the economics of favors abstract this paper examines the favors people perform for each other using a stochastic version of the infinitely repeated prisoner s dilemma rpd it is shown that the socially efficient outcome may not be consistent with an equilibrium because some favors are too expensive to perform on the other hand it is possible for some socially inefficient favors to be performed even so favor exchange relationships must be strictly pareto improving the model is also able to address situations in which there are market alternatives to the services being exchanged and when favors are exchanged among members of large groups or hierarchies

the equivalence between destination and non reciprocal restricted origin tax regimes it is well known that destination and reciprocal restricted origin tax regimes are only equivalent under very stringent conditions an alternative nonreciprocal restricted origin regime is proposed and then shown to be equivalent to the destination regime under a wide set of conditions including imperfect competition and transport costs the policy implications of the result for the european community are discussed copyright 1994 by the editors of the scandinavian journal of economics

on the early holocene foraging to early agriculture we consider a world in which the mode of food production foraging or agriculture is endogenous and in which technology grows exogenously within a model of coalition formation we allow individuals to form co operative communities bands of foragers or farmers rationally at the lowest levels of technology equilibrium entails the grand coalition of foragers a co operative structure which avoids over exploitation of the environment but at a critical state of technology the co operative structure breaks down through an individually rational splintering of the band at this stage there can be an increase in work and through the over exploitation of the environment a food crisis in the end technological growth may lead to a one way transition from foraging to agriculture

knowhow trading as economic exchange abstract knowhow trading is the informal exchange of practical technical knowledge between pairs of engineers and other technicians in different firms this paper explains the advantages and disadvantages of this particular mode of knowledge sharing from an economic perspective under a knowhow trading regime long term self selected partners barter knowledge ex post i e they exchange information already known to one of them the paper explains why barter is better suited to the exchange of ideas than to the exchange of conventional goods and points out advantages of ex post knowledge sharing between firms whose priorities differ it is generally cheaper to acquire knowhow through exchanges than to reinvent the wheel but sharing knowhow can cut into the firm s competitive advantage pairwise exchanges limit although they do not eliminate the firm s loss of competitive advantage when it shares technical knowledge because knowhow trading is informal and off the books such trading is difficult for the firm to evaluate and to manage similarly since it eludes the traditional measures of economic activity knowhow trading is difficult to document and integrate into studies of the general economy

it s not just the thought that counts an experimental study on the hidden cost of giving receiving a gift can create an impulse to reciprocate even when doing so may be inefficient and potentially harmful to a third party this paper provides a theoretical framework for a pure gift effect on reciprocity impulses and experimental evidence that such an effect exists that is a gift receiver will favor an actual gift giver over an intended gift giver even if the intended gift giver incurred the same costs and signaled the same intention to give this result contrasts with the predictions of existing theories on social preferences we also show that the pure gift effect is present even when it leads to a less efficient outcome or when the gift is given without the expectation of future returns our findings suggest that when reciprocating a gift becomes socially inefficient it may be more advantageous to guard against gift receiving or to keep donations secret than to try to control the intent to give

evolutionary stability in games of communication abstract this paper identifies evolutionarily stable outcomes in games in which one player has private information and the other takes a payoff relevant action the informed player can communicate at little cost outcomes satisfying a set valued evolutionary stability condition must exist and be efficient in common interest games when there is a small cost associated with using each message the outcome preferred by the informed player is stable the paper introduces a nonequilibrium set valued stability notion of entry resistant sets for games with partial common interest the no communication outcome is never an element of an entry resistant set journal of economic literature classification numbers c72 d82

the non monetary nature of gifts this paper addresses the prevalence of non monetary gifts over more highly valued and e cient monetary transfers in social relationships we demonstrate that under a wide variety of circumstances ine cient non monetary gifts will be o ered by a donor in lieu of cash in order to signal the donor s quality of information about the recipient s preferences this result emerges because gift giving is ine cient relative to cash and not because of any arbitrary assumptions regarding communication in particular the donor has available the strategy of o ering cash and saying what he would have purchased nonetheless there is still an important equilibrium role for buying gifts 2001 elsevier science b v all rights reserved jel classixcation a13 d10 d64 d82 z1

the analytics of the pricing of higher education and other services in which the customers are inputs many services provide outputs that depend partially on the customers as inputs the presence of other customers often contributes to the output experienced by each purchaser higher education is the premier example others are legion we provide a simple model that addresses the questions of competitive pricing and allocative efficiency for these types of services prices that charge customers for what they get on net output minus input from the firm both are competitive and support efficient allocations these prices internalize the apparent external effects of customers on each other few examples of such prices exist in the real world

