durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 on adverse selection this paper surveys durable goods theory starting with these three contributions where much of the focus is on recent literature and on models that explain real world phenomena in addition to the ideas found in the contributions of swan coase and akerlof topics covered include why producers sometimes practice planned obsolescence the role of adverse selection in new car leasing and reasons for aftermarket monopolization

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

the illusory effects of saving incentives on saving the authors evaluate research on how tax based saving incentives iras and 401 k s affect saving previous research overstates the impact of the incentives on saving by failing to account for several issues households with saving incentives have stronger tastes for saving than others saving incentives have interacted with debt nonfinancial assets financial markets and pensions and saving incentives represent pretax balances whereas taxable accounts represent posttax balances accounting for these issues essentially eliminates the impact of saving incentives on saving the authors conclude that little if any of the contributions to existing saving incentives have raised saving

the effects of learning by doing on product innovation by a durable good monopolist abstract we analyze a durable good monopolist s decision to adopt a new and more efficient technology that is readily available at very low or zero adoption cost after an initial period of learning by doing the new technology makes the good more attractive to consumers anticipating a better product consumers delay their current purchases which lowers today s profits but increases future profits since the monopolist can charge a higher price for the high quality good we show that the effect on overall profit depends on variables such as the degree of innovation for certain parameter values the monopolist adopts the innovation even when it is not first best to do so we also provide conditions under which the monopolist finds it optimal to continue using the inferior production technology even if the innovation is freely available the latter result provides a possible rationale for a firm to hold on to a sleeping patent when its use is socially desirable

do tax incentives for saving in pension accounts cause debt accumulation evidence from danish register data abstract this paper applies a quasi experimental research design on a danish 2010 policy that reduced tax incentives for saving in annuity pension schemes to show significant substitution of savings from retirement accounts to gross debt repayments we find that for every 1 danish currency unit reduction in retirement savings 31 cents goes to debt repayments taking into account all types of savings we find full crowding out consistent with previous findings we document that the effect is driven by a minority about 23 percent who actively rebalance their savings

cyclical productivity in a model of labor hoarding abstract this paper develops a dynamic model of labor hoarding to explain two empirical facts the cyclical behavior of total factor productivity and the dynamic correlations of sectoral productivity with aggregate variables the model features convex costs of adjusting the labor force which induce firms to vary the intensity of labor utilization over the cycle in particular cyclical variations in labor effort take place as a response to expected future changes in industry conditions i test the restrictions imposed by the model for several two digit manufacturing industries under different assumptions about market structure and returns to scale then using the assumption that aggregate variables carry information about future changes in industry conditions i simulate the model s dynamic response of hours and productivity to aggregate innovations and compare them to those estimated from the data

the effects of public pensions on private wealth evidence on the german savings puzzle based on german panel data between 1984 and 1999 we test for the interaction of social security benefits and private wealth formation in a simple life cylce model benefits from public pension systems should displace equal amounts of private retirement accumulation our estimate for the offset effect corrected for several possible measurement biases is much lower however than expected from pure life cycle considerations and less than comparable estimates for the us and the uk this result thus supports other evidence on a particular german savings puzzle which might be due to market imperfections and or bounded rational behaviour

existence of stationary equilibrium in the markets for new and used durable goods abstract we prove the existence of stationary equilibrium in the primary and secondhand markets for an indivisible consumer durable in a general model with stochastic degradation and endogenous scrappage decisions unlike rust econometrica 53 1985 783 we introduce transaction costs in the model as a motivation for consumer holdings of durables across multiple quality levels our technique allows for both multiple types of durables e g porsche and bmw and relaxation of the single crossing condition on consumer tastes we provide a simple example showing how increasing transaction costs affect secondhand prices eventually for sufficiently costly transactions closing the secondhand market altogether

price discrimination via second hand markets consumers have heterogeneous tastes for new and used goods and second hand markets involve transactions costs a monopoly seller may gain or lose from the existence of a second hand market locally it may prefer lower transactions costs but globally it may prefer high transactions costs so it can strangle the used market the monopolist uses the second hand market as an indirect device to achieve a form of second degree price discrimination if the monopolist can control the quality of its product when used it may wish to deteriorate this quality to worthless or else to have it as good as new

