in praise of frank ramsey s contribution to the theory of taxation frank ramsey s brilliant 1927 paper modestly entitled a contribution to the theory of taxation is a landmark in the economics of public finance nearly a half century later through the work of diamond and mirrlees 1971 and mirrlees 1971 his paper can be thought of as launching the field of optimal taxation and revolutionising public finance ramsey f p 1927 a contribution to the theory of taxation economic journal vol 37 145 pp 47 61

the pricing of protected areas in nature based tourism a local perspective abstract this paper extends the literature on optimal pricing of recreation in protected areas by introducing price discrimination between groups of visitors and given that the agency charges different prices to subsets of visitors by including a distributional dimension that is particularly relevant for a national park agency receiving visitors from different origins other issues related to optimal entrance fees including negative ecological impacts and positive spillover effects on local communities resulting from changes in visitation are also discussed based on this model the paper provides an estimation of optimal entrance fees and revenues for the costa rican system of protected areas

belgian nuclear power life extension and fuss about nuclear rents abstract nuclear decision making is embedded in slowly evolving political economic and financial institutions belgium houses extended nuclear activities mostly under french control for example suez gdf and edf own all belgian nuclear power plants but a 2003 law mandates the closure of belgium s nuclear power plants at a service age of 40 years only force majeure could lift the strict obligation opposition to the law argued with climate change danger financial losses and loss of load risks the financial issue got interwoven with a fuzzy debate on the definition height and appropriation of nuclear rents as plausible hypothesis is adopted the prospected transfer of hundreds millions of euro from power companies to the public interest will create public support for life extension but the nuclear rents discussion had faded in july 2012 when the belgian government admitted a 10 year life extension for tihange i 962 mw and imposed the closure of the 2 433 mw doel i and ii loss of load risk was the government s only public argument the opacity of the decision process and its fifty fifty outcome do not allow proper testing of the hypothesis the case illustrates that politicians cannot bind their followers except through the deployment of alternative power sources

a theory of retail pricing until recently the retail enterprise the shop has been comparatively neglected by economic theorists partly because they assigned little role to retailing the growth of interest in the problem in recent years reflects the development of models of imperfect information and the revival of interest in location theory pricing theory for the retail enterprise however remains a neglected area after surveying existing models of retailing the paper concentrates on the idea that the shop saves its customers costs by assembling goods in one place this introduces an essential non convexity and importantly affects the conditions under which shops compete with each other and the constraints on their price setting under the admittedly unrealistic assumption of full buyer information a theory of retail pricing is developed retail prices are frequently regarded as exceptions both to the law of costs and generally to every rational process of price formation which is all the more remarkable since these prices are the only ones which are of direct interest to the consumer and which are directly influenced by consumption knut wickselt

the second best core an economy with a single output and input is considered for the case of economies of scale in production equilibria are studied for a cooperative game of joint production in which goods are allocated by a price system the paper proposes a second best core in which allocations that are feasible for a coalition must be attainable by a price system existence is examined and properties of second best core allocations are analyzed copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

distributional equity and the pricing of public final and intermediate goods abstract this paper studies the implications of distributional concerns for the pricing of public final and intermediate goods under a general equilibrium and general private production setting it is shown that in a many household world the pricing formula applying to the household is characterized by the distribution of goods while that applying to the private firm is characterized by the distribution of profits moreover both pricing formulae include a term incorporating the general equilibrium redistributive effects of public pricing we compare our results with those in baumol and bradford american economic review 1970 60 265 283 feldstein american economic review 1972 62 32 36 journal of public economics 1972 1 45 72 and yang journal of public economics 1991 45 135 141

management of non maturing deposits by multistage stochastic programming abstract the management of non maturing account positions in a bank s balance like savings and sight deposits as well as certain types of variable rate mortgages is complicated by the embedded options that its clients may exercise in addition to the usual interest rate risk uncertainty in the timing and amount of cash flows must be taken into account when investment or refinancing strategies are determined this paper introduces a multistage stochastic programming model where the stochastic evolution of interest rates and volume under management is described by stochastic processes in discrete time scenarios are generated by means of barycentric approximation which is particularly useful to deal with the observed correlations between interest rates and volume practical experience from the application at a major swiss bank is reported where the model has been employed since the mid 90s

the ramsey problem for congestible facilities abstract in recent years a new set of models drawing on vickrey 1969 has been developed to analyze the economics of congestible facilities these models are structural in that they derive the cost function from consumers time of use decisions and the congestion technology standard models in contrast simply assume the general form of the cost function we apply the new approach to analyze the ramsey problem for a congestible facility and show that the solution generally entails cost inefficiency standard models have failed to reveal this result because they treat the cost function as completely determined by technology

reforming residential electricity tariff in china block tariffs pricing approach the chinese households that make up approximately a quarter of world households are facing a residential power tariff reform in which a rising block tariff structure will be implemented and this tariff mechanism is widely used around the world the basic principle of the structure is to assign a higher price for higher income consumers with low price elasticity of power demand to capture the non linear effects of price and income on elasticities we set up a translog demand model the empirical findings indicate that the higher income consumers are less sensitive than those with lower income to price changes we further put forward three proposals of chinese residential electricity tariffs compared to a flat tariff the reasonable block tariff structure generates more efficient allocation of cross subsidies better incentives for raising the efficiency of electricity usage and reducing emissions from power generation which also supports the living standards of low income households

regulation through output related profits tax prospects are discussed for regulating a multiproduct monopolistic enterprise through a tax on profit at a rate variable with output selection of weights when defining output could induce outcomes ranging from ramsey pricing to any desired pattern of cross subsidy the telecommunications industry is used to illustrate if quality depends upon output as in public transport socially optimal pricing would be induced the scheme has the advantage of limiting detailed intervention and preserving the profit motive however unrealistic assumptions are necessary and implementation would require a great deal of information this limits its practical value disenchantment with economic regulation creates a dilemma effective regulation can be difficult both in principle and in practice and it can carry unintended consequences on the other hand governments are unwilling to accept the full implications that leaving large multiproduct utilities to their own devices would have for pricing and output typical worries are excessive profit through the exploitation of monopoly fundamental changes in patterns of cross subsidy and neglect of the public service dimension interference with the setting of prices of individual products may be considered undesirable or impractical differential rates of commodity taxation could in principle solve many of the problems but they are not possible for institutional reasons even if government was inclined to use them however some of the enterprises in question are sufficiently large that it is feasible to levy differential rates of tax on total profits and profits taxes are generally accepted as having legitimate place in free enterprise this paper is an exploration of the extent to which profits tax might be made to simulate differential commodity taxes and so achieve policy objectives for an unregulated industry the special features of the tax which enable it to tackle this problem are that the rate of taxation is related to the level of physical output and in the case of a multi product enterprise output is defined as a weighted aggregate of individual outputs the output related profits tax was proposed by alan walters as a device for indirect regulation of the british telecommunications industry on its sale into private ownership the principles apply equally to urban transport