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

tax competition and tax co ordination under destination and origin principles a synthesis this paper proposes a general framework for analysing commodity tax competition under destination and origin principles based on three possible tax spillovers the consumer price spillover the producer price terms of trade spillover and rent spillovers a model is presented which can be extended to accommodate all three spillovers using this model many of the results in the existing literature can be derived compared and extended

gift giving and the evolution of cooperation gift giving is a practice common to many societies in an evolutionary model the social custom of giving gifts at the beginning of a relationship can lead to trust and cooperation the evolutionary approach makes predictions about the character of the goods that can be used as gifts for example gift goods may have little use value even at low levels of consumption although the gifts themselves are useless the institution is not

a generalized equivalence property of mixed international vat regimes it is shown that the equivalence of a global destination based and a global origin based vat regime can be extended to a class of mixed regimes where the origin principle is applied for all trade within the eu and a destination based eu specific border tax adjustment is applied for eu trade with the rest of the world such a unified restricted origin regime is superior to the non reciprocal restricted origin regime proposed by lockwood de meza and myles 1994a since it is the more general vat regime and offers a higher probability of political acceptance than the latter regime

theory and evidence on pricing by asymmetric oligopolies we present an analysis of markets with many asymmetrically positioned retailers that compete for the business of both informed and uninformed customers for a homogenous good such as software music book or a brand name appliance we show that two forms of asymmetry one related to loyal segment sizes of retailers and one related to the positioning of firms completely explain the observed price dispersion in such markets and the multitude of asymmetrical strategies adopted by retailers the stochastic dominance of empirical mixed strategy measures is used to test the theory with data on 968 books from 10 online retailers

competition between private and public schools vouchers and peer group effects a theoretical and computational model with tax financed tuition free public schools and competitive tuition financed private schools is developed students differ by ability and income achievement depends on own ability and on peers abilities equilibrium has a strict hierarchy of school qualities and two dimensional student sorting with stratification by ability and income in private schools high ability low income students receive tuition discounts while low ability high income students pay tuition premia tuition vouchers increase the relative size of the private sector and the extent of student sorting and benefit high ability students relative to low ability students

interfirm relationships and informal credit in vietnam trading relations in vietnam s emerging private sector are shaped by two market frictions the difficulty of locating trading partners and the absence of legal enforcement of contracts examining relational contracting we find that a firm trusts its customer enough to offer credit when the customer finds it hard to locate an alternative supplier a longer duration of trading relationship is associated with larger credit as is prior information gathering customers identified through business networks receive more credit these network effects are enduring suggesting that networks are used to sanction defaulting customers

for better or forever formal versus informal enforcement this article contrasts supporting partnerships through relational contracting and supporting partnerships through formal legal institutions a large population of players interact in bilateral relationships efficiency requires cooperation but cheating yields a higher short term payoff there is a positive probability that the maximum feasible payoff available to a partnership decreases opportunistic behavior makes it impossible to realize the efficient outcome a legal system can lead to efficient contracting without such a system productive relationships arise in equilibrium if it is costly to initiate new relationships this type of relational contracting tends to make partnerships last longer than is efficient

