estimating markups and market conduct with multidimensional product attributes we demonstrate how to estimate a model of oligopoly pricing when products are multi dimensionally differentiated we provide an empirical counterpart to recent theoretical work on product differentiation using specifications informed by economic theory we estimate price cost margins for products differentiated in many dimensions

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

trade policy subtleties with multinational firms abstract regional trade blocks must specify domestic content rules that define the conditions under which a good qualifies as domestic and so may be freely traded within the block this paper analyzes such rules focussing on oligopolistic industries in which foreign multinationals rely much more on imported intermediate inputs that do domestic firms in such a situation we argue that domestic content provisions are anti competitive reducing overall final output of the industry and shifting rents to domestic firms these ideas are examined analytically and then numerically using an applied general equilibrium model of the north american auto industry

imperfect competition and pareto improving strategic trade policy abstract this paper addresses the concern that strategic trade policy will inevitably invite retaliation by presenting examples in which tariffs and export taxes subsidies can improve the welfare of importing and exporting nations at the same time we argue that retaliation is less likely in such cases the conditions required for these results depend upon the relative sizes of the markets in the trading countries the number of firms in each and the shape of market demand and cost functions

tariffs quotas and terms of trade the case of new zealand abstract this paper reports quantitative information on the effects of tariffs and quotas on prices of individual goods the analyses uses the natural experiment provided by a comprehensive unilateral trade policy reform in new zealand to examine the response of foreign exporters to an incident of liberalisation that is unique in the developed world the price effects of tariffs and quotas are estimated using a multidestination 7 digit longitudinal product level dataset on export values and quantities the effects are found to be by no means equivalent whereas tariffs display no significant effect the impact that quantitative restrictions have on the terms of trade of the country that imposes them are unequivocally detrimental and quantitatively important

nonlinear strategies in dynamic duopolistic competition with sticky prices abstract we discuss nonlinear strategies in an infinite horizon duopoly game with sticky prices where firms maximize their discounted sum of profit we construct a stationary feedback equilibrium without guessing value functions and feedback strategies that solve the hamilton jacobi equation for this purpose we study the auxiliary equation that is derived from the hamilton jacobi equation we show that the domain of the state space plays an crucial role in characterizing feedback equilibria and discuss several implications of this observation in particular we find that when the upper bound of the state space is not very high previously unknown feedback equilibria emerge

market making in the options markets and the costs of discrete hedge rebalancing in this paper we provide empirical evidence consistent with the hypothesis that options market makers face risks in managing inventory that are unique to the options markets in particular we show that risks associated with the inability to rebalance an option position continuously and uncertainty about the return volatility of the underlying stock each account for a statistically and economically significant proportion of the bid ask spreads quoted for a sample of chicago board options exchange options it is widely recognized that securities dealers face risk associated with inventory positions taken in the course of their trading activities for the equity dealer this has been shown both theoretically e g stoll 1978a ho and stoll 1983 and empirically e g stoll 1978b to depend on the stock s return volatility and the expected duration of the risk exposure in this paper we recognize that option dealers face an additional dimension of risk as a result of the option s stochastic return volatility and demonstrate that this option characteristic contributes to the cost of liquidity in the options market ho and stoll 1983 show that if the stock return volatility is constant the specialist s risk exposure per dollar of investment is nonstochastic over the interval during which the inventory is held in contrast unless the option dealer is able to trade continuously an option transaction s contribution to the dealer s risk exposure will be stochastic since the volatility of an option is a function of both its stochastic hedge ratio as well as the underlying stock s return volatility the problem that arises is particularly clear in the context of a dealer attempting to maintain a delta neutral exposure a strategy common among market makers in the options markets imagine a market maker who simultaneously buys 10 option contracts with a hedge ratio of 1 4 and sells 5

quota induced cycles we present a new framework to compare the dynamic effect of tariffs and quotas in the presence of oligopoly suppose that the domestic and the foreign firm play a quantity setting game over time in a perfectly stationary economy a markov perfect equilibrium has the foreign firm exporting at the constant rate under a tariff in contrast under the quota the rate of exports changes monotonically over the course of each year causing seasonal fluctuations in domestic production quota induced cycles can make dynamic market segmentation possible and raise profits for both the firms above what they earn under the equal import tariff

a political economy model of road pricing abstract in this paper we use a simple majority voting model to study the introduction of urban congestion tolls the model allows for different types of uncertainty and considers different uses of the toll revenues the following results are obtained first we show that individual uncertainty with respect to modal substitution costs may imply that a majority votes against road pricing ex ante although a majority would have been in favor after its introduction ex post moreover if a majority is against road pricing ex ante there will also be no majority for organizing an experiment that would take away the individual uncertainty second political uncertainty with respect to the use of the revenues corroborates the finding that ex ante more voters will be against the introduction of tolls third both types of uncertainty suggest that fewer voters are against road pricing when toll revenues are used to subsidize public transport than when they are redistributed to all voters importantly the results of this paper are consistent with a number of recent empirical observations on efforts to introduce road pricing including the systematic rejection of road pricing in referenda the more favorable attitudes towards road pricing after than before its introduction and tying the toll revenues to support public transport

