in a constrained efficient equilibrium bonuses smooth the consumption path of the risk averse agent by moving in the opposite direction from salaries total consumption and expected discounted utility for the rest of the game journal of economic literature classification numbers c7 c73 d8

international capacity choice and national market games abstract international trade is modelled as a two stage game between firms in different countries at the first stage firms choose their capacity and at the second stage play a separate price game in each national market given their worldwide capacity it is established that firms use capacity strategically in order to manipulate the distribution of rivals output between markets the volume of intra industry trade is intermediate between the cases of integrated and segmented market cournot equilibria countries gain from small import tariffs and export subsidies but these gains are less than in the segmented market cournot equilibrium case

relational incentive contracts standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced this paper studies the design of self enforced relational contracts i show that optimal contracts often can take a simple stationary form but that self enforcement restricts promised compensation and affects incentive provision with hidden information it may be optimal for an agent to supply the same inefficient effort regardless of cost conditions with moral hazard optimal contracts involve just two levels of compensation this is true even if performance measures are subjective in which case optimal contracts terminate following poor performance jel c73 d82 l14

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

network competition in nonlinear pricing previous research assuming linear pricing has argued that telecommunications networks may use a high access charge as an instrument of collusion i show that this conclusion is difficult to maintain when operators compete in nonlinear pricing i as long as subscription demand is inelastic profits can remain independent of the access charge even when customers are heterogeneous and networks engage in second degree price discrimination ii when demand for subscriptions is elastic networks may increase profits by agreeing on an access charge below marginal cost relative to cost based access pricing welfare is typically increased by setting the access charge above marginal cost

communication in repeated games with imperfect private monitoring this paper examines repeated games in which each player observes a private and imperfect signal on the actions played and in which players are allowed to communicate using public messages providing incentives for players to reveal their observations generates revelation constraints that combined with signal imperfections may be a source of inefficiencies however by delaying the revelation of their observations players may economize on the cost of deterring deviations and thereby avoid these inefficiencies because a player would not want to trigger a sanction that would penalize him too revelation constraints also tend to make sanctions difficult to enforce however with at least three players detecting deviations may not require that all the players reveal their observations in that case we obtain a nash threat version of the folk theorem with two players we do not obtain a similar result nevertheless we show that an efficient outcome can almost always be approximated

short term contracts and long term agency relationships abstract long term contracts are valuable only if optimal contracting requires commitment to a plan today that would not otherwise be adopted tomorrow we show that commitments are unnecessary and hence short term contracts are sufficient if 1 all public information can be used in contracting 2 the agent can acess a bank on equal terms with the principal 3 recontracting takes place with common knowledge about technology and preferences and 4 the frontier of expected utility payoffs generated by the set of incentive compatible contracts is downward sloping at all times

editorial does good marketing cause bad unemployment questionable methods for increasing nominal wages reduce real wages i e buying power by creating inflation shortages lower quality and long term unemployment to increase real wages i e the ability to buy more economic principles prescribe increasing productivity i e greater output from less input in contrast marketing principles prescribes increasing the value of output i e greater customer benefits through innovation beyond increasing real wages innovation spawns new occupations better matching individuals with skills and providing greater nonmonetary benefits i e job satisfaction unfortunately threatened entrenched incumbents often solicit protectionist legislation claiming negative externalities e g short term unemployment lower wages and burdens on society innovation does require labor to move from inferior to superior organizations i e unemployment however protectionism only delays and dramatically aggravates the inevitable trauma associated with progress as worker skills firm practices and buyer welfare fall further behind recent attacks demonizing wal mart e g the dubious vlasic pickle claim epitomize this situation they are archaic vanilla protectionism menacing both imperiled consumers and every consumer driven business