self enforcing contracts shirking and life cycle incentives he labor market is a rich and complicated place when a worker takes a job he expects to earn a wage but will also care about rates of wage growth fringe benefits levels of risk retirement practices pensions promotion and layoff rules seniority rights and grievance procedures in return the worker must give up some time but he is also asked to upgrade his skills train other workers provide effort and ideas and defer to authority in questions of how his time is spent great changes are occurring in the way labor market institutions such as these are modelled central to the new approach is the concept of a self enforcing implicit contract this is the latest in a series of variations on the ideas of azariadis 1975 baily 1974 and gordon 1974 and is one of the more exciting new developments in the theory of labor markets this essay will outline this approach and evaluate some of its accomplishments the ideas will be presented in the context of an incentive model that is of some independent interest the model was introduced by becker and stigler 1974 and was extended by lazear 1979 to account for wage growth and mandatory retirement in these papers the workers retire at a fixed age lending the name life cycle incentives to the approach more recently shapiro and stiglitz 1984 have used a version without a fixed retirement date to account for unemployment this version is often called the shirking model these models have generated some controversy but much of it can be resolved when the models are presented in the framework of self enforcing contracts in fact this simple incentive model can do even more it can provide a rationale for competitive hierarchies where firms place their workers in competition with

altruism reciprocity and health a social experiment in restaurant choice abstract we used an experimental game to determine whether people imitate restaurant choice reciprocate food gifts and thus spread health choices we randomly paired 138 subjects and recorded their decision to give or keep restaurant vouchers and their choice of restaurant the majority 83 3 chose an unhealthy restaurant if their randomly assigned partner chose an unhealthy restaurant similarly 77 8 chose a healthy restaurant if their partner did p 0 005 the altruistic were more likely to choose a healthy restaurant p 0 017 in sum restaurant choice is influenced by reciprocity a cycle of projection gifting and reciprocation may explain the social dynamics of food choice we propose policies that capitalize on people s tendency towards altruism and imitation

gift giving and worker productivity evidence from a firm level experiment abstract we present results from a field experiment designed to measure worker response to a monetary gift from their employer the experiment took place inside a tree planting firm paying its workforce incentive contracts firm managers told a crew of tree planters they would receive a pay raise for one day as a result of a surplus not attributable to past planting productivity we compare planter productivity the number of trees planted per day on the day the gift was handed out with productivity on previous and subsequent days of planting on the same block and thus under similar planting conditions we find direct evidence that the gift had a significant and positive effect on daily planter productivity controlling for planter fixed effects weather conditions and other random daily shocks

domestic alliance network to attract foreign partners evidence from international joint ventures in china partner selection is a critical issue in building international joint ventures ijvs we argue that foreign firms are more likely to select local firms with unique network structural advantages within a local alliance network we frame structural advantages as two network position traits centrality and brokerage specifically network centrality acts as a stronger network trait than brokerage in attracting foreign ijv partners however such a relationship may be moderated by foreign firms local experience and perceived capabilities we contend that when foreign firms have a high level of local market experience and perceived capabilities they may prefer a local broker over a centrally located local firm data on the domestic alliance network in china s electronics and information technology it industries largely support our hypotheses we conclude that as foreign investors become strategic insiders they may not only seek a local partner s capability attributes but also more critically pay attention to a local partner s domestic network

asymmetry of customer loss and recovery under endogenous partnerships theory and evidence this article is inspired by real world phenomena that firms lose customers based on imprecise information and take a long time to recover if consumers are playing an ordinary repeated game with fixed partners there is no clear reason why recovery happens slowly however if consumers are playing an endogenously repeated game a class of simple efficient equilibria exhibits the asymmetry of fast loss and slow recovery of customers after a bad signal exit is systematic but formation of a new partnership is random we also give empirical evidence of our equilibria at an individual firm level

harmonization of commodity taxes destination origin and restricted origin principles abstract the three tax principles are compared using a multiproduct custom union model it is shown that if member countries use the destination or origin principles no distortion or redistribution of income occurs even if their tax rates differ however under the restricted origin principle different tax rates result in distortion and income redistribution equal tax rates still result in a redistribution of real income an exact measurement of this redistribution is derived given these results it seems possible to conclude that the origin principle is superior to the other tax principles

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

it takes two to tango equilibria in a model of sales we show that the varian model of sales with more than two firms has two types of equilibria a unique symmetric equilibrium and a continuum of asymmetric equilibria in contrast the 2 firm game has a unique equilibrium that is symmetric for the n firm case the asymmetric equilibria imply mixed strategies that can be ranked by first order stochastic dominance this enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players the unique subgame perfect equilibrium of this metagame is symmetric