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

strategic second sourcing by multinationals multinationals often serve foreign markets by exporting as well as by investing directly in foreign production facilities we argue that if the multinational competes in an oligopolistic market characterized by strategic complements then there are strategic reasons to use two production facilities committing to a second source allows the firm to keep average cost low while increasing its marginal cost the increase in marginal cost softens product market competition resulting in higher profits we argue that this theory also has implications for the make or buy literature in production management and the literature on second sourcing in industrial organization

research and development voluntary export restriction and tariffs abstract the effect of trade policy on domestic research development r d in oligopolistic markets is shown to depend on the nature of policy instruments tariffs or non tariff barriers when the r d investment has uncertain consequences on marginal cost a voluntary export restriction ver decreases innovation by the domestic firm as compared to the free trade level this result holds both under cournot and bertrand competition a tariff increases r d investment it is a new rationale for southern firms to prefer ver as a policy instrument besides the well known argument that it facilitates collusion

optimal trade and technology policies dynamic linkages this paper examines the dynamic linkages between technology policy on the one hand and tra de and industrial policies on the other when any of the latter polic ies affects the incentives of firms to innovate there is an independ ent argument for or against such a policy in addition to those obtain ed from the usual analysis of international oligopoly the adoption o f an r d policy involves a dynamic tradeoff in welfare the pattern o f which depends on whether an r d subsidy or tax is optimal noncoope rative r d subsidies may lead to pareto superior outcomes in the pres ence of international technological diffusion copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

costly distribution and the non equivalence of tariffs and quotas when governments impose a quota or tariff on imports it is well known that the resulting rents and revenues trigger costly rent seeking and revenue seeking activities which are welfare reducing and may be economically more significant than the efficiency losses resulting from the protectionist induced resource misallocation repeated interaction among firms can eliminate wasteful rent and revenue seeking expenditures through cooperation we show that while aggregate outcomes are equivalent under tariffs and quotas if cooperation arises the conditions under which cooperation arises differ by policy this difference arises because a firm must incur additional cost to physically import and distribute the goods associated with additional quota licenses whereas there is no such cost when it comes to consuming additional tariff revenue thus quotas and tariffs are non equivalent we provide a simple sufficient condition under which cooperative elimination of rent seeking under quotas is easier than cooperative elimination of revenue seeking under tariffs and therefore a quota is the preferred policy whenever the policy admits cooperation

redistributive promises and the adoption of economic reform this paper analyzes the relationship between economic reform and the democratic process to ask the following question does the likelihood of adoption of an economic reform increase with an increase in the efficiency benefits from that reform a priori we might expect that this likelihood should increase monotonically for two reasons first economic reform results in an increase in the size of the national pie if the government has the ability to make compensatory tax transfers an increase in each citizen s income is possible second a larger economic reform results in a greater number of winners this might also be expected to reinforce the political support for economic reform so we should expect a reform with greater efficiency benefits to a larger population to have a greater chance of adoption by the government however in this paper we show that this intuition is mistaken in particular we demonstrate that there exists a certain non monotonicity between the distribution of winners from economic reform and the probability of its adoption an increase in the number of winners may lower rather than increase the likelihood of adoption of economic reform in particular even though reforms that benefit a minority or an overwhelming majority are adopted reforms that benefit a smaller majority are not adopted

should urban transit subsidies be reduced this paper derives empirically tractable formulas for the welfare effects of fare adjustments in passenger peak and off peak rail and bus transit and for optimal pricing of those services the formulas account for congestion pollu tion accident externalities scale economies and agency adjustment of transit service offerings we apply them using parameter values for washington dc los angeles and london the results support the efficiency of the large cur rent fare subsidies even starting with fares at 50 percent of operating costs incremental fare reductions are welfare improving in almost all cases these findings are robust to alternative assumptions and parameters jel l92 r41

an econometric analysis of price differentials in the eec automobile market the paper investigates the sources of the observed price disparities in the eec automobile market on the basis of an oligopoly model with product differentiation this paper tests and fails to reject the hypothesis that automobile firms segregate national markets in the eec it is found that value added tax differentials and the existence of different import restraints quotas and vers are important contributing factors to price disparities on the contrary transportation cost differentials are not a significant explanatory variable finally the preference for domestic products or national brands is found as an important contributing factor in britain and itlay

tariffs versus quotas with strategic investment the relative efficiency of tariffs versus quotas is analyzed in a cournot oligopoly with strategic investment introducing quota licence fees to neutralize the international distributional effect when such licence fees remove quota rents from foreign firms then for the case of constrained entry with a sufficiently large number of firms quotas frequently hold a welfare advantage since tariffs relatively aggravate the inefficiency from overinvestment in the case of free entry and exit however tariffs hold a welfare advantage since there is greater benefit of increasing returns to scale to the economy by avoidance of excessive entry of firms

marginal tax reform externalities and income distribution the paper examines welfare improving and revenue neutral directions marginal policy reforms for an economy with nonidentical individuals and an externality that has a feedback effect on the consumption of taxed goods it considers three types of policy instruments the indirect taxes the uniform poll transfer and public abatement this extends the framework set up by ahmad and stern 1984 bovenberg and de mooij 1994 and schob 1996 the theoretical model is illustrated for a specific externality namely congestion caused by peak car transport

resistance to reform status quo bias in the presence of individual specific uncertainty comment why do governments so often fail to adopt policies which economists consider to be efficiency enhancing our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform we show that there is a bias towards the status quo and hence against efficiency enhancing reforms whenever some of the individual gainers and losers from reform cannot be identified beforehand there are reforms which once adopted will receive adequate political support but would have failed to carry the day ex ante the argument does not rely on risk aversion irrationality or hysteresis due to sunk costs jel d72 f13 why do governments so often fail to adopt policies that economists consider to be efficiency enhancing this is one of the fundamental questions of political economy the answer usually relies on what may be

voluntary export restraints on automobiles evaluating a trade policy the authors evaluate the voluntary export restraint that was initially placed on exports of automobiles from japan in 1981 they evaluate the impact this policy had on u s consumer welfare firm profits and foregone tariff revenue from its initiation through 1990