your network or mine the economics of routing rules in many markets including payment cards and telecommunications service providers operate networks that support customer transactions with each other when the two sides of a transaction belong to more than one network in common the question arises as to which network will carry the transaction we show that the answer depends on a combination of who has the formal authority to choose and the parties network subscription decisions our central finding is that granting formal authority to one side of the market can increase the extent to which transactions run over the network preferred by the other side of the market we also characterize competing networks equilibrium choices of routing rules and prices

multilateral contracting and the employment relationship this paper studies the structure of the employment relationship in organizations it investigates the trade off firms face between making commitments to their workforce as a whole multilateral relational contracts and making more limited commitments to individuals or smaller groups of employees bilateral relational contracts multilateral contracts bind the firm more strongly to implicit commitments improving motivation but are difficult to adjust in response to changes in the environment bilateral contracts make workforce changes easier to implement the framework helps to explain the use of relative performance evaluation why firms rely on temporary employees and the adoption of two tier workforces

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

bundling and international market segmentation the paper shows how firms by bundling their products with nontradables may contribute to the segmentation of international oligopoly markets we develop a simple example with two products one that is homogeneous across markets and one that is bundled with a nontradable e g local services integration of the markets for the homogeneous product yields the expected price equalization across markets however integration of the markets for bundled products leaves the economy entirely unaffected hence the standard methodology of comparing a segmented and an integrated equilibrium would exaggerate the effects of integration in this economy

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

sequential entry with brand loyalty caused by consumer learning by using we examine first mover advantages in a new product market with sequential entry effort is necessary to learn how to use new products and consumers are assumed to differ in their ability to expend such effort we consider the intertemporal pricing strategy of the first entrant who anticipates the late entry of a rival firm the first entrant s optimal strategy is to set a low introductory price this builds up a customer base which remains loyal despite the later entry of a lower priced rival and weakens price competition between the two firms thus brand loyalty makes entry into the market easier

creativity and incentives creativity is a complex and multidimensional phenomenon with tremendous economic importance a crucial question for economists and for firms is the interplay of incentives and creativity we present experiments where subjects face creativity tasks where in one case ex ante goals and constraints are imposed on their answers closed tasks and in the other case no restrictions apply open tasks the effect of tournament incentives on creativity is then tested our experimental findings provide striking evidence that financial incentives in the form of tournament competition affect creativity in closed constrained tasks but do not facilitate creativity in open unconstrained tasks whereas being ranked relative to one s peers is an effective nonmonetary incentive with both types of tasks we develop a structural model that allows for subjects heterogeneity in being affected by the openness of the task and then use the structural model to not only estimate creative output in tournaments but also to predict creative output in two counterfactual incentive schemes piece rate and target bonus

nonlinear pricing of telecommunications with call and network externalities abstract this paper investigates how call and network externalities affect a monopolist s optimal nonlinear tariff in a two way telecommunication service market where consumers valuations for outgoing and incoming calls are positively correlated and the firm is not allowed to charge incoming calls it is shown that in contrast to the traditional efficiency on the top result all subscribers including those with the highest willingness to pay make suboptimal quantities of calls in the equilibrium the presence of call externalities may result in the existence of no call making subscribers in equilibrium also the firm may have incentives to sell the service below costs to some low valuation consumers in order to take advantage of the effect of network externalities

regulatory pricing rules to neutralize network dominance this paper evaluates the effectiveness of several pricing rules intended to promote entry into a network industry dominated by an incumbent carrier drawing on the work of cournot an d hotelling we develop a model of competition between two inter connected networks in a symmetric equilibrium the price of cross network calls exceeds the price of internal calls this calling circle discount tends to tip the industry to a monopoly equilibrium as would a network externality by equalizing charges for terminating calls reciprocity eliminates differences between internal and crossnetwork prices and makes monopoly less likely imputation counteracts an incentive by the dominant network to price squeeze a rival by eliminating differences in the wholesale price of termination and the implicit price for internal use by increasing profits of rival networks and increasing thei r subscribers surplus imputation supports additional entry finally an unbundling rule reduces termination fees charged by a dominant network that was engaging in pure bundling again entry will be facilitated as rival networks offer potential subscribers a more attractive rate schedule