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

an analysis of cooperative research and development i analyze the effects of cooperative research whereby member firms agree to share the costs andfruits of a research project before they undertake it in this model industrywide agreements tend to have socially beneficial effects when the degree ofproduct market competition is low when there are r d spillovers in the absence of cooperation when a high degree of sharing is technologically feasible and when the agreement concerns basic research rather than development activities i show that a royalty free cross licensing agreement among any number offirms lowers the equilibrium level of innovation even though it increases the efficiency of r d through sharing

group consumption free riding and informal reciprocity agreements we examine conditions under which group consumption is likely to involve informal reciprocity agreements rather than a price system our model shows that reciprocity agreements are used when transactions costs are high the good is inexpensive demand is inelastic the group continues to interact over time the consumers are patient the time between interactions is short and the group is small and homogeneous further the results suggest that reciprocity agreements are likely to involve goods that are consumed along with other group benefits such as companionship we use the model to analyze overlapping social networks and investments in social capital

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

new housing supply and the dilution of social capital this paper examines the role of local housing supply conditions for social capital investment using an instrumental variables approach and data from the social capital community benchmark survey it is documented that the positive link between homeownership and individual social capital investment is largely confined to more built up neighborhoods with more inelastic supply of new housing the empirical findings provide support for the proposition that in these localities house price capitalization provides additional incentives for homeowners to invest in social capital the findings are also largely consistent with the proposition that built up neighborhoods provide protection from inflows of newcomers that could upset a mutually beneficial equilibrium involving reciprocal cooperation however the results do not appear to be driven by selection based on inherent differences in social aptitudes or by tiebout sorting

voluntarily separable repeated prisoner s dilemma ordinary repeated games do not apply to real societies where one can cheat and run away from partners we formulate a model of endogenous relationships which one can unilaterally end and start with a randomly assigned new partner with no information flow focusing on two person two action prisoner s dilemma we show that the endogenous duration of partnerships gives rise to a significantly dierent evolutionary stability structure from the ordinary evolutionary games monomorphic equilibria require initial trust building while a polymorphic equilibrium includes early cooperators than any strategy in monomorphic equilibria and is thus more ecient this

deterrence by market sharing a strategic incentive for licensing the potential of an incumbent firm to retain its dominant position in a market is a focal point of the modem theory of industrial organization a recent literature examines this issue for markets in which challengers threaten an incumbent s position by engaging in research for a new technology richard gilbert and david newbery 1982 show that an incumbent firm with a firstmover advantage will preempt potential entrants by inventing a new technology slightly earlier than would its rivals in a stochastic r d therefore its introduction does not alter the decision to research when the pre innovation market is characterized by an incumbent and potential entrants stephen salant 1984 shows that licensing ex post to innovation can alter the research decision as anticipation of the returns from future licensing encourages research by the entrant as a counterpoint to the salant result i find that licensing ex ante to research may discourage further research by the entrant indeed this strategic incentive for licensing may be so strong as to persuade the incumbent as well as the entrant to terminate research activity to isolate this incentive for licensing from the one discussed by salant a simple model is constructed in which licensing of future technologies is not desirable anecdotal evidence suggests that the strategic incentive does lead innovators in some markets to license their technologies examples of this information sharing are prevalent in markets where technological change is rapid in the 1940 s standard oil of new jersey discovered a process for synthetic rubber it traded patent rights on this process for a synthetic oil production process discovered by farben a german rubber company in both the synthetic oil and synthetic rubber markets rival companies were department of economics scarsborough college university of toronto toronto ontario canada m5s lal i thank jon cohen and ron saunders for discussions that inspired this paper i am also grateful to yehuda kotowitz andy mclennan jennifer reinganum ralph winter myma wooders two anonymous referees and seminar participants at the university of toronto for helpful comments on earlier drafts