multiproduct two part tariffs abstract two part pricing by a multiproduct monopoly and a differentiated oligopoly are examined and compared two part pricing policies are seen to depend on whether products are complements or substitutes and on whether or not the market is segmented a principle result is that although competition tends to lower unit prices there is no corresponding tendency for competition to reduce entry fees the unit pricing rule is related to the ramsey pricing rule oligopoly equilibrium unit prices equal marginal cost when there is one consumer type

the welfare effects of different pricing schemes for electricity distribution in finland the main components of electricity prices can be divided into the wholesale price the price of network operations and taxes even if the wholesale price is determined efficiently total welfare can be significantly disturbed if network operations are priced inefficiently in this study we calculate network prices based on four alternative methods these are marginal cost pricing ramsey pricing fdc pricing and optimal two part tariffs the welfare effects on the prevailing pricing system are compared we show that potentially significant improvements in welfare can be achieved by using marginal cost prices or optimal two part tariffs also ramsey pricing indicates that prevailing prices are inefficient

game theoretic modeling of increasing returns to scale abstract this paper surveys the analysis by means of cooperative game theory of economies in which there are increasing returns to scale in the first section necessary and sufficient conditions for the existence of a core of a general equilibrium economy are considered in the second section the partial equilibrium approach to increasing returns production which developed along with the natural monopoly literature is surveyed the close relationship between the general equilibrium and partial equilibrium approaches is emphasized

deregulation redux does mandating access to bottleneck facilities necessarily improve welfare we demonstrate that deregulation in the form of vertical separation of network components into natural monopoly and potentially competitive markets does not truly represent a lessening of regulatory burdens that is vertical separation is not synonymous with deregulation more competitors is not equivalent to more competition we assume a public interest regulator that is constrained to set a unit price that maximizes expected welfare subject to a break even constraint we show that under both symmetric and asymmetric information cases the information demands on the regulator of the vertically integrated system are no greater than those in the case of vertical separation

optimal two part tariffs in a model of discrete choice abstract in this paper we study welfare optimal two part tariffs in a model of discrete choice the determinants of the sign and magnitude of the fixed and variable tax are analysed in terms of the nature and degree of consumer heterogeneity the price sensitivities of participation probabilities and conditional demands and the nature of distributional concerns in the absence of distributional concerns the model generalises the corrected ramsey rule for the variable tax and it shows that in the absence of collection or fixed participation costs the fixed fee may be negative the conditions that determine the sign of the participation fee turn out to have an intuitive economic interpretation finally the implications of distributional concerns for the optimal fixed and variable taxes are analysed

optimum tariffs for vertically differentiated products with an application to indian tea exports optimum export tariffs are typically related to the elasticity of demand for exports in homogeneous goods markets in this paper we set up a simple model for large exporters of quality differentiated products and estimate optimum tariffs based on the quality of the good restrictions on demand parameters implied by the theoretical model are used in estimating demands for different qualities of indian tea exports we use the estimated model to find optimum tariffs for two qualities of indian tea exports and find that optimum export tariffs for high quality teas should on average be 14 higher than the tariff on low quality tea exports

some simple analytics of peak load pricing author s bergstrom ted mackie mason jeffrey k abstract consider a public utility that offers its service at two different times we study the effects of a change from uniform pricing throughout the day to peak load pricing we show that for a utility constrained to operate with a fixed rate of return on capital the introduction of peak load pricing can plausibly reduce the price of the service it both in peak and off peak times we also find that peak load pricing can lead to either greater or smaller capacity than uniform pricing we find a simple criterion for determining whether a particular individual gains or loses from peak load pricing

interorganizational alliances and the performance of firms a study of growth and innovation rates in a high technology industry this paper investigates the relationship between intercorporate technology alliances and firm performance it argues that alliances are access relationships and therefore that the advantages which a focal firm derives from a portfolio of strategic coalitions depend upon the resource profiles of its alliance partners in particular large firms and those that possess leading edge technological resources are posited to be the most valuable associates the paper also argues that alliances are both pathways for the exchange of resources and signals that convey social status and recognition particularly when one of the firms in an alliance is a young or small organization or more generally an organization of equivocal quality alliances can act as endorsements they build public confidence in the value of an organization s products and services and thereby facilitate the firm s efforts to attract customers and other corporate partners the findings from models of sales growth and innovation rates in a large sample of semiconductor producers confirm that organizations with large and innovative alliance partners perform better than otherwise comparable firms that lack such partners consistent with the status transfer arguments the findings also demonstrate that young and small firms benefit more from large and innovative strategic alliance partners than do old and large organizations copyright 2000 john wiley sons ltd

pareto efficient taxation and expenditures pre and re distribution abstract this paper shows that there is a presumption that pareto efficient taxation entails a positive tax on capital when tax and expenditure policies can affect the market distribution of income in ways that cannot be directly offset those effects need to be taken into account reducing the burden imposed on distortionary redistribution the paper extends the 1976 atkinson stiglitz results to a dynamic overlapping generations model correcting a misreading of the result on the desirability of a zero capital tax that result required separability of consumption from labor and that the only unobservable differences among individuals were in fixed labor productivities in a general equilibrium model one needs to take into account the effects of policy changes on binding self selection constraints in a simple model with time separability but with non separability between consumption and leisure capital taxation depends on the complementarity substitutability of leisure during work with retirement consumption the final section constructs a simple two class model capitalists who maximize dynastic welfare and workers who save for retirement whose productivity can be enhanced by publicly provided education it derives a simple expression for the optimal capital tax which is positive so long as the social welfare function is sufficiently equalitarian and the productivity of educational expenditures is sufficiently high

parameter estimation in stochastic scenario generation systems abstract scenario analysis offers an effective tool for addressing the stochastic elements in multi period financial planning models critical to any scenario generation process is the estimation of the input parameters of the underlying stochastic model for economic factors in this paper we propose a new approach for estimation known as the integrated parameter estimation ipe this approach combines the significant features of other well known estimation techniques within a non convex multiple objective optimization framework with the objective weights controlling the relative importance of the features we solve the non convex optimization problem using adaptive memory programming a variation of tabu search based on a short interest rate model using uk treasury rates from 1980 to 1995 the integrated approach compares favorably with maximum likelihood and the generalized method of moments we also evaluate performance with towers perrin s cap link scenario generation system