savings in times of demographic change lessons from the german experience pension reforms in many developed countries make individuals shoulder a bigger share of longevity and income risks the desired response is that individuals accumulate private assets for retirement whether this actually takes place is of paramount relevance for scientists and policy makers we take germany as an example twenty years of pension reform have transformed the monolithic german pension system into a multi pillar system formerly generous public pension benefits are gradually being reduced while substantial incentives are granted to occupational and private saving schemes has this transition worked out we survey the reform steps and household s reactions how did individuals adjust their labor market behavior how did private and occupational pension plans take off how do behavioral adjustments vary in the population most germans adapted to the new situation both actual and expected retirement decisions changedand the share of households without supplementary pensions decreased from 73 to 39 in little more than a decade this is a remarkable success nonetheless households with low education low income and less financial education did neither adjust their retirement behavior nor pick up supplementary pension plans and are thus likely to face difficulties in bridging the gap arising in future pension income

interpreting the procyclical productivity of manufacturing sectors can we really rule out external effects recent empirical contributions on procyclical productivity have focused on the dynamic implications of persistent aggregate fluctuations on sectoral productivity given a permanent innovation in aggregate output unobserved variations of labour or capital utilization may have only a transitory effect on measured productivity whereas external effects should produce permanent effects it is found that persistent aggregate fluctuations have a permanent effect on productivity of four digit us manufacturing industries while a number of alternative explanations of this evidence are discussed and ruled out the findings are consistent with a simple model with external or thick market effects

why monopolists prefer to make their goods less durable this paper considers goods that depreciate in terms of quality over time and permits consumers to differ in their attitude concerning the usability of a durable good after it has depreciated given this it is shown that even if a monopoly can costlessly increase the durability of its product it may choose not to do so this does not happen in competition copyright 1988 by the london school of economics and political science

cyclical productivity in europe and the united states evaluating the evidence on returns to scale and input utilization this paper studies procyclical productivity growth at the industry level in the united states and three european countries france germany and the netherlands industry specific demand side instruments are used to examine the prevalence of non constant returns to scale and unmeasured input utilization for the aggregate us economy unmeasured input utilization seems to explain procyclical productivity however this correction still leaves one in three us industries with procyclical productivity this failure of the model can also be seen in europe and is mostly concentrated in services industries

how income transfer programs affect work savings and the income distribution a critical review for helpful comments on earlier drafts we thank without implicating moses abramovitz yves balcer john bishop alan blinder richard burkhauser michael darby irwin garfinkel alan gustman daniel hamermesh martin holmer george jakubson robert lampman paul menchik robert moffitt michael murray joseph quinn timothy smeeding eugene smolensky barbara wolfe and two anonymous referees

the effect of used markets with endogenous replacement of durable goods the purpose of this paper is to examine the effect of used asset markets for a particular class of durable goods markets where replacement and trading ages are endogenous and where the imperfect substitutability between new and used goods results from the heterogeneity of buyers durable goods are assumed to be like automobiles the quality of the service declines with the age of the durable but the time at which the durable is traded and replaced with a new one is a choice variable for the owner as in my earlier work on heterogeneous buyers 3 it is assumed that the decline in service value with age is lower for some buyers so that these buyers will specialize in used assets in the presence of used markets however this paper departs from previous work by allowing the retirement age and the age at which goods are traded in the used market to be endogenously determined this extension has important implications because it will be shown that retirement age durability will be affected by the presence of used asset markets this paper examines the question of whether a competitive industry will favor a ban on used markets previous authors 2 6 8 have examined this question in markets where durable goods are like textbooks the used asset markets exist because the length of the demand for services by the purchaser is less than the lifetime of the durable in these models the presence of a used asset market is equivalent to a lengthening of the lifetime of the good however in the model of this paper the opening of a used asset market results in uniformity of the lifetime of the durable good since all of the oldest durables will be held by the user type that places the highest value on old durables this uniform retirement age with the used market will be shown to lie between the retirement ages adopted by the two user types when there are no used markets thus the average age of the stock of durables could rise or fall with the introduction of used markets second the model of this paper allows for the analysis of restrictions on used markets that raise the cost of used market transactions but do not eliminate trading it will be shown that the effects of a per unit tax on used market transactions will differ from that of an ad valorem tax because of the greater incentive created by an ad valorem tax to postpone used market transactions this result is in the spirit of barzel s 1 result that the form of the tax is important because different types of taxes may affect characteristics of the good in different ways in the present context goods