mobility targeting and private school vouchers simulations are derived from a three district model of low middle and highincome school districts calibrated to new york data with housing stocks that vary within and across districts in this model it is demonstrated that school district targeted vouchers are similar in their impact to nontargeted vouchers but vastly different from vouchers targeted to low income households furthermore strong migration effects are shown to significantly improve the likely equity consequences of voucher programs jel 122 128 h73 persistent frustration with the perceived low quality of public education exacerbated by concerns over the inherently unequal levels of public school quality across school districts has caused policy makers courts and researchers to investigate modifications and alternatives to the current public school system one idea that has received increasing academic and public attention is that of private school vouchers with proponents arguing that the competitive pressures of voucher programs would cause improvements in the efficiency of the publicschool system while at the same time addressing equity concerns if vouchers can be targeted to low income households or low income school districts but aside from a few limited experiments in some u s cities our experience with vouchers in the united states remains virtually nonexistent this limits the amount of information researchers can derive from standard empirical analysis in that it forces them to rely on only current nonvoucher induced differences in competition despite important suggestive results such work may not anticipate all the impacts from a large scale policy such as the voucher policies currently under discussion at the same time theoretical models of school finance are also limited in that they often either focus on only one particular aspect of the general equilibrium school finance problem or they are too rich and complex to yield crisp predictions

profit maximizing clubs abstract we study a nash equilibrium among profit maximizing clubs which choose facility size and admission price the number of clubs is endogenous entry is deterred whenever the symmetric nash equilibrium with one additional firm would yield negative profit equilibrium exists with positive profit the equilibrium price is higher than the congestion price and the equilibrium number of clubs is bounded below by one fewer than the efficient number in general there will be too much entry than too little one can choose an economy sufficiently large that the equilibrium price is within epsilon of the competitive price

in search of welfare improving gifts gift giving is thought to decrease welfare recipients are sometimes stuck with gifts they would not have purchased because the giver does not perfectly know the recipient s preferences and in kind gifts cannot be costlessly refunded such gifts are welfare reducing compared to giving cash if in addition recipients possess full information as to which stores carry their desired goods and the ability to reach these stores costlessly we replace these two latter assumptions with the more realistic assumptions of uncertainty about the location of goods and search costs in contrast to existing economic models gifts in our model enhance expected welfare moreover gift giving cannot be replaced by a profit maximizing trader nor the introduction of nearby specialty stores carrying gift goods we use our model to explain a number of stylized facts about gift giving the organization of retail trade and in kind government transfers 2008 elsevier b v all rights reserved

forced gifts the burden of being a friend abstract in many developing countries gift expenses escalate with income growth and account for a substantial share of household expenditure we develop a theoretical model to demonstrate how unequal income growth may trigger gift competition and drive up the financial burden associated with gift exchange we use unique census type panel data from rural china to test our model predictions and demonstrate that 1 the value of gifts responds to the average gift in the community 2 the escalation of gift giving may have adverse welfare implications especially for the poor and 3 escalating gift expenses crowd out expenditures on other consumption items

too good to fire non assortative matching to play a dynamic game abstract we model stable non assortative labor market matchings we endogenize how transferable utility is a matched firm and worker play an infinite horizon game with one sided moral hazard becker s 1973 result that complementarity yields positively assortative matching fails because increasing match quality harms dynamic incentives a firm cannot credibly threaten to fire a worker who is productive even with low effort thus firms may prefer lower type workers who will exert more effort we offer a new interpretation of efficiency wages committing to a high wage improves effort incentives indirectly by increasing the firm s willingness to walk away we also show that the set of stable outcomes has a lattice structure

social capital and growth we define and characterize social capital in a simple growth model we capture social capital in a model where individuals in a community maximize their lifetime gains to trade each trade between two members of a community has the structure of the prisoners dilemma trades are repeated indefinitely but not necessarily each period social capital is defined as the social structure which facilitates cooperative trade as an equilibrium the trading model is incorporated into a growth model to explore the connections between growth labor mobility and social capital the key assumption is that technological innovation which drives growth involves a reallocation of labor that affects social capital modifying the responsiveness of labor to a technological shock has implications for both labor efficiency and social capital