fiscal federalism and interjurisdictional externalities new results and an application to us air pollution abstract the economics of fiscal federalism has identified two book end departures from first best provision of a public good local governments may respond to local conditions but ignore inter jurisdictional spillovers alternatively central governments may internalize spillovers but impose uniform incentives ignoring local heterogeneity we provide a simple model that demonstrates that the choice of pricing policy also depends crucially on a third factor the shape of marginal costs of providing the public good if marginal costs are convex then marginal abatement cost elasticities will be higher around the local policies this increases the deadweight loss of those policies relative to the centralized policy ceteris paribus if they are concave then the opposite is true using a detailed simulation model of the us electricity sector we then empirically explore these tradeoffs for us air pollution we find that us states acting in their own interest lose about 31 5 of the potential first best benefits whereas the second best uniform policy loses only 0 2 of benefits the centralized policy outperforms the state policy for two reasons first inter state spillovers are simply more important that inter state heterogeneity in this application second because of the convexity of the marginal cost functions elasticities are much lower over the range relevant to the centralized policy dampening the distortions

tariff structure of japanese electric power companies an empirical analysis using dea this research explores a marginal cost mc based pricing system using data envelopment analysis dea this dea technique is widely applied for performance analysis and efficiency measurement in public and private sectors this article does not follow such a previous research direction rather directing itself towards the new measurement of mc and ramsey prices of multiple electric power services as an important case study this research applies the proposed dea approach to examine how much the current tariffs of japanese electric power services deviate from these mc and ramsey prices this type of research has never been explored in japan even though such a research effort is needed by many policy makers and consumers it is hoped that our empirical findings can serve as a policy making basis for guiding the japanese electric power industry this study believes that this japanese experience is useful for other nations such as asia pacific countries where many public industries are regulated by their governments

two part tariffs as regulatory constraints abstract this paper introduces a regulatory two part monopoly pricing mechanism with desirable properties assuming that firm managers are informed about cost and demand functions no detailed prior information of the regulator about the regulated firm and its environment is required also subsequent observations of the regulator are restricted to verifiable bookkeeping data nevertheless the pricing formula is simple and easily interpreted the firm may freely choose the variable price of the two part tariff as long as the fixed part obeys a constraint the firm will then in every period receive an approximation to the welfare change caused by its price changes over the last period contrary to most other suggestions for incentive pricing the current approach requires no government subsidies

multiproduct pricing made simple we study pricing by multiproduct firms in the context of unregulated monopoly regulated monopoly and cournot oligopoly using the concept of consumer surplus as a function of quantities rather than prices we present simple formulas for optimal prices and show that cournot equilibrium exists and corresponds to a ramsey optimum we then present a tractable class of demand systems that involve a generalized form of homothetic preferences as well as standard homothetic preferences this class includes linear and logit demand within the class profit maximizing quantities are proportional to efficient quantities we discuss cost passthrough including cases where optimal prices do not depend on other products costs finally we discuss optimal monopoly regulation when the firm has private information about its vector of marginal costs and show that if the probability distribution over costs satisfies an independence property then optimal regulation leaves relative price decisions to the firm

a core selection for regulating a single output monopoly we consider a single output production economy in which all coalitions of agents have access to the technology under increasing returns to scale the corresponding cooperative game without side payments is convex and hence has a large core we propose a core selection that is obtained by considering the lowest price of output relative to input such that the corresponding vector of indirect utilities is feasible the constant returns equivalent allocation is feasible and achieves this utility vector it satisfied the property of technological monotonicity when the production possibility set expands no agent faces a utility loss technological monotonicity and the core property together characterize the constant returns equivalent solution

an exact solution method for binary equilibrium problems with compensation and the power market uplift problem abstract we propose a novel method to find nash equilibria in games with binary decision variables by including compensation payments and incentive compatibility constraints from non cooperative game theory directly into an optimization framework in lieu of using first order conditions of a linearization or relaxation of integrality conditions the reformulation offers a new approach to obtain and interpret dual variables to binary constraints using the benefit or loss from deviation rather than marginal relaxations the method endogenizes the trade off between overall societal efficiency and compensation payments necessary to align incentives of individual players we provide existence results and conditions under which this problem can be solved as a mixed binary linear program we apply the solution approach to a stylized nodal power market equilibrium problem with binary on off decisions this illustrative example shows that our approach yields an exact solution to the binary nash game with compensation we compare different implementations of actual market rules within our model in particular constraints ensuring non negative profits no loss rule and restrictions on the compensation payments to non dispatched generators we discuss the resulting equilibria in terms of overall welfare efficiency and allocational equity

price regulation of access to telecommunications networks abstract without access of networks to each other competition in the telecommunications sector would hardly have spread so quickly such mutual access is necessary for carriers to provide ubiquitous service and enable endusers to call and be called by anybody without subscribing to a system wide monopolist one way access concerns bottleneck inputs provided by an incumbent network to entrants while two way access concerns the interconnection between networks whereas one way access regulation is exclusively driven by containment of market power two way access is additionally affected by collusion possibilities among the numerous pricing rules discussed none clearly dominates this article provides a roadmap vis a vis the competing policy objectives for access price regulation

bid rents under unemployment risk delayed versus timeless uncertainty in this paper we analyze the impact of uncertainty on the level and properties of the bid rent function we show that these properties strongly depend upon the vr ay in which uncertainty is introduced into the model delayed versus timeless uncertainty we also investigate the implication of income uncertainty for the city equilibrium we show that under timeless uncertainty a more generous unemployment benefits program may be in the long run welfare reducing in an urban setting c 1997 academic press

optimal fiscal policy for a state or local government abstract state and local government services are enjoyed by and taxes borne by two groups residents and non residents this paper addresses the question if state and local governments maximize their residents welfare and cannot distinguish between individual residents and non residents but know the aggregate characteristics of the two groups what set of taxes subsidies and public goods should they choose some of the results obtained are i even when all commodities are taxable and equity is ignored the existence of non resident consumption makes uniform taxation non optimal ii in some cases whether a commodity should be taxed or subsidized is independent of its own price elasticity iii central cities may be subsidized by suburban residents and iv the ability of state and local governments to redistribute is inversely proportional to the openness of the economy

production efficiency and optimal pricing in intermediate good regulated industries abstract this paper reconsiders the relationship that exists between the production efficiency result of diamond and mirrlees and the ramsey rule specifically the paper considers a general equilibrium hierarchical structure of production one industry sells at least some of its output to another regulated industry a single regulatory agency must balance the budgets of all regulated industries in the aggregate so as to maximize the utility of a representative individual the ramsey rule always holds pricing rules however are far more complex the optimum may have some negative price cost margins and may not involve production efficiency

worldwide reach of short selling regulations abstract we characterize legality and incidence of short selling in a worldwide multimarket framework home country short selling restrictions curtail home market stock borrowing by 45 and reduce short selling of the country s american depository receipts adrs by 68 due to regulatory reach also the 2008 us ban on short selling of financial firms reduced borrowing in foreign locations these findings are robust to controls for option availability enforcement returns firm size trading volume dividends adr level volatility days to cover and industry sector further we show that investor conduct resulting from adherence to professional standards is a more powerful mechanism of regulatory reach than intergovernment cooperation