optimal contracting with subjective evaluation this paper extends the standard principal agent model to allow for subjective evaluation the optimal contract results in more compressed pay relative to the case with verifiable performance measures moreover discrimination against an individual implies lower pay and performance suggesting that the extent of discrimination as measured after controlling for performance may underestimate the level of true discrimination finally the optimal contract entails the use of bonus pay rather than the threat of dismissal hence neither efficiency wages nor the right to dismiss an employee are necessary ingredients for an optimal incentive contract

intellectual property rights hinder sequential innovation experimental evidence abstract in this paper we contribute to the discussion on whether intellectual property rights foster or hinder innovation by means of a laboratory experiment we introduce a novel scrabble like word creation task that captures most essentialities of a sequential innovation process we use this task to investigate the effects of intellectual property allowing subjects to impose license fees on their innovations we find intellectual property to have an adverse effect on welfare as innovations become less frequent and less sophisticated introducing communication among innovators does not reduce this detrimental effect introducing intellectual property results in more basic innovations with subjects failing to exploit the most valuable sequential innovation paths subjects act more self reliant and non optimally in order to avoid paying license fees our results suggest that granting intellectual property rights hinders innovation especially for sectors characterized by a strong sequentiality in innovation processes

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

markets for ideas prize structure entry limits and the design of ideation contests contests are a popular mechanism for the procurement of innovation in marketing design and other creative industries firms use freelance marketplaces to organize contests and obtain high quality ideas for ads new products and even business strategies from participants a central question faced by contest sponsors is how to appropriately structure prizes and entry regulations i develop an empirical model of idea generation ideation contests and investigate the impact of the number of prizes prize amount and submission limit on participation and quality outcomes using data from a popular marketing ideation platform the model explains participant submission decisions jury ratings and sponsor rankings of winning submissions counterfactuals reveal the impact of design parameters on outcomes and provide guidance for the optimal design of ideation contests and platforms

network interconnection in telecommunications this paper discusses industries such as telecommunications where firms each have their own customers and must interconnect with other firms to provide a comprehensive service two scenarios are considered i the case of a symmetric unregulated industry and ii the case of an industry with a dominant regulated incumbent in the first provided there is sufficient product differentiation it is shown that firms agree to set interconnection charges above associated costs in order to obtain the joint profit maximising outcome in the second a formula for the welfare maximizing interconnection charge is derived relations with the efficient component pricing rule are discussed

screening contracts in the presence of positive network effects abstract based on the critical assumption of complementarity this paper builds a general model to describe and solve the screening problem faced by a monopolist seller of a network good by applying strict monotone comparative statics we demonstrate that the joint presence of asymmetric information and positive network effects leads to a strict downward distortion from the welfare maximizing allocation for all consumers we also show that the equilibrium allocation is an increasing function of network effect intensity

implications of reduced search cost and free riding in e commerce this paper examines a market where the provision of information service is costly but information service has the characteristics of a public good consumers on the other hand can use the information service to make an informed purchase decision and derive higher utility from consuming their ideal product however after receiving the information service from an information service provider consumers can easily free ride by purchasing at low price sellers who do not provide any information service the paper examines the competition where sellers compete by providing information service for horizontally differentiated products and where technology reduces consumers search cost it is found that in this market a seller needs to establish itself as an information service provider in order to make positive profits even when there is free riding a seller however cannot make positive profits by free riding all the time also with an increase in competition in the information service market sellers have reduced incentives to provide information service it is also found that in this market a decrease in search cost may increase or decrease social welfare