household allocations and endogenous information the case of split migrants in kenya abstract one of the main elements separating different models of intrahousehold allocations is the household information set this paper tests for the endogeneity of the household information set in a context where household members cannot observe each other easily spousal information in the context of split urban migration in kenya based on unique data it finds that split migrant couples in the nairobi slums invest considerable resources into information acquisition substituting visits monitoring by siblings and budget submissions before remitting comparisons of pre marital search characteristics between current split and joint migrants are consistent with the hypothesis that those anticipating split migration change their marital search behavior to mitigate the consequences of pending imperfect information

the magic of the personal touch field experimental evidence on money appreciation as gifts this paper makes use of two field experiments to explore individual effort responses to gifts we extend the literature by looking at nonfinancial gifts and gifts that combine financial and nonfinancial elements with or without adding a personal touch we find that non pecuniary gifts that signal worker appreciation induce reciprocity most importantly we find that there are interaction effects between money and appreciation while money and appreciation are individually effective they only work well together when they are combined with a personal touch this points to the importance of interpersonal elements in gift giving and has important implications for how to effectively elicit worker effort

the globalisation of technology a new taxonomy book synopsis international management of research and development brings together the most influential contributions to managing organising and coordinating r d and innovation on a global scale in addition to papers on the fundamental principles trends and drivers of international r d it covers strategies and operations of global r d it also provides an introduction to modern concepts such as knowledge networks open innovation and virtual innovation it is a key reference collection for professors researchers and practitioners

strategic behavior and marriage payments theory and evidence from senegal abstract this article proposes an original theory of marriage payments based on insights gained from firsthand information collected in the senegal river valley this theory postulates that decisions about the bride price which are made by the bride s father take into account the likely effects of the amount set on the risk of ill treatment of the wife and the risk of marriage failure based on a sequential game with three players the bride s father the husband and the wife and a matching process it leads to a number of important predictions that are tested against senegalese data relating to bride prices and various characteristics of women the empirical results confirm that parents behave strategically by keeping bride prices down so as to reduce the risk of marriage failure for their daughters other interesting effects on marriage payments and the probability of separation are also highlighted stressing the role of the bride s bargaining power in her own family

leave and let leave a sufficient condition to explain the evolutionary emergence of cooperation the option to leave your current partner in response to his behavior also known as conditional dissociation is a mechanism that has been shown to promote the emergence and stability of cooperation in many social interactions this mechanism nevertheless has always been studied in combination with other factors that are known to support cooperation by themselves in this paper we isolate the effect of conditional dissociation on the evolution of cooperation and show that this mechanism is enough to sustain a significant level of cooperation if the expected lifetime of individuals is sufficiently long 2014 elsevier b v all rights reserved

urban economic theory land use and city size this book examines the economic reasons why people choose to live where they live and develops through analysis of the bid rent function a unified theory of urban land use and city size the first part of the book explicates the basic theory of urban land use and optimal city size residential location behavior of households is examined in a microeconomic framework and equilibrium and optimal patterns of residential land use are discussed the corresponding equilibrium and optimal city sizes are studied in a variety of contexts part two extends the classical theories of von thunen and alonso with the addition of externality factors such as local public goods crowding and congestion and racial prejudice the rigorous mathematical approach and theoretical treatment of the material make urban economic theory of interest to researchers in urban economics location theory urban geography and urban planning

equilibrium and inefficiency in a community model with peer group effects public service output depends on input expenditures on own personal characteristics and on the characteristics of the other residents in the community the peer group effect in a community model with public expenditures set by voting with migration between communities and with land price differentials capitalization it is shown that communities may become heterogeneous in composition and second best inefficient this equilibrium occurs when the peer group effect is neither too strong nor too weak the inefficiency arises because an externality is created by migration the land price differential does not play the part of the price of the better peer group but of a transfer payment

an evolutionary approach to pre play communication we add a round of pre play communication to a finite two player game played by a population of players pre play communication is cheap talk in the sense that it does not directly enter the payoffs the paper characterizes the set of strategies that are stable with respect to a stochastic dynamic adaptive process periodically players have an opportunity to change their strategy with a strategy that is more successful against the current population any strategy that weakly improves upon the current poorest performer in the population enters with positive probability when there is no conflict of interest between the players only the efficient outcome is stable with respect to these dynamics for general games the set of stable payoffs is typically large every efficient payoff recurs infinitely often