the pricing of public intermediate goods revisited abstract this paper revisits the pricing of publicly produced goods for competitive downstream industries we show that under a general equilibrium setting and with a general technology in the private production a uniform pricing formula should apply to the household and the private firm this uniform pricing formula extends the optimal formulae derived in baumol and bradford 1970 in a straightforward way

the simple economics of extortion evidence from trucking in aceh this paper tests whether the behavior of corrupt officials is consistent with standard industrial organization theory we designed a study in which surveyors accompanied indonesian truck drivers on 304 trips during which they observed over 6 000 illegal payments to police soldiers and weigh station attendants using plausibly exogenous changes in the number of checkpoints we show that market structure affects the level of illegal payments we further show that corrupt officials use complex pricing schemes including third degree price discrimination and a menu of two part tariffs our findings illustrate the importance of considering the market structure for bribes when designing anticorruption policy

the european debate on rate systems in the interwar period this article describes a particular branch that evolved in the diffusion of electrical rate systems in twentieth century europe and the debate that ensued between the competitive promotional and cost based approaches three major questions are addressed what factors and historical circumstances favoured the emergence of more or less efficient pricing schemes why did some enterprises opt for promotional rates while others defended the cost based alternative what is the historical origin of marginal cost pricing it is shown how the volatility of the costs that characterize hydro electric production made this particular technology very sensitive to a cost approach towards pricing and to a seasonal and time of day perspective on rate systems

the regulation of multiproduct firms part i theory abstract this paper develops a normative model of the regulation of a multiproduct firm with private information about its technology and cost reducing activity it first characterizes the optimal regulatory scheme and illustrates it through examples it then derives necessary and sufficient conditions for the pricing incentive dichotomy to hold i e conditions under which the cost reimbursement rule but not pricing is used to provide incentives last the paper studies the regulation of the multiproduct firm in a general equilibrium framework both to assess the validity of the partial equilibrium approach and to formalize the notion of taxation by regulation

conceptual developments in the economics of transportation an interpretive survey the objective in this paper is to survey the literature in transportation economics exploring two basic themes first the conceptual developments in the analysis of supply and demand which recognizes noteworthy aggregation biases in the empirical work on aggregate data and indicate that a correct analysis of the issues should take place at a highly disaggregated level second the use of these conceptual developments to evaluate efficiency aspects of transportation pricing investment and the impact of government regulation on resource allocation and distribution in the transportation sector it is important to acknowledge that the survey is based on research throughout the world but our institutional perspective and to some extent the topics that are covered is based largely on the u s experience author

shadow prices consistency and the value of life this paper examines the consequences of inconsistent shadow pricing the principal example of such inconsistency is the value of life safety second best shadow pricing policy is shown to depend upon how public sector budgets are allocated and the principle that public sector decision makers should agree to a consistent shadow price is shown to require information unlikely to be available a weaker consistency principle requiring minimal information is then developed

the equity and efficiency of runway pricing abstract this paper poses and answers the following question if an airport authority is assumed to choose landing fees that maximize a weighted sum of airline consumers surpluses subject to a revenue requirement what set of weights is implied by currently observed fees the model is loosely applied to san francisco international airport the main result is that commuter airlines are much more favored than others

formulation of the russell yasuda kasai financial planning model this paper describes the formulation of the russell yasuda kasai financial planning model including the motivation for the model the presentation complements the discussion of the technical details of the financial modeling process and the managerial impact of its use to help allocate the firm s assets over time discussed in carin o et al 1994 1998 respectively the multistage stochastic linear program incorporates yasuda kasai s asset and liability mix over a five year horizon followed by an infinite horizon steady state end effects period the objective is to maximize expected long run profits less expected penalty costs from constraint violations over the infinite horizon scenarios are used to represent the uncertain parameter distributions the constraints represent the institutional cash flow legal tax and other limitations on the asset and liability mix over time

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

congestion and network externalities in the short run pricing of information system services transfer pricing provides management with an efficient tool for coordinating the use of information system services in practice these services if they are charged out to end users are priced via an allocation of historical costs based on individual usage or are assigned a price based on the fair market value of outside alternatives both approaches encourage suboptimal usage of information systems resources they ignore three constituents of optimal transfer prices 1 the reaction of other users to any change in a given user s consumption of service 2 the technical response to additional use of an information system service in the form of congestion and network externalities and 3 end user preferences for the information system service together these influences on demand contribute to an externality two types of externalities are significant in information systems congestion externalities decrease and network externalities increase the utility of services this research provides a complete model for computing optimal transfer price which corrects several existing problems in information system service valuation when full absorption cost allocations contain significant fixed precommitted or sunk cost components it is not possible to balance the budget direct costing improves on full absorption costing but misspecifies costs when demand is nonlinear to balance the budget with a minimum of disutility to end users management must resort to second best pricing inefficiency arises from two sources when externalities are ignored in transfer pricing end users cannot plan service usage and thus encounter unanticipated congestion which lowers morale and efficiency and increases costly expediting where congestion effects are highly nonlinear congestion may effectively shut down the system on the other hand incorrect transfer prices can motivate usage too low to take advantage of network benefits end users may confuse externality effects and intrinsic value of an information system service in these cases the price and performance of outside alternatives exert a complex and subtle influence on use and pricing of services where there exist identical outside and inside processing alternatives and transfer pricing does not reflect this there is a significant tendency to overprice and underutilize internal services in this case there may be a tendency to outsource when processing should be kept in house future markets for information systems will favor technologies which exhibit strong network externalities and pricing of these technologies will become increasingly complex because of the interrelationship of hardware software and data originated externalities the models provided in this research will allow management to take advantage of these opportunities

the demand for transport fuels in turkey abstract in this paper we estimate the demand for transport fuels in turkey specifically using four different models namely a partial adjustment model a distributed lag model an autoregressive distributed lag model and an error correction model we estimate gasoline and diesel demand functions with quarterly data covering the period 2003 q1 2014 q3 we find a stable long run relationship only for diesel demand income and price our results imply that gasoline demand does not respond to income and price in the long run reflecting a shift from gasoline towards diesel induced by differential tax policies furthermore we find that transport fuel demand is price inelastic making tax on fuel a perfect tool for raising budget revenues in addition our results suggest that fuel demand responds to negative and positive price changes symmetrically

nodal price control a mechanism for transmission network cost allocation this paper presents an approach for the allocation of transmission network costs by controlling the nodal electricity prices the proposed approach introduces generation and nodal injection penalties into the traditional economic dispatch so as to create nodal price differences that recover the required transmission revenue from the resulting congestion rent as a consequence the new electricity prices reflect not only the marginal costs of production subject to transmission constraints but also the capital costs of the network this is the approach commonly adopted with most commodities whose price includes the unit cost of the good itself as well as the transportation cost from the production centers to the final consumer