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

functional degradation and asymmetric network effects in markets subject to network effects firms often remove some functions of their original products and sell a functionally downgraded version at a lower or zero price this paper aims to provide a pure network effect based explanation of such a practice building a functional degradation model with asymmetric network effects we investigate when and why firms have incentives to introduce a functionally degraded good and discuss its welfare implication

network competition i overview and nondiscriminatory pricing we develop a model of unregulated competition between interconnected networks and analyze the mature and transition phases of the industry in this deregulated environ ment networks pay negotiated or regulated access charges to each other and com pete in prices for customers we show that a competitive equilibrium may fail to exist for large access charges or for large network substitutability and that freely negotiated access charges may prevent effective competition in the mature phase of the industry and erect barriers to entry in the transition toward competition last we examine the meaning and impact of policies such as the efficient component pricing rule

adoption externalities as public goods abstract a public good problem arises naturally in situations characterized by positive externalities or negative externalities for positive externalities agents furnish a public good by taking an action similarly for negative externalities agents furnish a public good by not taking an action we examine these externalities in a binary choice problem i e adoption externalities in each case there is a potential role for government intervention even when equilibrium transfers are not allowed since one equilibrium pareto dominates all others we analyze the positive and normative features of equilibria in these models and we explore the possibility of useful government intervention

the multiperiod principal agent problem in repeated principal agent models long term contracts can improve on short term contracts only if they commit either principal or agent to a payoff in some future circumstance lower than could be obtained from a short term contract negotiated if that circumstance occurs we show that efficient contracting under moral hazard alone does not require long term commitment from the principal provided a short term contract can punish the agent sufficiently in a sense made precise it requires no commitment from the agent either then linking payoffs in one period to outcomes in previous periods does not improve the tradeoff between incentives and risk sharing

implicit contracts incentive compatibility and involuntary unemployment this paper considers the enforceability of employment contracts when employees performance cannot be verified in court so that piece rate contracts are not legally enforceable part i shows that there exists a variety of self enforcing implicit contracts modelled as perfect equilibria in a repeated game and characterizes all the wage and performance outcomes that can be implemented implementation requires a strictly positive surplus from employment the form of the contract depending on how this surplus is divided between firm and employee piece rate contracts and contracts with an informally agreed bonus can be made self enforcing but the use of severance pay and bonding does not extend the set of implementable allocations the resulting contracts resemble actual labor contracts more than do the contracts in standard principal agent models part ii analyses market equilibrium with these contracts also modelled as perfect equilibria in a repeated game and shows that many such equilibria exist unfilled vacancies and unemployed workers can co exist despite the existence of contracts that are potentially mutually beneficial for those jobs that are filled any division of the potential surplus is possible so that the market can have at the same time involuntary unemployment and vacancies that are unfilled despite filled jobs earning positive profits as a criterion for selecting equilibria a notion of renegotiation proofness is applied then either all workers are employed or all jobs filled but any division of the potential surplus is still possible the paper explores what further restrictions on beliefs give rise to a walrasian outcome in which all the potential surplus goes to the short side of the market and to an efficiency wage type outcome in which the potential surplus goes to the long side

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

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

international lending with moral hazard and risk of repudiation in this paper i examine the constrained optimal pattern of capital flows between a lender and a borrower in an environment in which there are two impediments to forming contracts the first impediment to contracting arises from the assumption that lenders cannot observe whether borrowers invest or consume borrowed funds this assumption leads to a moral hazard problem in investment the second impediment arises from the assumption that the borrower as a sovereign nation may choose to repudiate his debts the optimal contract is shown to specify that the borrowing country experience a capital outflow when the worst realizations of national output occur this seemingly perverse capital outflow forms a necessary part of the optimal solution to the moral hazard problem in investment

self enforcing wage contracts we examine long term wage contracts between a risk neutral firm and a risk averse worker when both can costlessly renege and buy or sell labour at a random spot market wage a self enforcing contract is one in which neither party ever has an incentive to renege in the optimum self enforcing contract wages are sticky they are less variable than spot market wages and positively serially correlated they are updated by a simple rule around each spot wage is a time invariant interval and the contract wage changes each period by the smallest amount necessary to bring it into the current interval