no return no refund an analysis of deposit refund systems firms and governments in developed economies frequently employ deposit refund systems to promote return and reuse of product packages and containers we analyze a model of monopoly facing heterogeneous consumers in which recycling package return by consumers generates an external benefit it is shown that when consumer s preferences over recycling differ the monopolist can price discriminate between consumers leading to socially suboptimal recycling in the absence of any externalities the analysis can be viewed as a model of couponsor mail in rebateswhich work as price discrimination devices the role of government subsidies and additional deposits to eliminate suboptimal recycling is also analyzed finally the model is extended to incorporate hustling i e allowing consumers to recycle packages discarded by other consumers 2001 elsevier science

price cap regulation incentives and quality the case of brazilian telecommunications abstract this paper reviews the incentive properties of yardstick schemes with special reference to quality performance and to the economic foundations and practical applications of data envelopment analysis dea the core of the paper is related to the construction of synthetic relative efficiency scores for quality which were obtained for brazilian local telephony over the period 1998 2002 the telecommunications industry in brazil has been characterized by the recent implementation of price cap regulation the evidence indicates substantial quality underperformance with some improvements towards the end of the period the efficiency scores obtained based on the flexible dea approach suggest that adjustment factors should be used in the productivity offset of the price cap rule so as to provide premiums for superior quality performance in terms of lower x factors the dea based yardstick procedure can provide a practical alternative to monitoring a series of specific quality indicators in terms of a set of penalties for underperformance the composite quality indicators do not rule out the identification of optimal adjustments recommended for individual indicators

the impact of pension schemes on saving in israel israeli micro and macro data indicate that consumption smoothing is limited and thus pension savings increase private and national savings since private savings rates are to a great extent unequal across different income groups saving is almost exclusively concentrated in the upper two quintiles

a head to head comparison of augmented wealth in germany and the united states we examine the composition of augmented household wealth i e the sum of net worth and pension wealth in the united states and germany pension wealth makes up a considerable portion of household wealth of about 48 percent in the united states and 61 percent in germany when pension wealth is included in household wealth the gini coefficient falls from 0 889 to 0 700 in the united states and from 0 755 to 0 508 in germany if the wealth shares in germany were the same as in the united states this would lead to a 12 6 percent increase in the gini coefficient in the augmented wealth distribution in germany

pension wealth and household savings tests of robustness abstract a substantial literature exists on the impact of pension schemes both public and private on the level of household saving yet there is no clear consensus on the impact of pensions on private saving in this paper we show how beliefs about this displacement effect are modified by prior beliefs both about variables which might be relevant in an equation for private savings and about the magnitude of the displacement effect using data for 8279 canadian households and estimates of pension wealth both private and social security which we construct for each household in the sample the estimated displacement effects are found to be relatively robust with respect to both types of prior belief

buying sharing and renting information goods information goods such as books journals computer software music and videos can be copied shared resold or rented when such opportunities for sharing are present the content producer will generally sell a smaller amount at a higher price which may increase or decrease profits i identify three circumstances where profits increase 1 when the transactions cost of sharing is less than the marginal cost of production 2 when content is viewed only a few times and transactions costs of sharing are low and 3 when a sharing market provides a way to segment high value and low value users

the behavioral life cycle hypothesis self control mental accounting and framing are incorporated in a behavioral enrichment of the life cycle theory of saving called the behavioral life cycle blc hypothesis the key assumption of the blc theory is that households treat components of their wealth as nonfungible even in the absence of credit rationing specifically wealth is assumed to be divided into three mental accounts current income current assets and future income the temptation to spend is assumed to be greatest for current income and least for future income considerable empirical support for the blc theory is presented primarily drawn from published econometric studies