theories of regulation and the deregulation movement we started this paper with what seemed a paradox no sooner had the various special interest theories of regulation achieved a degree of acceptance than regulatory reforms were instituted in many industries consistent with the public interest on the face of it this appeared to give reason to doubt the validity of the special interest theories

optimal two part pricing in a carbon offset market a comparison of organizational types author affiliation murray fulton johnson shoyama graduate school of public policy diefenbaker building university of saskatchewan saskatoon sk s7n 5b8 canada e mail murray fulton usask ca corresponding author james vercammen food and resource economics and sauder school of business 2053 main mall university of british columbia vancouver bc v6t 1z2 canada e mail james vercammen ubc ca acknowledgment the authors would like to thank tom ross and ralph winter for valuable comments on an early version of this article as well as the southern economic journal editor and two anonymous reviewers the usual caveats apply 1 introductionone of the consequences of the kyoto protocol kp and the increased focus on the role of greenhouse gases ghgs in climate change is that market based approaches to reducing ghg emissions are being actively developed in europe the european union eu operates an emissions trading scheme ets 1 while in the united states the chicago climate exchange ccx trades carbon offsets among exchange members 2 in canada a number of provinces have announced plans for carbon trading schemes four of them have joined the western climate initiative wci a consortium of canadian provinces and states developing a regional cap and trade system wci 2008 the wci and the regional greenhouse gas initiative rggi a consortium of northeastern and mid atlantic states see rggi 2008 are part of the international carbon action partnership a group of countries and regions from around the world that has formed to actively pursue the development of mandatory cap and trade systems in carbon 3the agriculture and forestry sectors are likely to be important suppliers of carbon offsets to the carbon market both through carbon sequestration activities for example the storing of carbon in the soil or in trees and through activities that reduce ghg emissions for instance estimates made by the united states at the time the kp was being negotiated projected that forest cropland and grazing land management sinks could have accounted for about half of u s reduction commitments u s department of state 2002 in canada the federal government estimated that agricultural and forestry sinks could provide in the order of 15 20 million metric tons of carbon offsets relative to a total of 270 300 million metric tons of reductions required under the kp government of canada 2005 food and agricultural organization fao estimates indicate that dryland soils in the world could sequester somewhere in the range of 12 000 16 000 million metric tons of carbon fao 2004 in the case of agriculture since carbon offsets are sold in units that are much larger than most individual farmers can supply carbon sequestration from a number of producers must be aggregated to fulfill contracts 4 as a consequence market intermediaries or aggregators as they are known are emerging to perform this economic function some of these aggregators are organized as for profit firms while others are organized by farmers associations examples of for profit firms are as follows c green aggregators ltd a privately owned company that contracts with farmers in manitoba saskatchewan and alberta for carbon sequestration the carbon they acquire is sold on the ccx c green aggregators 2008 and agcert international an irish company founded to generate emission reductions from livestock farms agcert international 2008 much of agcert s sales of carbon credits has been direct to individual emitters on the producer association side the iowa farm bureau has created agragate climate credits corporation to aggregate carbon credits for sale on the ccx agragate climate credits corporation 2008 agragate administers the project transacts trades on the exchange and distributes earnings to project participants

coal rates and revenue adequacy in a quasi regulated rail industry this article considers whether equitable rates to captive coal shippers are compatible with competitive rates of return in the rail industry using the results of a translog cost function based on panel data of class i railroads for 1974 1986 i show that returns to scale are sufficiently large to cause coal rates to rise to socially unacceptable levels if coal shippers have to bear the entire revenue burden moreover even if noncoal traffic makes a contribution to overhead the revenue burden on coal traffic is still substantial and would require increases in coal rates that are probably neither politically nor economically feasible

an algorithm for ramsey pricing by multiproduct public firms under incomplete information abstract we consider the problems facing a regulatory authority charged with the responsibility of regulating a multiproduct public firm the regulatory constraint arises in the form of a break even profit constraint a price vector which maximizes social welfare subject to this break even constraint is commonly referred to as a ramsey price vector this paper describes in a general equilibrium framework a regulatory procedure which converges to a ramsey price vector this procedure could be applied to a natural monopoly in a contestable market situation in which the regulator and the firm cooperate to implement ramsey pricing as a limit pricing strategy to prevent incursions from potential entrants

income taxation public sector pricing and redistribution income taxation and public sector pricing are considered in an integrated control theory model of the mirrlees tradition it is shown that the often alleged separability between income taxation as a purely distributional instrument and public pricing as a purely allocational instrument usually does not hold rather in our model public prices have to resemble the distributionally modified public prices proposed by feldstein 1972 application of the fiscal policy instrument public pricing restricts the distributional task of income taxation our results differ considerably from the direct indirect taxation controversy because the assumption of constant returns to scale cannot be imposed in a model of public pricing

reliability differentiated real time pricing of electricity optimal resource planning and power dispatch models from a societal welfare point of view imply an optimal pricing policy which is referred to here as reliability differentiated real time pricing or in short reliability differentiated pricing this pricing scheme combines real time pricing and priority pricing with reliability differentiation based on consumer outage costs this pricing policy is analyzed the model used in the analysis is developed with particular emphasis on consumer behavior and welfare effects the implications of the model for the pricing of spinning reserve and firm capacity as well as for revenue reconciliation are examined it is concluded that such a pricing scheme will in general result in greater attainable welfare than either the real time pricing or priority pricing paradigms moreover it results in the maximum attainable welfare for the system with revenue reconciliation and provides an optimal pricing scheme for spinning revenue and firm capacity

efficient excise taxation the evidence from cigarettes we develop a model in which optimizing policy makers in adjacent government jurisdictions levy excise taxes on a commodity that has a unique point of production from which all shipments emanate from this model we derive an unusually specific predicted geographical pattern of those excise taxes in which these taxes rise at a decreasing rate as one moves outward from the point of production we compare these predictions to the observed pattern of cigarette taxes imposed by state governments in the united states and find the data to be fully consistent with our model among these predictions is the existence of a ripple effect which reduces taxes in many other jurisdictions due to low taxes at the point of production we estimate that these induced tax reductions in other states save cigarette producers and consumers a minimum of 110 million per year

public pricing under imperfect competition abstract existing literature on second best pricing assumes that regulatory control encompasses all industries subject to distortion this paper extends the theory in a game theoretic framework to incorporate market power outside the regulated sector we find that in this situation price always exceeds marginal cost in the public firm and that the profit constraint for the public firm need not be binding in addition the existence of pricing distortions outside the regulated sector can actually increase welfare

ramsey pricing and supply side incentives in physician markets in this paper i develop a theory of optimal prices using a relative value scale where there are fixed costs of medical practice i consider a regulator constrained to set prices in excess of marginal cost in markets where physicians can create demand at the margin under these conditions basing prices on physician costs alone is shown to be suboptimal instead prices should anticipate the behavior of physicians by setting profit margins highest for services least susceptible to demand creation this is equivalent to a form of ramsey pricing used in this case to minimize the deadweight loss of oversupply