toward a national market system for u s exchange listed equity options in its response to the 1975 congressional mandate to implement a national market system for financial securities the securities and exchange commission sec initially exempted the option market recent dramatic changes in the structure of the option market prompted the sec to revisit this issue we examine a sample of actively traded multiply listed equity options to ask whether this market s characteristics appear consistent with the goals of producing economically efficient transactions and facilitating best execution we find marked changes between june 2000 when quotes are often ignored and january 2002 when the market more closely resembles a national market equity option trading changed dramatically with the beginning of vigorous competition for order flow in many actively traded options during august 1999 the

time consistent protection with learning by doing abstract can a government induce efficiency gains in his domestic industry by protecting it against foreign competition would such trade protection be time consistent the present paper builds a dynamic equilibrium model that accounts for learning by doing effects that link firms strategies over time the model shows that the existence of dynamic economies of scale suffices to overcome the traditional government s lack of commitment of its tariff policy this paper compares the infinite horizon markov perfect equilibrium of this game with the dynamic equilibrium under commitment as well as the static nash equilibrium equilibrium strategies are derived in closed form by solving a linear quadratic differential game optimal trade policy involves higher tariff levels than in the static setup in order to account for future gains in efficiency under reasonable assumptions the unique stable mpe is characterized by a domestic price and tariff that decrease as experience accumulates thus supporting the future liberalization of trade as an equilibrium feature of this dynamic game

option volume and stock prices evidence on where informed traders trade this paper investigates the informational role of transactions volume in options markets we develop an asymmetric information model in which informed traders may trade in option or equity markets we show conditions under which informed traders trade options and we investigate the implications of this for the linkage between markets our model predicts an important informational role for the volume of particular types of option trades we empirically test our model s hypotheses with intraday option data our main empirical result is that negative and positive option volumes contain information about future stock prices the information content of trading activity is a subject of widespread interest if trades are correlated with private information then the outcome of the transaction process may portend future movements in price the extension of trading to different venues or to derivative instruments however means that this link between transactions and information need not be easily discernible if there are alternative markets in which informed traders can profit from their information then where informed traders choose to trade may have important implications not only for security p rice movements but for the behavior of related prices as well this suggests that transactions in derivative markets may be an important predictor of future security price movements in this paper we investigate the informational role of transactions volume in options markets for some readers this focus may seem puzzling an option is a derivative security so its price should be dictated unilaterally by the behavior of the stock price this unidirectional linkage is only true however in complete markets if information is impounded into prices by trading then the ability of informed traders to transact in options markets mearns

a dynamic model of differentiated oligopoly with capital accumulation abstract we consider a dynamic model of differentiated oligopoly with capital accumulation we prove that the model may converge to either a steady state replicating the optimum of the static problem or a steady state driven by capital accumulation alone in the latter case the same steady state equilibrium is observed under both cournot and bertrand competition as well as social planning journal of economic literature classifications numbers c73 l13

alternative sources of the gains from international trade variety creative destruction and markups the modern theory of international trade identifies several additional sources of the gains from international trade beyond the gains from traditional comparative advantage these are the gains from importing new product varieties the gains from creative destruction as the relatively most productive firms expand their output by exporting while the less productive firms exit and the gains from competition between firms in different countries which can lead to reduced markups estimates of these various gains are provided for the united states and other countries

dumping and dynamic competition abstract when the current output level affects future production costs domestic and foreign profit maximizing firms may set prices below current costs to gain experience antidumping enforcement which poses a barrier to below cost sales by foreign rivals changes the payoff structure of competition and alters the equilibrium decisions of both foreign and domestic firms a comparison of the nash equilibria with and without antidumping rules shows that these rules change market outcomes even when they do not appear to be binding ex post this positive analysis of antidumping enforcement complements previous studies that have considered the motivation for dumping

protectionist policies as the regulation of international industry the political feasibility of protectionist policies that regulate international industry derives from the absence of overt collusion among domestic import competing producers the regulation of international industry cannot be explicit since governments would thereby be perceived to be approving or instigating international collusion hence voluntary export restraints have been popularly presented with a focus on the difficulties confronted by domestic import competing producers and a de emphasis on the mutual gains to domestic and foreign producers from monitoring by a foreign government of a restrictive export cartel arrangement similarly trigger price mechanisms have popularly been explained in terms of the need for anti dumping measures to preserve fair competition likewise the involuntary export tax derived in the first instance from an administratively validated but as demonstrated by kalt s econometric analysis contentious complaint of unfair foreign competition voluntary export restraints trigger price mechanisms and involuntary export taxes are however protectionist devices the beneficiaries of which can transcend national jurisdictions and which have in common the characteristic that the gains to domestic industry interests derive from the regulation of foreign competitors

on pareto improving voluntary export restraints abstract this paper develops the argument that binding voluntary export restraints vers may raise the profits of all firms and the welfare of all trading partners this possibility is shown to arise in a model of cournot oligopoly and is consistent with the theory of the second best vers benefit unconstrained firms if the favorable effect due to the increase in domestic import price outweighs the adverse effect due to a loss in market share then vers will also benefit constrained firms vers will improve the importing country s welfare if they raise the profits of domestic firms more than they reduce domestic consumer surplus the paper synthesizes these findings and derives conditions for vers to be pareto improving

quantitative restrictions and tariffs with endogenous firm behavior abstract this paper considers a foreign oligopoly which dominates an importing country s market with its exports of differentiated products it constructs a model where firm behavior is endogenously determined in an infinitely repeated game and it analyzes the impact of trade policies on market conduct and welfare optimal tariffs optimal quotas and optimal tariff quotas are characterized and compared one result is that quotas can enhance competition and increase welfare another result is that quotas can be superior to tariffs finally optimal tariff quotas are welfare superior to either tariffs or quotas alone