the economic effects of social security toward a reconciliation of theory and measurement abstract in this paper we argue that actuarial valuation of social security benefit streams is theoretically inconsistent with the assumption of pure life cycle motives instead we show that the simple discounted value of future benefits ignoring the possibility of death is often a good approximation to the relevant concept of value this observation motivates a re examination of existing empirical evidence concerning the economic effects of social security we focus our attention on studies of distributional equity and personal saving behavior in both cases we argue that the use of simple rather than actuarial discounting of survival contingent income streams produces results that differ dramatically from previous findings specifically estimates based on actuarial valuation may overstate the importance of redistribution between and within generations and may understate the depressive effect of social security on personal wealth accumulation by a factor of three or more

relicensing as a secondary market strategy secondary markets in the information technology industry where used or refurbished equipment is traded have been growing steadily for original equipment manufacturers oems in this industry the importance of secondary markets has grown in parallel not only as a source of revenue but also because of their impact on these firms competitive advantage and market strategy recent articles in the press have severely criticized some oems who are perceived to be actively trying to eliminate the secondary market for their products other oems have policies that enhance their secondary markets the goal of this paper is to understand how an oem s incentives and optimal strategies vis a vis the secondary market are shaped contingent on her relative competitive advantage product characteristics and consumer preferences the critical trade off that we examine is whether the indirect benefit from maintaining an active secondary market the resale value effect can outweigh the potentially negative effect of the sales of used products at the expense of new product sales the cannibalization effect to that end we develop a durable good model where the oem can directly affect the resale value of her product through a relicensing fee charged to the buyer of the refurbished equipment we analyze the oem s strategy in both the monopoly and the duopoly cases characterize the optimal relicensing fee set by the oem and draw conclusions on the conditions that favor stimulating or deterring the secondary market this paper was accepted by candace a yano operations and supply chain management

monopoly extraction of a durable non renewable resource failure of the coase conjecture the author studies a perfect information rational expectations markov equilibrium for the situation where a monopolist extracts a nonrenewable resource that is converted to a durable good even if short run extraction costs are constant the coase conjectur e fails provided that the depreciation rate of the durable good is positive copyright 1993 by the london school of economics and political science

deregulation intensity of competition industry evolution and the productivity growth of u s commercial banks we study the influence of the evolution in intrastate and interstate deregulations on the total factor productivity growth of u s commercial banking during 1971 95 we consider statewide deregulations in intrastate branching intrastate multibank holding company mbhc interstate multibank holding company and interstate mbhc de novo branching regulations results indicate that 1 long standing banking restrictions negatively affected banks productivity growth and 2 relaxing restrictions on intrastate branching expansion had a positive long run influence upon banks productivity growth the effect of interstate mbhc deregulations is largely short run and it is negative in the long run for interstate mbhc de novo branching deregulations

labor productivity in the efficiency wage model a consideration of the firm s death rate it is inappropriate to equate the representative firm with the typical firm particularly for economies which consist of small enterprises where a large number of jobs are created or disappear as establishments are born or die if workers care about the job disappearance risk their utility and effort offered will be influenced by the death rate of firms this paper sets out an efficiency wage model and takes the probability of the firm s closure into account by extension it is shown that equilibrium labor productivity is plausibly procyclical under certain circumstances which is consistent with the stylized facts observed in many countries

the effects of pensions on household wealth a reevaluation of theory and evidence this paper examines the extent to which households offset pension wealth with reductions in other wealth systematic econometric biases imply that the estimated offsets in previous empirical studies are smaller than the true offset and may even have the wrong sign new empirical estimates that do not correct for the biases generate little offset between pensions and other wealth estimates that correct for the biases show substantially more offset a smaller impact of pensions on overall saving than in most previous studies the estimates also indicate that the effects of pensions on wealth vary significantly across households