multiple output production and pricing in electric utilities empirical studies of the electric utility industry have generally focused on one of several issues such as the presence or absence of regulation induced input mix distortions the rules used to select regulated prices whether electricity is one output or several or the naturalness of the electric utility monopoly this paper contributes a method which permits simultaneous estimation of demand elasticities pricing rule parameters and marginal rates of transformation within one econometric model since firms make input and output decisions given the demand and regulatory conditions facing them the marginal rates of substitution and transformation are dependent on the demand elasticities of each consumer class and the prices permitted by regulators its purposes are two first i examine the appropriateness of a multiple output model of production is electricity one output or are the products sold to different consumers distinct outputs most but not all previous studies treat electricity as a homogeneous product 2 while this assumption may be justified for studies which deal strictly with generation of electricity joskow and schmalensee 27 54 5 observe3 that

the equity and efficiency of two part tariffs in u s natural gas markets abstractresidential natural gas customers in the united states face volumetric charges that average about 30 percent more than the marginal cost of gas this inefficient departure from marginal cost pricing allows gas utilities to cover their fixed infrastructure and operating costs proposals for recovering these costs instead through fixed monthly fees are often opposed because of a widespread belief that current rate schedules have desirable distributional consequences using nationally representative household level data we show that the correlation between household income and natural gas consumption is indeed positive but surprisingly weak so current rate schedules are only mildly progressive in part we argue that this is because poor households tend to have larger families and less energy efficient homes we calculate bill impacts under a variety of scenarios and show that even a modest energy assistance program would more than offset the distributional impact of tariff rebalancing for most low

swinging for the fences the effects of ceo stock options on company risk taking and performance we unpack the concept of managerial risk taking distinguishing among three of its major elements the size of an outlay the variance of potential outcomes and the likelihood of extreme loss we

second best pricing of publicly produced inputs the case of downstream imperfect competition abstract efficient second best pricing is examined for a public enterprise facing two distortions a profit constraint and imperfect competition among some customer industries we suggest a measure of downstream industry distortion for the purpose of efficient pricing the pricing rule contains two opposing elements the shadow value of public profit and this measure of the downstream distortion whose sum determines whether the efficient second best input price is above or below marginal cost efficient pricing normally implies relative subsidization of imperfectly competitive downstream firms

a stochastic programming model for money management abstract portfolio managers in the new fixed income securities have to cope with various forms of uncertainty in addition to the usual interest rate changes uncertainy in the timing and amount of cashflows changes in the default and other risk premia and so on complicate the portfolio manager s problem we develop here a multi period dynamic portfolio optimization model to address this problem the model specifies a sequence of investment decisions over time that maximize the expected utility of return at the end of the planning horizon the model is a two stage stochastic program with recourse the dynamics of interest rates cashflow uncertainty and liquidity default and other risk premia are explicitly modeled through postulated scenarios simulation procedures are developed to generate these scenarios the optimization models are then integrated with the simulation procedures extensive validation experiments are carried out to establish the effectiveness of the model in dealing with uncertainty in particular the model is compared against the popular portfolio immunization strategy and against a portfolio based on mean absolute deviation optimization

household behavior under income uncertainty in a monocentric urban area abstract for a household living outside of but commuting to and from the cbd of an urban area and experiencing income uncertainty housing consumption and location distance from the cbd are inversely related to the probability of unemployment and directly related to the level of unemployment compensation under fairly unrestrictive assumptions under more restrictive assumptions it is found that these variables are inversely related to housing price and transportation costs finally income compensation causes housing consumption and location to be directly related to the probability of unemployment and the level of unemployment compensation

the eu 20 20 2020 targets an overview of the emf22 assessment three computable general equilibrium models are used to estimate the economic implications of a stylized version of eu climate policy if implemented at the lowest possible cost the 20 emissions reduction would lead to a welfare loss of 0 5 2 0 by 2020 second best policies increase costs a policy with two carbon prices one for the ets one for the non ets could increase costs by up to 50 a policy with 28 carbon prices one for the ets one each for each member state could increase costs by another 40 the renewables standard could raise the costs of emissions reduction by 90 overall the inefficiencies in policy lead to a cost that is 100 125 too high the models differ greatly in the detail of their results the ets non ets split may have a negligible impact on welfare while the renewables standard may even improve welfare the models agree however that the distortions introduced by total eu package imply a substantial welfare loss over and above the costs needed to meet the climate target the marginal total and excess costs reported here are notably higher than those in the impact assessment of the european commission

on deposit volumes and the valuation of non maturing liabilities abstract in this paper we propose a framework for the modelling of non maturing liabilities the latter referring to deposits without a specific maturity or deposits whose actual time horizon significantly differs from their contractual maturity the set of non maturing liabilities include most of the traditional deposit accounts like demand deposits and savings accounts and form the basis of the funding for depository institutions our framework consists of three pieces models for market rates deposit rates and deposit volumes for the market rate an extended one factor vasicek model is used but the framework developed is general and any other and potentially more sophisticated and accurate model for the market rate can be applied deposit rates are modelled using policy functions which are allowed to depend on the current market rate and the volume deposited concerning deposit volumes we develop a framework in which models for deposit volumes can be derived in theoretically sound way this is done in two steps in the first step we propose reasonable rules or strategies based on which we attempt to capture the behaviour of the individual customer in the second step we then define notions of homogeneity in customer behaviour and use these to derive models for the behaviour of the average customer and for the volumes deposited by the average customer finally the pieces of the framework are integrated in a valuation formula we here use the approach of jarrow and van deventer 1998 the arbitrage free valuation and hedging of demand deposits and credit card loans journal of banking and finance 22 249 272 and a value is assigned to a portfolio of demand deposits this valuation formula also forms the basis for the risk management of the interest rate risk embedded in the demand deposits

pricing efficiency under rate of return regulation some empirical evidence for the electric utility industry the authors test quasi optimal pricing rules for rate of return regulation for a sample of electric utilities they estimate the regulated cost function and demand equations by class of customer for the sample to yield the cost and demand parameters required to assess the utility rate structures the results indicate that the price structure of electricity by class of customer is not quasi optimal and that welfare improvement might be possible under alternative prices searching for the price structure which satisfies the criteria they find that commercial users rates have been too high relative to residential and to a lesser extent industrial rates they note that commercial uses tend to be less organized and more poorly represented in the rate making process 16 references 8 tables