on the social desirability of urban rail transit systems despite a decline in its mode share investment to build new urban rail transit systems and extend old ones continues we estimate the contribution of each u s urban rail operation to social welfare based on the demand for and cost of its service we find that with the exception of bart in the san francisco bay area every system actually reduces welfare and is unable to become socially desirable even with optimal pricing or physical restructuring of its network we conclude rail s social cost is unlikely to abate because it enjoys powerful political support from planners civic boosters and policymakers

options resilience during extreme volatility evidence from the market events of may 2010 abstract using intraday trades and quotes data we study the stock options market before during and after the market events of may 6 2010 focusing on the s p 500 and s p 100 stock options we explore if the options market provided any discernible signals that forewarned the extreme volatility on that day and whether the recovery was fast and without a permanent impact we find that the options market reacted to the volatility rather than predicting it and almost all of the variables are indistinguishable from their previous levels in the next few trading days intraday empirical analysis suggests that most of the impact was over within a few hours from the peak of market volatility

the closed loop motive for voluntary export restraints this paper examines the effects of voluntary export restraints in a dynamic game model of duopolistic competition it is shown that the imposition of a voluntary export restraint at the free trade level of imports increases the market price and the profits of all firms in the industry if free trade is identified as the closed loop subgame perfect cournot equilibrium of the game hence the authors conclude that the predictions of static cournot competition do not carry over to the dynamic case

compositional standards import permits and market structure the case of canadian cheese imports the imposition of cheese compositional standards by the canadian authorities has created divisions within the canadian dairy industry and has motivated criticisms from several of canada s trade partners the standards impose minimum limits on the percentage of casein coming from fluid milk we develop a theoretical model to investigate the implications of canada s compositional cheese standards while accounting for canada s trade policy we illustrate why a type of cheese that is not directly impacted by the standards might be the most affected we show that the standards can decrease the domestic demand for milk or the value of imports our empirical investigation identified breaks in the processes determining import unit values shortly before or shortly after the beginning of the implementation of the standards

international competitiveness and industry pricing in canadian manufacturing this paper examines the effect of the international competitiveness of home producers on their pricing evidence based on the 1970 75 period supports the claim that in the canadian manufacturing sector domestic prices are set in accordance with a mixture of two pricing hypotheses the eastman stykolt pricing hypothesis esph and the monopolistic pricing hypothesis mph however in the 1975 80 period when their competitiveness increased prices were set solely according to the mph for the purposes of assessing the impact of free trade this paper shows the circumstances under which each or a mixture of these pricing hypotheses employed in the harris cox model on the gains from freer trade would be appropriate

impact of the 2014 suspension agreement on sugar between the united states and mexico in december 2014 the u s and mexico agreed to a suspension agreement that set a 22 25 cwt import price floor on u s sugar imports from mexico a partial equilibrium trade model was developed to estimate the economic impact the agreement would have had if it had been in effect from 2008 to 2014 in years when the price floor would have been binding on average u s producers would have gained 138 million and mexican producers would have lost 218 million however total mexican welfare would have actually increased by 11 5 million furthermore the average price floor that would have maximized total mexican welfare over that period is 22 76 cwt also under certain supply and demand elasticity conditions the average price floor that would have maximized joint u s and mexican producer welfare over that period is 21 91 cwt the latter two estimates are both close to the actual price floor agreed to in the 2014 suspension agreement

tariffs and quotas under dynamic duopolistic competition abstract this paper analyzes tariffs and quotas in a differential game model of duopolistic competition for a homogeneous good equal import tariffs and quotas are compared with respect to resulting domestic prices the open loop and closed loop subgame perfect equilibria are derived the open loop game leads to domestic price equivalence however the closed loop game does not unless firms are myopic or the number of domestic firms becomes large thus we prove that the equivalence for static cournot competition does not carry over to the dynamic case

tariffs quotas and voluntary export restraints with and without internationally mobile capital this paper presents a general framework for comparing the effects of tariffs quotas and vers voluntary export restraints both with and without international capital mobility expressions for the shadow price of foreign exchange and the shadow price of capital under each type of trade restriction are derived and it is shown that although international capital mobility raises the welfare cost of tariff protection it lowers the welfare cost of quantitative restrictions in most cases the effects of exogenous shocks in the presence of quotas are intermediate between those in the presence of tariffs and those in the presence of vers tarifs douaniers contingentements et restrictions volontaires d l exportation quand le capital est ou n est pas mobile internationalement l auteur presente un cadre general d analyse qu il utilise pour comparer les effets de tarifs douaniers de contingentements et de restrictions volontaires a l exportation dans des contextes ofu le capital est ou n est pas mobile internationalement l auteur derive le prix fictif du change etranger et le prix fictif du capital sous l un et l autre types de restrictions au commerce et montre que meme si la mobilite internationale du capital augmente le cofut en terme de bien etre de la protection tarifaire elle reduit le cofut en terme de bien etre des restrictions sur les quantites echangees dans tous les cas les effets de chocs exogenes quand des contingentements existent sont toujours dans la fourchette entre ceux qu on observe quand des tarifs douaniers existent et ceux qui prevalent quand des restrictions volontaires i l exportation existent