if homo economicus could choose his own utility function would he want one with a conscience reply in my model of the evolution of honesty 1 i assumed the existence of a signal a blush perhaps extreme values of which served to identify some individuals as being honest with certainty joseph harrington notes that without this assumption honest individuals have difficulty invading a population initially dominated by defectors for readers who do not wish to work through the algebra in his comment the argument is easily summarized in nontechnical terms suppose two honest mutants a and b arrive in an uncountably large population consisting entirely of dishonest persons and suppose that the probability that an honest person exhibits an intense blush is say 0 999 while the corresponding probability for everyone else is only 0 001 when a sees an intense blush on the face of b what will then be his estimate of the probability that b is honest assuming that a knows the laws of elementary probability and corrects for the base rate of honest persons in the population it will be zero when virtually everyone in the population is dishonest even a person with an intense blush will be pegged as dishonest provided that even the smallest fraction of dishonest persons also shows an intense blush with

profit sharing with workers facilitates collusion among firms we show how profit sharing by firms with workers facilitates collusion among firms in a dynamic oligopoly environment with uncertain demand we first show that firm profits can always be increased by tying wages to market conditions the optimal agreement takes the form of an option and features partial sharing because increased sharing raises the expected price wage differential but reduces price wage variability we then show that given any cartel there exist market conditions such that simply giving some expected profit to workers raises expected firm profits via the transfer s impact on the incentive to cheat on the cartel

commodity tax competition under destination and origin principles abstract this paper studies the effect of switching from the destination to the origin principle of taxation on non cooperative commodity tax equilibrium when taxes are constrained to be uniform across commodities the switch has no effect when differentiated taxes are allowed the effects of the switch depend on whether countries are small or large in both cases the switch imposes the requirement that taxes must be uniform across commodities within each country in the second case there are two further effects of the switch i negative spillover effects from tax policy are introduced ii incentives to manipulate the terms of trade are changed the switch does not necessarily lead to a fall in all tax rates

the optimal degree of cooperation in the repeated prisoners dilemma with side payments abstract in the infinitely repeated prisoners dilemma with side payments we characterize the pareto frontier of the set of subgame perfect equilibrium payoffs for all possible combinations of discount factors play paths implementing pareto dominant equilibrium payoffs are uniquely determined in all but the first period full cooperation does not necessarily implement these payoffs even when it maximizes total stage game payoffs rather when the difference in players discount factors is sufficiently large pareto dominant equilibrium payoffs are implemented by partial cooperation supported by repeated payments from the impatient to the patient player when both players are sufficiently patient such payoffs while implemented via full cooperation are supported by repeated payments from the impatient to the patient player we characterize conditions under which public randomization has no impact on the pareto dominant equilibrium payoffs and conditions under which such payoffs are robust to renegotiation

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association

know how sharing with stochastic innovations we provide a model of know how sharing between competing firms in which each of two firms gets a stochastic innovation in its stock of know how in every period separately considering the cases when innovations are indivisible and divisible we examine the nature of the subgame perfect sharing agreements that can obtain we discover that both stochasticity and indivisibility undermine the ability to support sharing furthermore we find that there are equilibria in which know how sharing can be intermittent and that small innovations are more likely to be shared than large ones when innovations are divisible but not necessarily when they are indivisible jel classification o30 o33 partage du savoir faire quand les innovations sont stochastiques les auteurs proposent un modele de partage du savoir faire entre entreprises concurrentes dans lequel chacune des deux entreprises obtient une innovation stochastique dans son stock of savoir faire a chaque periode en considerant separement les cas ou les innovations sont divisibles et non divisibles on examine la nature des accords de partage parfait qui peuvent se produire dans le sous jeu on montre que la stochasticite et l indivisibilite minent la possibilite de maintenir le partage de plus on decouvre que des solutions d equilibre avec partage de savoir faire peuvent jouer par intermittence et qu on est davantage susceptible de partager les fruits des petites innovations plus que des grandes quand les innovations sont divisibles mais pas necessairement quand elles sont indivisibles