the simplicity of competitive repertoires an empirical analysis this research explores the notion of competitive simplicity a tendency of some firms to concentrate intensely on just a few central activities our focus here is the simplicity inherent in the repertoire of concrete market oriented actions used by companies to compete these actions include product introductions pricing or advertising decisions and changes in market scope the simplicity of a competitive repertoire can be assessed by its range of actions and its degree of concentration on one or a few dominant types of actions we argue that competitive simplicity is largely a function of organizational and environmental properties that attenuate managerial search or restrict knowledge of competitive alternatives these properties include good performance munificent homogeneous or certain markets a lack of breadth in competitive experiences and the complacency that may accompany age and size paradoxically although good past performance may contribute to simplicity simplicity can hurt subsequent performance especially during periods of uncertainty and growth many of these ideas were borne out in a study of the major carriers of the post deregulation domestic airline industry

first and second best pricing with uncertain demand as has been well known since at least the work of hotelling 6 marginal cost pricing is the ideal regulatory policy in a simple certainty setting however when economies of scale exist in production such a policy will in general entail a revenue shortfall for the firm ideally the regulator should meet such a short fall by raising lump sum taxes but that solution is liable to prove infeasible ramsey pricing popularized by baumol and bradford 4 examines the second best pricing policy when firms receive no tax subsidy so prices must exceed marginal costs the celebrated inverse elasticity rule shows that with demands for the various goods independent goods whose elasticity of demand is proportionately less should have their price exceed marginal cost proportionately more further complications arise when one takes into account the uncertainty involved in economic decisions in recognition of this there has recently been considerable discussion of first best pricing with stochastic demand 5 the general conclusion of this discussion is that marginal cost pricing continues to be the first best policy in order to reach this conclusion however the literature has in effect assumed that regulators are risk neutral compared to this large literature on stochastic first best pricing the only two papers known to us that treat second best pricing with stochastic demand are by sherman visscher 11 and by wecker upton 15 both these treatments assume the marginal utility of income of the regulator is constant and so also require that there be risk neutrality in this work on the other hand we will consider both first and second best pricing policies when the regulator is explicitly allowed to be risk averse in the former case we will be interested in whether marginal cost pricing will continue to be the first best policy whereas in the latter case we will examine whether the simple inverse elasticity rule can hold despite considerations of risk and the risk behavior of regulators finally we will directly relate the results of our first best analysis to our study of the second best problem in much of the paper the source of demand uncertainty will be arbitrary we will

optimal commodity grouping in a partial equilibrium framework this note characterizes in a partial equilibrium economy with a single agent which commodities should be taxed whenever there is only one available tax rate we show that commodities with low price elasticities should be imposed luxuries are eventually exempted

contestable markets and the theory of industry structure alreview articleo phe new book by william j baumol john c panzar and robert d willig is the culmination of several years of research on the related problems of understanding multiproduct cost structures and their implications for competition and market performance it is a significant book for several reasons the empirical reality that forms the starting point for the theoretical work is i think widely recognized to be important cost structures constitute one of the foundations of competitive strategy and strongly influence industry structure notwithstanding this fact the amount of microeconomic theory directed toward competitively relevant attributes of costs has been if not minimal then certainly more limited than the subject deserves in fact prior to the work of our authors economists and business strategists did not have a language or a set of concepts with which to talk precisely about scale economies in a multiproduct setting we now have at least the beginnings of such a language and a body of theory that provides a grammar for using it the theory of contestable markets was the subject of baumol s presidential address at the american economic association meetings in washington in december 1981 both the theory and its presentation have generated controversy useful controversy i think because it helps clarify issues that need attention i shall have remarks to offer later in this review concerning the normative and descriptive relevance of the contestable markets hypothesis my plan for this review is as follows i begin by outlining some of the principal definitions and propositions of the theory this outline should not be mistaken for a complete summary of the book but the economist who has not yet read the book needs a reasonably detailed picture of the approach few of the propositions require long proofs in fact once they are stated the proofs are often simple exercises having outlined some of the principal concepts i comment upon their usefulness for understanding markets and finally i conclude by suggesting some ways in which the general subject may be pursued from this point forward

a monopolist should always be subsidized no matter how high the excess burden this note makes one simple point the optimal production subsidy to a monopolist is positive no matter how high are any finite excess burdens associated with subsidization this may seem surprising at first but before offering any intuition we prove the claim consider the market for good x with downward sloping inverse demand p x and total production cost c x both p and c are assumed to be continuous and differentiable in x assume further that the x market is monopolized and that the monopoly was legally obtained possibly deriving from a patented discovery the social planner is then obligated to pursue a non coercive policy that is he cannot penalize tax the monopolist for producing a socially inefficient output level he can however bribe the monopolist to increase his output to some specified amount by offering a total subsidy equal to s to make the offer acceptable x s must satisfy

dynamics of price regulation we study the dynamics of price regulation for an industry adjusting to exogenous technological progress first we characterize the optimal capacity path and replacement cycles in a neoclassical investment model second we show that naive rate ofreturn regulation which ignores components of economic depreciation eventually results in a deficient level of capacity due to excessively high retail prices burdened by the need to recover the underdepreciated costs of historical investments third we explain how price cap regulation leads to more efficient capital replacement decisions compared to naive rate of return regulation and we show how finite price cap horizons distort capital replacement finally we interpret recent regulatory reforms in telecommunications markets

optimal pricing of local telephone service although payment for nearly all other goods and services including toll long distance telephone calls increases with greater consumption nearly 90 percent of the residential telephone subscribers and more than half the business subscribers in the united states now pay a flat monthly rate for local calls see larry garfinkel recently however the telephone companies and regulatory commissions have been moving cautiously toward imposing usage charges for local telephone calls there is renewed interest in what is currently termed usage sensitive pricing t usp it is due to the combined forces of inflation increased local usage and competition from independent firms that sell telephone terminal equipment and supply private toll lines to business customers under usp the pricing of such services as telephone installation directory assistance and minutes of calling is based on incremental rather than average costs since world war ii technological advances have benefited long distance far more than local telephone calling development in microwave communications coaxial cable satellites and waveguides have dramatically lowered the costs of long distance transmission in contrast the costs of local service have moved upward since the late 1960 s at a rate not far below the general price index see at t 1975 faced with a continuing stream of requests for local telephone rate increases state regulatory commissions are finding the concept of tying prices to usage increasingly attractive at t and some of the independent telephone carriers are beginning to test usp plans in several cities with flat rate tariffs increases in local calling add to carrier costs but not to their revenues the local calling rate per subscriber has increased by an average of 2 percent for the past seven years at t s chairman has stated we are moving more and more in the direction of usage sensitive pricing see washington star news p a12 and according to newspaper accounts of at t management documents the bell system plans to phase out flat rate telephone service and begin charging for each local call in major metropolitan areas in 1978 80 see seattle postintelligencer pp 1 10 still regulatory commissions consumer groups and the carriers themselves remain cautious about requiring usage sensitive tariffs for all subscribers the prospective gains from prices more closely related to costs are at least partially offset by the added costs of metering equipment and billing most telephone subscribers prefer flat rates according to bell system marketing surveys see garfinkel p 28 and it is by no means clear which groups of subscribers will be helped and which harmed by such revisions in local tariff structures will the poor end up paying more because they use their phones more should different prices be charged for calls at different times of day on what bases should the monthly and per call rates be determined the purpose of this paper is to sort out some of the questions of economic efficiency and equity that arise when changes are considered in the methods of pricing local telephone services in section i i construct a department of economics the rand corporation and the international institute of management berlin this study was supported under a grant from the john and mary r markle foundation i am indebted to walter s baer for numerous contributions to this paper to s c littlechild and patricia munch and to the managing editor and a referee of this review for critical and constructive review of a draft i have benefited as well from the comments and suggestions of james h alleman stanley m besen william s comanor john m drew leland l johnson john a kay edward d lowry carl pavarini john rolph ralph turvey and chris witze bryant mori assisted with the computer programming see my 1976 paper for a more extensive version of this paper which also discusses optimal flat rate and optimal peak load tariffs