combining rent seeking and public choice theory in the analysis of tariffs versus quotas economists continuing criticisms of protectionism make a valuable contribution to the general interest element of the forces which operate to keep propensities to protect somewhat in check mckenzie rightly warns however that proposals by economists for giving protection in more efficient forms run the danger of increasing the total supply of protection thus we agree that serious consideration should be given to the political economy responses which may be induced before one advocates ways of doing more efficiently what one believes should not be done in the first place it does not follow however that all such policies will have net negative unanticipated consequences in the case of tariffs versus quotas we do not believe that we have yet sufficient knowledge of all of the relevant political economy considerations to predict about the full effects of legislation which allowed trade protection to only take the form of tariffs we are doubtful however that such a measure would increase the total quantity of protection through the channels outlined by mckenzie we believe that the same type of basic public choice analysis of the individual incentives to lobby which suggests that consumer taxpayers will not force the political process to operate so as to maximize aggregate economic efficiency with respect to the level of protection also suggests that the net lobbying for quotas is likely to be higher on average than the net lobbying for tariffs political effectiveness and ability to overcome free riding on the part of tariff revenue seekers is likely to be low at the margin furthermore issues of visibility and institutional structure are likely to lessen the ability of anti protection forces to lobby against quotas placed within a broader framework public choice and rent seeking theory is consistent with the empirical evidence that where quotas are used protection is high

political economy of commuting subsidies abstract we study the political economy of commuting subsidies in a model of a monocentric city with two income classes depending on housing demand and transport costs either the rich or the poor live in the central city and the other group in the suburbs commuting subsidies increase the net income of those with long commutes or high transport costs they also affect land rents and therefore the income of landowners the paper studies how the locational pattern of the two income classes and the incidence of landownership affects the support for commuting subsidies

international r d rivalry and industrial strategy this paper presents a theory of government intervention which provides an explanation for industrial strategy policies such as r d or export subsidies in imperfectly competitive international markets domestic net welfare is improved by the capture of a greater share of the output of rent earning industries although the subsidy ridden noncooperative international equilibrium is jointly suboptimal behaviour of governments and firms is modelled as a three stage subgame perfect nash equilibrium the assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms

cleaning up while cleaning up pollution abatement interest groups and contingent trade policies this paper analyzes the political economy of environmental policy formation in a trading economy with established rules for administered protection we argue that the social costs associated with the adoption of an inefficient environmental regime are likely to be compounded by induced restrictions on trade when the effected industries are import competing the preferences of interest groups for alternative environmental regimes tend to be linked to the legal institutional setting in which trade policy is conducted under existing rules and practices in the area of administered protection there is reason to believe that interest group preferences for an inefficient approach to pollution control will be strengthened because the adoption of such a regime is more likely to lead to a concomitant increase in trade barriers

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

the dynamics of urban traffic congestion and the price of parking we consider commuting in a congested urban area while an efficient time varying toll may eliminate queuing a toll may not be politically feasible we study the benefit of a substitute a parking fee at the workplace an optimal time varying parking fee is charged at zero rate when there is queuing and eliminates queuing when the rate is non zero within certain limits inability to charge some drivers for parking does not reduce the potential welfare gain drivers who cannot be charged travel when there is queuing in some cases interaction between morning and evening commutes can be exploited to remove queuing completely

voluntary export restraints and expectations an analysis of export quotas in oligopolistic markets the frequency of export quotas imposed as voluntary export restraints has been increasing this tends to create the expectation that similar export quotas will be imposed in the future even if free trade is allowed now the author analyzes the effect of such an expectation he demonstrates that if a quota is expected to be imposed on foreign exporting firms it intensifies the exporting firms competition in the prequota period this offsets the protection which the export quota as a voluntary export restraint will provide for domestic import competing firms in the future quota period copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

revenue recycling within transport networks abstract in this paper we analyse second best pricing and investment policy for transport networks with a revenue recycling mechanism in which the toll revenue is used for transport investments or subsidies as in london s congestion charging scheme the results of this paper demonstrate that the way toll revenue is used modifies the usual results significantly which are typically based on assuming a lump sum transfer first recycling revenue as investment increases the second best toll when the benefits from the investment exceed the costs and when demand is inelastic with respect to the toll recycling revenue as a subsidy has no such effect second partial cost benefit analysis that focuses only on the targeted transport mode would usually lead to erroneous conclusions about whether toll revenues should be used for transport investment subsidies or general tax revenues thus full cost benefit analysis which accounts for changes in consumer and producer surpluses in all transport modes is necessary

price leadership and discrimination in the european car market this paper explains differences in the price of the same good in different markets in the authors model n producers each play the role of stackelberg leader on their own market and there is one market with no domestic producer the authors show that even without demand differences between markets pretax prices will be higher on markets where there are high cost domestic producers and where taxes are low evidence from the european car market based on time series for individual models supports these results furthermore as the model suggests exchange rate changes are not passed through to car prices copyright 1990 by blackwell publishing ltd

do call prices and the underlying stock always move in the same direction this article empirically analyzes some properties shared by all one dimensional diffusion option models using sp options are not redundant securities nor ideal hedging instruments puts and the underlying asset prices may go down together much of the extant knowledge about option pricing is based on the assumption that the underlying asset price follows a one dimensional diffusion process examples of such option pricing models include the classic black scholes 1973 merton 1973 the cox ross 1976 constant elasticity of variance the ones studied in derman and kani 1994 rubinstein 1994 bergman grundy and wiener 1996 bakshi cao and chen 1997 2000 and dumas fleming and whaley 1998 all models in the one dimensional diffusion class share three basic properties first call prices are monotonically increasing and put prices are monotonically decreasing in the underlying asset price the monotonicity property second as the underlying asset price is the sole source of uncertainty for all of its options option prices must be perfectly correlated with each other and with the underlying asset the perfect

vers and expectations extensions and evidence this paper analyses the effects of an expected future voluntary export restraint on the level of firms current exports to a market the traditional result that current exports increase is shown to depend on the degree of collusion in the exporting industry and the anticipated restrictiveness of the ver the former relationship is tested by reference to the effect of ec import surveillance on its imports surveillance is argued to indicate an increased probability of a ver in the future and it is found that while competitive industries respond to it by increasing exports to the ec less competitive ones curtail exports this constitutes one of the few empirical tests of the strategic part of strategic trade policy