the scope for taxation and public expenditure in an open economy in this survey of some central issues of tax and expenditure policy in an open economy we consider the implications for policy of free although not necessarily perfect international mobility of commodities capital and labour we examine the issues both from a positive and a normative point of view trying to identify both the incidence and welfare effects of international mobility one general conclusion is that tax distortions may increase in magnitude in comparison with a closed economy but they may also increase in kind as when otherwise neutral taxes become distortionary because of factor mobility

knowledge barter in cities abstract since marshall principles of economics 1890 macmillan london it has been common for economists to model knowledge transfers as exogenous spillovers however there are many instances of knowledge transfers that are deliberate and reciprocal this paper models these endogenous knowledge transfers and shows that endogenous knowledge barter is fundamentally different than exogenous spillovers holding city size fixed we show that knowledge transfers may arise as a kind of barter when the value of knowledge is verifiable ex ante knowledge barter can also take place when the value of the knowledge transferred is verifiable only ex post if the interaction is repeated and if discount rates are not too high however the sustainability of knowledge barter depends crucially on city size when city size is large it is easier for an agent who withholds knowledge to go unpunished this means that the sustainable level of knowledge barter is smaller in a large city this result suggests that the knowledge agglomeration relationship is non monotonic the loss of cooperative knowledge exchange that occurs as city size grows can be a limit to optimum and equilibrium city sizes

trade deflection trade distortions and pareto inefficiencies under the restricted origin principle abstract this paper shows that trade deflection is not the administrative aspect of the restricted origin principle as suggested in the literature but an important analytical issue that bears on resource allocation when deflection is taken into account trade distortions are avoided only when either domestic or at least border tax adjustment rates are equal in the member countries and trade balances are in bilateral equilibrium the control of deflection via rules of destination causes trade distortions and sometimes pareto inefficiencies the paper further shows that when the vat is calculated according to the credit method and trade is conducted by registered traders trade distortions are prevented when tax rates are set in inverse relation to bilateral trade balances

theft gift giving and trustworthiness honesty is its own reward in rural paraguay in developing countries lacking legal enforcement villagers may use implicit contracts to minimize crime i construct a dynamic limited commitment model in which a thief cannot commit to forego stealing but is induced to steal less by the promise of future gifts combining survey data on production theft gifts and trust with experiments measuring trustworthiness i provide supporting evidence farmers living near more relatives or with plots that are difficult to steal from give fewer gifts and trust more and those living near more relatives also experience less theft giving increases when trust is lower and the threat of theft is greater

open knowledge disclosure an overview of the evidence and economic motivations abstract this paper reviews current literature on open knowledge disclosure strategies used by firms it is usually acknowledged that for an innovative firm that does not benefit from a natural protection such as lead time advance the best strategy is to keep an innovation secret as long as possible or to protect it through an exclusive patent however in apparent contrast to this traditional view many studies suggest that firms often disclose important parts of their knowledge through scientific publications conferences the internet etc this paper aims to provide an overview first of the evidence supporting the existence of open knowledge disclosure and second of the economic motivations that encourage rational profit seeking firms to adopt these behaviours

shaping the national system of inter industry knowledge exchange vertical integration licensing and repeated knowledge transfer in the german plastics industry we will claim in this paper that it was in particular the above average propensity to share innovative information with customers and competitors which caused the exceptional international competitiveness of the west german plastics industry including chemical firms plastics fabricators and machine makers the system of knowledge exchange of this national cluster was shaped in two main steps in the first half of the 20th century cartellization and mergers were first tolerated and then even supported by the german government it was in this period when german chemical firms formed the vertically integrated i g farben concern which provided an optimal organisational framework to explore the new technological path of plastics after the breaking up of i g farben the firms of the west german chemical firms had to find new ways to maintain inter industry technological co operation in the second half of the 20th century it turned out that they became aware of both contractual and non contractual solutions of bundling standard good and information which were often placed somewhere between market and hierarchy it seems to be no accident that all these different institutions did primarily encourage knowledge exchange between firms in geographical and cultural proximity that is why the knowledge exchanging network of the plastics industry described in this paper has been in particular concentrated on german firms even so the question is still open whether this localisation is just a curiosity limited to a special industry cluster or part of a broader german system of knowledge exchange