interpreting the procyclical productivity of manufacturing sectors external effects of labor hoarding this paper investigates whether procyclical productivity is due to cyclical variations in the rate of utilization of labor or to technological externalities by looking at the relation between sectoral productivity and the level of aggregate activity empirical evidence is presented to distinguish the two hypotheses analysis of two digit u s manufacturing industries shows that sectoral productivity is more closely related to the rate of change of aggregate activity than to its level this result is consistent with the interpretation that cyclical productivity is due to cyclical variations in the rate of utilization of labor which responds to expected future industry conditions aggregate variables in production function regressions have therefore the role of forecasting variables for future industry conditions copyright 1997 by ohio state university press

competitive advantage through take back of used products abstract motivated by a recent antitrust ruling against hill rom one of the two dominant american suppliers of hospital beds we develop a stylized model to investigate the consequences of used product take back on firms industry and customers our findings suggest that by taking back and reselling refurbished products a manufacturer can increase both profit margins and sales to the detriment of a non interfering competitor in our model customers are always better off under product take back but it depends on the degree of competition whether firms use the benefits of take back primarily to increase their margins or to pass them on to the customers by lowering their prices the first firm to offer take back in some cases can deter its competitors from following this profitable strategy especially if it has an existing advantage in terms of lower production cost or higher market share contrary to the claim of hill rom s competitor we find a legitimate business justification for hill rom s reduction of new product prices

durability market structure and new used goods models focuses on the relationship between market structure and monopoly power durability models new used goods model durability and monopoly in the new used model interdependence between market structure and durability ebsco

durable good monopolies with rational expectations and replacement sales a monopoly producer of a durable good is examined under the previously uninvoked assumption that the good depreciates and hence that replacement sales must occur if a fixed stock of the good is to be maintained we find two ways in which the no depreciation result that the monopoly will always at least eventually produce a stock equal to that produced by a competitive market may not hold if the length of the trading period is nonzero the limiting stock produced by the firm will be lower than the competitive stock to ensure the profitability of future replacement sales if the firm is able to constrain its production capacity it may choose a constraint that always binds in the sense that it will be impossible for the firm to achieve a stock equal to the competitive stock

eliminating the market for secondhand goods an alternative explanation for leasing there are a number of prominent specific instances in which a durable goods manufacturer with significant market power employed a lease only policy i united shoe in the market for shoe machinery ii ibm in the market for computers and iii xerox in the market for copiers the obvious question that arises is why would such a firm prefer leasing over selling in this article i argue that one role of the lease only policy was to eliminate the market for secondhand goods the article formally demonstrates the argument discusses the relationship between this article and earlier literature on secondhand markets and discusses the implications for antitrust policy

coase and hotelling a meeting of the minds in this paper we tie together the two literatures of durable goods monopoly and exhaustible resource pricing we show that the intertemporal no arbitrage condition that arises if the durable good monopolist seller can commit to a price path mirrors the intertemporal no arbitrage condition if the monopsonist buyer of an exhaustible resource can commit to a price path the intuition is that the durable good monopolist initially announces high future prices to get high valuation buyers to buy early and subsequently lowers the price to attract additional buyers on the other hand the monopsonist buyer of the exhaustible resource initially announces low future prices to encourage sellers to supply their units early and subsequently as the stock of the resource declines raises the price to call forth additional supply as the period of commitment shrinks to zero the durable good s price drops to its marginal cost and the exhaustible resource s price jumps to its choke level all in a twinkling of the eye a

pension wealth and household savings in europe evidence from sharelife we use recently collected retrospective survey data to estimate the displacement effect of pension wealth on household savings the third wave of the survey of health ageing and retirement in europe sharelife collects information on the entire job history of the respondent a feature missing in most previous studies we show that addressing measurement error problems is crucial to estimate the displacement effect when using survey data we find that each euro of pension wealth is associated with a 47 61 cent decline in non pension wealth using robust median regression in the presence of biases from measurement errors and omitted unobserved variables we estimate a lower bound to the true offset between 17 and 30 significantly different from zero instrumental variables regression estimates although less precise suggest full displacement