nontariff trade controls and leader follower relations in international competition a simple duopoly model is constructed in which leader follower relations arise as part of a subgame perfect equilibrium in a game of endogenous timing the author shows that in the absence of policy intervention cost asymmetries between firms can help sustain collusive hierarchical organization of markets on the basis of this model he then analyzes the effects of voluntary export restraints and import quotas in the presence of foreign and international duopolies the author s analysis reveals that in contrast to the existing literature these nontariff trade controls can break the stability of leader follower relations and thereby raise an importing country s welfare copyright 1996 by the london school of economics and political science

uncovering the distribution of motorists preferences for travel time and reliability we apply recent econometric advances to study the distribution of commuters preferences for speedy and reliable highway travel our analysis applies mixed logit to combined revealed and stated preference data on commuter choices of whether to pay a toll for congestion free express travel we find that motorists exhibit high values of travel time and reliability and substantial heterogeneity in those values we suggest that road pricing policies designed to cater to such varying preferences can improve efficiency and reduce the disparity of welfare impacts compared with recent pricing experiments

more on the non equivalence of voluntary export restraints abstract this note demonstrates that vers limiting exporters to a percentage of the domestic market are not equivalent to other trade restrictions and that they can be inferior to equivalent import quotas even when the quota rents accrue to foreign exporters

voluntary export restraints and strategic technology transfers abstract this paper investigates the effects of voluntary export restraints vers in the presence of potential entrants and technology transfers it builds a model of a licensing game in a cournot oligopoly market and examines conditions under which vers induce restrained foreign firms to transfer technologies to potential suppliers i show that a ver can decrease the profit and output of the domestic incumbent by perturbing the no licensing equilibrium reached under free trade and inducing the market to move to a licensing equilibrium

options short sales and market completeness this paper presents empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales the significantly higher average level of short interest exhibited by optionable stocks supports the argument that options facilitate short selling we also find significant effects on option prices related to the short interest in the underlying stock we then present evidence that options also increase information efficiency earlier work that is replicated and extended here has suggested that short sale constraints cause stock prices to underweight negative information options appear to reduce that effect

revenue recycling and the welfare effects of road pricing the authors explore the interaction between taxes on work related traffic congestion and preexisting distortionary taxes in the labor market a congestion tax raises the overall costs of commuting to work and discourages labor force participation at the margin when revenues are returned in lump sum transfers the resulting efficiency loss in the labor market can be larger that the pigouvian efficiency gains from internalizing the congestion externality by contrast if congestion tax revenues are used to reduce labor taxes the net impact on the labor supply is positive and the efficiency gain in the labor market can raise the overall welfare gains of the congestion tax by as much as 100 percent recycling congestion tax revenues in public transit subsidies produces a positive but smaller impact on the labor supply in short the authors results indicate that the presence of preexisting tax distortions and the form of revenue recycling can crucially affect the size and possibly even the sign of the welfare effect of road pricing schemes the efficiency gains from recycling congestion tax revenues in other tax reductions can amount to several times the pigouvian welfare gains from congestion reduction

why voluntary export restraints are voluntary the paper presents an analysis of the effect upon an oligopolistic equilibrium of introducing a voluntary export restraint ver upon an importing firm a ver set at the free trade level of imports is shown to raise the profits of all firms within the industry the result follows as the imposition of a ver upon a free trade nash price competition forces the domestic firm to become an industry price leader the ver raises industry prices by facilitating collusion and lowers consumer welfare pourquoi les restrictions volontaires d 1 exportation sont volontaires ce memoire presente une analyse des effets de l introduction de restrictions volontaires a l exportation rve sur une entreprise qui importe dans un monde en equilibre oligopolistique on montre que l introduction de rve approximant le niveau des importations en regime de libre echange devrait augmenter les profits de toutes les entreprises dans l industrie cela decoule du fait que l imposition de rve sur un univers de concurrence par les prix a la nash en regime de libre echange force l entreprise domestique a devenir le leader en prix l introduction de rve augmente le niveau des prix de l industrie en facilitant la collusion et de ce fait reduit le niveau de bien etre des consomrnateurs

common agency and coordination general theory and application to government policy making we develop a model of common agency with complete information and general preferences with nontransferable utility and we prove that the principals nash equilibrium in truthful strategies implements an efficient action we apply this theory to the construction of a positive model of public finance where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump sum taxes or transfers the lobbies use only the nondistorting transfers in their noncooperative equilibrium but their intergroup competition for transfers turns into a prisoners dilemma in which the government captures all the gain that is potentially available to the parties

export restraints in a model of trade with capital accumulation abstract this paper examines the impact of voluntary export restraints vers in an international duopoly modeled as a differential game with a ramsey capital accumulation dynamics the game admits multiple steady states and a ver cannot be voluntarily employed by the foreign firm in case of cournot behavior in demand substitutes hence the dynamic framework confirms the results of the vers literature with static interaction in output levels in the case of price behavior the adoption of an export restraint may increase the profits of both firms if products are substitutes and the steady state is market driven however contrary to the acquired wisdom based upon the static approach the dynamic analysis also admits an equilibrium outcome identified by the ramsey golden rule where the incentive to adopt a ver is ruled out irrespective of whether firms are quantity or price setters

market equilibrium under the threat of a ver abstract this paper characterizes market equilibrium under oligopoly when a ver has introduced both asymmetry amongst exporters and uncertainty a restrained and an unrestrained exporter choose price strategically under the threat of a ver on the latter a pure strategy equilibrium is shown to result only when the probability of the ver is high otherwise a unique mixed strategy equilibrium results as the probability of the ver rises the expected domestic price rises even if the ver is not imposed

endogenous probability of protection and firm behavior abstract this paper studies the strategic reactions of firms to protectionist policies that are enforced with endogenous probability this probability is a function of firms actions firms in the country that may adopt the protectionist measures try to increase the probability of sanctions while foreign firms try to reduce this probability a simple framework is used to derive general results for uncertain protection this framework is used to analyze the responses to specific protectionist policies such as antidumping legislation and restrictions on the import market share finally the paper studies the welfare implications of the model

the economics of voluntary export restraint agreements the three substantive sections of this survey deal with the economic consequences of voluntary export restraint agreements vers e g the multi fibre arrangement and vers on japanese auto exports section 2 focuses on the disposition of quota rents under the assumptions of perfectly competitive markets and the absence of substitute suppliers section 3 considers imperfect competition and the role of vers as cartelization instruments facilitating collusion section 4 analyzes the discriminatory effects of vers when there are third country suppliers a broad conclusion is that the economic consequences of vers are more complex than the standard trade policy analysis based on tariffs because of the issues discussed in sections 3 and 4 copyright 1989 by blackwell publishers ltd

government policies market imperfections and foreign direct investment the internalization eclectic theory of foreign direct investment includes the important insight that government policies create market imperfections which make foreign direct investment an economically rational strategic alternative for firms this paper reexamines the effects of government policies on market imperfections and foreign direct investment fdi it broadens and refines the analysis of the impact of government policies by developing the following arguments 1 there is a wide range of government policies that affect firms fdi decisions via their effects on market imperfections 2 there are numerous dimensions of variability in government policies that need to be identified in order to understand fully the effects of government policies on market imperfections and hence fdi flows 3 some of the effects of government policies on market imperfections and fdi are the opposite of those previously noted in the fdi literature 4 the effects of government policies vary across the several individual components of fdi flows the paper thus examines the following variables and relationships more extensively and precisely than has the previous literature government policy variables as causal factors affecting fdi market imperfection variables as intervening factors in the causal connections between government policies and fdi and the multiple indicators of the various dimensions of fdi as dependent variables

turnpike properties in a finite horizon differential game dynamic duopoly with sticky prices the authors study the equilibrium price paths of a finite horizon dynamic duopoly model in which the market price does not have to adjust instantaneously in response to changes in the quantity supplied a complete analysis of the feedback nash equilibrium of a finite horizon linear quadratic differential game with a control constraint is presented two equilibrium price paths are identified and it is shown that they both remain close to the infinite horizon globally asymptotically stable stationary equilibrium except for some initial and final time copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

one market stocks futures and options during october 1987 we provide new evidence regarding the degree of integration among markets for stocks futures and options prior to and during the october 1987 market crash where previous analyses have resulted in recommendations for the implementation of circuit breakers the coordination of margin requirements across markets and changes in regulatory jurisdiction our analysis indicates that delinkage between markets during the crash was primarily caused by an antiquated mechanism for processing stock market orders the results suggest that market integration may be better served by efficient order execution than by further restricting markets

domestic politics foreign interests and international trade policy reply this paper incorporates the foreign interest in the determination of a country s international trade policy into a model of political competition between candidates contesting elective office we envisage foreign and domestic producer interests as expressing political support for a candidate via campaign contributions and candidates as making trade policy pronouncements to maximize political support from producer interests tariffs are divisive but vers are consistent with conciliatory policy positions yielding mutual gain to foreign and domestic interests no candidate has an interest in formulating a trade policy position using a tariff if a ver is a policy option protection in the developed countries has in recent years often taken the form of bilaterally negotiated voluntary export restraints vers rather than the more traditional unilaterally imposed import restrictions the use of voluntary export restraints has been paralleled by interest in the theoretical literature the effects of vers have been compared with tariffs and quotas and vers have been examined in a political economy framework with a view to identifying the gainers and losers from this form of restric

trade restrictions as facilitating practices abstract the effect of quantitative restrictions in oligopolistic markets is shown to depend on whether imports are substitutes or complements for domestic products in the former case they have profound effects even when set at free trade levels because they impede the ability of the foreign firm to compete in the domestic market thereby acting to facilitate collusion and raise prices and profits for this reason tariffs and quotas are fundamentally non equivalent with substitute goods when goods are complements a voluntary export restriction ver at the free trade level has no effect and tariffs and quotas are equivalent

ec members fighting about surplus vers fdi and japanese cars the distribution of consumer and producer surplus among ec members of three different trade regimes free trade a voluntary export restraint ver and a ver in conjunction with foreign direct inv

windfall profits and vertical relationships who gained in the japanese auto industry from vers this paper employs an event study to analyze the effect of the 1981 voluntary export restraint agreements on profits in the japanese automobile industry stock price movements of seven japanese automakers and sixty nine of their suppliers are examined the results indicate that the profits of japan s producers of passenger cars rose as a result of the voluntary export restraints while only some suppliers large ones and those producing specialized parts or services appear to have shared the benefits voluntary export restraints increased profits for some firms in the japanese auto industry but many suppliers did not share the windfall copyright 1993 by blackwell publishing ltd

voluntary export restraints as protection policy the u s beef case there are several well known implications of international trade theory which are relevant to our study with a tariff an importing country s welfare can improve only if the excess supply curve is upward sloping under the large country assumption bhagwati has shown that a quota used by an importer can be equivalent to a tariff and mintz has contrasted features of tariffs quotas and vers empirical work has focused largely on the effects of tariffs and equivalent quotas generally exporting countries lose from such trade barriers in contrast we find that exporting countries gain and importing countries lose with a ver we also contrast the gains and losses of vers in the case of frozen boneless beef to an optimal tariff and optimal export tax the theoretical implications of vers for beef exporters were first recognized by freebairn and gruen

the ambiguous consequences of anti dumping laws the anti dumping law is most often applied in oligopolistic industries while most analyses focus on the monopoly model i analyze a duopoly model where a foreign firm engages in price based dumping under cournot behavior the anti dumping law has ambiguous price and welfare effects when the home firm is a stackleberg leader two disquieting effects emerge first the home firm can use the anti dumping law to curtail competition even when the foreign firm does not initially engage in dumping second the anti dumping law can increase profits of both firms at the expense of domestic consumers

anti dumping and countervailing duties under oligopoly abstract this paper constructs a conjectural variations model of international oligopoly in which the home country s optimal policy responses to the foreign government s subsidies and foreign firms dumping can be calculated some theoretical support is found for tariffs that countervail part of the foreign export subsidy the optimal fraction depends on the size of own and cross effects in demand and on the extent of market competition however no normative case is found for anti dumping duties

why voluntary export restraints are voluntary an extension this paper presents a conjectural variation approach to examine the conditions under which voluntary export restraints are voluntary th e authors have shown that the value of the conjectural variation is a critical factor for determining the effects of voluntary export restraints in particular if the free trade equilibrium is more collusive than cournot the imposition of voluntary export restraints at the free trade level of imports leads to a reduction in the profit of the foreign firm unde r such circumstances voluntary export restraints are involuntary which is contrary to r harris s 1985 assertion

quantity restrictions and endogenous quality choice abstract in a vertical product differentiation model under cournot competition both foreign and domestic firms respond by lowering their investment in long run quality for a quantity restriction at and in the neighborhood of the free trade import level average quality increases only when the low quality foreign firm faces a substantially restrictive quota voluntary export restraint the change in quality depends on whether the foreign firm is of high or low quality and upon the restrictiveness of the quota the imposition of quantity restrictions has important strategic effects on the long run choice of quality

traffic externalities in cities the economics of speed bumps low emission zones and city bypasses abstract this paper considers various policy measures that governments can use to reduce traffic externalities in cities unlike much of the available literature that emphasized congestion we focus on measures that reduce pollution noise and some accident risks these measures include noise barriers speed bumps traffic lights tolls emission standards low emission zones and bypass capacity to guide traffic around the city center using a simple model that distinguishes local and through traffic we study the optimal use of these instruments by an urban government that cares for the welfare of its residents and we compare the results with those preferred by a federal authority that also takes into account the welfare of road users from outside the city our results include the following first compared to the federal social optimum we show that the city government will over invest in externality reducing infrastructure whenever this infrastructure increases the generalized cost of through traffic we can therefore expect an excessive number of speed bumps and traffic lights but the right investment in noise barriers second when implementing low emission zones the urban government will set both the fee for non compliance and the emission standard at a more stringent level than the federal government moreover at sufficiently high levels of through traffic the urban government will prefer imposing a toll instead of implementing a low emission zone third whatever the tolling instruments in place the city will always underinvest in bypass capacity finally if it can toll all roads but is forced to invest all bypass toll revenue in the bypass it will never invest in bypass capacity although the paper focuses on non congestion externalities most insights also hold in the presence of congestion

a welfare comparison between vers and tariffs under the gatt economic theory suggests that tariffs are welfare superior to voluntary export re straints vers in the presence of perfect competition however with imperfectly competitive markets some authors have found that vers may be welfare superior to tariffs we reconsider the comparison between a ver and a tariff in the context of gatt based constraints using a model of perfect competition we show that a ver can welfare dominate a tariff increase that is accompanied by a compensatory reduction in the tariff on another good or if the tariff is matched with a retaliatory tariff on domestic exports une comparaison des effets de bien e tre des restrictions volontaires a 1 exportation et des tarifs douaniers dans le cadre du regime du gatt la theorie economique suggere que

import now an analysis of market share voluntary import expansions vies abstract proponents claim that voluntary import expansions vies increase foreign access to a domestic market while increasing competition and reducing prices using a bertrand model i show that a vie produces exactly the opposite results a vie that increases the market share of imports above the prevailing level results in higher prices in the domestic market this result holds even when the domestic market is assumed to be protected by a tariff type barrier prior to the imposition of a vie a vie and an equivalent import subsidy are shown to have opposite effects on prices

voluntary export restraints profits and quality adjustment this paper develops a model of vertical differentiation to assess the impact of output constraints on the profits and quality choices of firms subject to them a competitive environment is developed with the automobile industry in mind multiproduct oligopolists producing differentiated goods who behave as coumot competitors the results show that an output constraint will not induce constrained firms to upgrade their product line when their unconstrained competitors produce higher quality models it is also shown that an output constraint can raise the profits of constrained firms despite output increases by unconstrained firms

support and opposition to a pigovian tax road pricing with reference dependent preferences abstract loss aversion can affect support and opposition to pigovian taxes to reduce externalities this paper studies road pricing with reference dependent preferences modeled by a linear gain loss utility function given this specification we find that the socially optimal road toll is smaller than the optimal toll in the absence of reference dependence and it declines in the degree of loss aversion loss aversion can also explain the empirical observation that support for road pricing is lower before than after its introduction we further show that loss aversion may increase or reduce lobbying efforts by driver organizations against the introduction of tolling it will increase lobbying if a high toll is proposed but drivers initially believe that the probability that it will be introduced is small lastly loss aversion unambiguously reduces lobbying by organizations of non drivers representing for example environmentalists or public transport users in favor of the introduction of a toll