short selling and common stock prices an analysis of overall market data and of individual companies traded on the nyse amex and otc markets indicates a positive but statistically insignificant relation between changes in short position and stock prices even after accounting for market movements and risk short sellers on average do not earn abnormal returns furthermore the relation between short selling and stock price does not seem to be materially affected by whether the stock is traded on the nyse or amex or over the counter the results provide strong evidence refuting the popular notion that short sellers earn abnormal profits at the expense of less informed traders short sellers do not appear to drive prices down through their short sales in fact if anything short sellers provide market liquidity by shorting into up markets and reducing short positions in down markets

government organization and power i introduction economists have systematically examined the economics of government finance and long ago established that the means of financing government creates inefficiencies in the market for instance see baumol and bradford 1970 and diamond and mirrlees 1971a 1971b what may be less well examined and understood is that apart from the distortions that arise from the means of government finance government officials can have an incentive to provide a combination of services and taxes that are nonoptimal as in niskanen 1997 the ability of government to exercise coercive and pricing power creates these incentives a growing number of articles explore the effect of government power on its size for example anderson and tollison 1988 and rogers and rogers 1995 examine the implications of pricing power for government size in his work on bureaucracy niskanen 1971 considered the implications of coercive power for government size olson 1991 mcguire and olson 1996 niskanen 1997 and mcguire 2001 examine the implications of the joint exercise of coercive and pricing powers by an autocratic government to our knowledge however no previous work explicitly distinguishes between the coercive and pricing powers of government and none systematically examines all the possible combinations of coercive and pricing powers in the present analysis we develop a simple theoretical framework that allows us to examine on an integrated basis the exercise of government power the framework abstracts from any distortions in the means of government finance and separates government power into two dimensions pure coercive power and pure pricing power pure coercive power is the ability of a government to compel consumers to accept more of the public good than they desire at each tax price through fiat coercive power typically arises when citizens are unable to exit a jurisdiction costlessly and the government is able to push citizens beyond what they would accept in a voluntary relationship pure pricing power is the government s ability to restrict output along a given demand curve and earn rents by doing so pricing power typically arises when the government has limited competition and faces a downward sloping demand curve for its services we consider four polar combinations of coercive and pricing power in comparison to the social optimum lindahl democracy monopoly niskanen bureaucracy and autocracy as shown in figure 1 the government in lindahl democracy exercises neither coercive nor pricing power a monopoly government is able to restrict its output and exercise pricing power to earn rents in a traditional monopolistic fashion but it cannot engage price discrimination or expropriation to obtain any remaining consumer surplus from its citizens a niskanen bureaucracy can exact all of the surplus that consumers obtain from the public goods it provides but it must use the surplus in the production of public goods it cannot exercise pricing power and restrict output to obtain rents as a monopoly would an autocracy exercises both coercive and pricing power in practice democratic governments are likely to have both coercive and pricing powers rather than to conform to the lindahl ideal our analytical framework allows us to clarify and reconcile the differences between some of the previous contributions to the literature on government power and size in democracy a government can simultaneously use its coercive power to grow too large and its pricing power to restrict its output and earn rents furthermore government size or rents alone may be poor indicators of the extent to which government fails to achieve optimality in its provision of services government power may be used to generate rents provide too much government service or a combination of both ii social optimum consider a jurisdiction or economy with n identical individuals and two goods a purely public good and a purely private good

continuous cross subsidies and quantity restrictions this article provides a model of loss leader pricing and quantity restrictions for a competitive multiproduct industry when individual consumers have continuous and independent demands for the set of available goods utilizing a generalization of the model proposed by bliss 1988 we demonstrate the importance of consumer heterogeneity for the existence of cross subsidies when there is complete information and individual consumers have smooth downward sloping demands continuous cross subsidies arising from consumer heterogeneity are also shown to exist in hotelling models our use of continuous rather than unit demands allows us to analyze issues related to welfare which in turn exposes a strong incentive for the firm to place binding quantity restrictions on consumers we also show how the presence of quantity restrictions can be used to distinguish between continuous cross subsidies arising from heterogeneous consumers versus those arising from classic demand complementarity with homogeneous agents

pareto efficient international taxation this paper analyzes pareto efficient international tax regimes because every country faces its own national budget constraint the diamond mirrlees production efficiency theorem which underlies key tenets of policy advice in international taxation the desirability of destination basis for commodity taxation of the residence principle for capital income taxation and of free trade does not apply the paper establishes conditions relating to the availability of explicit or implicit devices for reallocating tax revenues across countries under which production efficiency is nevertheless desirable and characterizes the precise ways in which pareto efficient international taxation may require violation of established tenets

short seller influence on firm growth a threat rigidity perspective whereas most investors seek to maximize their investment there are some who profit from downward stock price movement engaging in such behavior is called short selling and it has increased con

strategic rate making in the context of dynamic ramsey pricing as a result of the public utilitie regulatory policies act of 1978 purpa state public utility commissions have begun to implement cost based rate setting procedures in order to rationalize energy choices made by utilities and utility customers this rationalization had been necessary in view of the increased competition characterizing the eletric utility industry taking these regulatory and competitive change as a point of departure we develop and implement an electricity rate setting model which is cost based which explicitly accounts for static and dynamic competitive pressures and which is welfare maximizing the model extends standard ramsey methods to include bothshort run andlong run price responses in the inverse elasticity rule we use the estimated model to evalute and design alternative rates our analysis takes a distincly strategic approach explicitly addressing competition from other fuels and the possibility of competitive bypass

uncovering regulators social welfare weights this article describes a procedure that can be used to infer interesting information about the preferences of regulators from the pricing decisions they make this is done by using an adaptation of the familiar ramsey pricing model which allows benefits derived from the consumption of different goods or derived by different consumers to carry different social weights these weights are then exposed by inverting the first order conditions of the constrained maximum problem

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco