efficiency growth and concentration an empirical analysis of hospital markets taking an evolutionary view of markets harold demsetz hypothesized that firms differ persistently in efficiency and that industry concentration results from growth of efficient firms at the expense of inefficient ones we test the hypothesis with high quality microdata from the us hospital industry an industry of keen policy and scientific interest we measure efficiency by firm in the early 1980s and relate it to subsequent growth of efficient firms to the persistence of profit differences and to changes in the concentration of markets initial hospital efficiency and subsequent growth and profitability are significantly and positively related also greater initial variation in hospital efficiency within local markets is positively related to subsequent growth in market concentration these findings support the logic of demsetz s evolutionary efficiency hypothesis though they cannot confirm the stronger idea that variation in firm efficiency is the dominant explanation for changes in concentration

trade and protection in vertically related markets abstract we consider home country tariff and subsidy policies in a setting where a home firm is partially dependent on a foreign vertically integrated firm for supplies of a key input the firms are cournot competitors in the home market for the final product we show that a tariff on final product imports may cause the foreign vertically integrated firm to reduce the price charged for the input under circumstances where a simple monopoly supplier of the input would increase its price supply conditions for the input significantly affect whether imports of the input should be taxed or subsidized

the relation between price and marginal cost in u s industry a contradiction in a recent article in this journal hall 1988 examined productivity shocks at the industry level derived from constant returns to scale production functions in which firms were assumed to be competitive hall had two important conclusions first he showed that productivity shocks i e solow residuals were correlated with aggregate demand variables implying that the former are not exogenous impulses second his results implied that firms persistently charge prices above marginal costs making inappropriate the constant returns to scale competitive production function assumed in many theoretical frameworks because of the importance of hall s findings the article has led to many extensions evans 1992 confirms the empirical finding of significant correlations between productivity shocks and aggregate demand variables burnside eichenbaum and rebelo 1993 show that this correlation can be explained by introducing labor hoarding into a theoretical model with competitive firms and constant returns to scale production functions the markups above marginal cost are explained by eden and griliches 1991 and galeotti and schiantarelli 1991 by modifying the theoretical production function caballero and lyons 1992 using the hall data and methodology examine the possibility of external economies in the aggregate manufacturing production finally waldmann 199 1 argues in this journal that the

the inverted pyramid a neo ricardian view on the economy environment relationship abstract in ecological economics natural resources which may contribute only a small amount to gdp are viewed as fundamental to the functioning of the economy they are sometimes pictured as sitting at the base of an inverted pyramid with the rest of the economy balanced on top of them in this paper we show that when prices are set by markup a standard heterodox assumption then the inverted pyramid picture of the economy emerges naturally in a neo ricardian model we demonstrate the use of the model with brief applications to biophysical economics the paper is one of a growing number that use heterodox macroeconomics to address questions in ecological economics

too little or too much r d according to the 1rst generation models of endogenous growth based on expanding product variety the market economy unambiguously generates too little r d later by disentangling returns to specialization from the market power parameter it was shown that with su7ciently low returns to specialization too much r d can occur the present paper takes a step further disentangling the market power parameter from the capital share in 1nal output at a theoretical level this helps 1nding too much r d as well on the other hand in view of the empirically realistic order of magnitude between the parameters disentangling market power and capital share tends to diminish the scope for excess r d finally by di erentiating between net and gross returns to specialization we demonstrate what drives the di ering ine7ciency results in this literature c

testing deterrence theory rigor makes a difference there is no consensus among scholars on how to test hypotheses about deterrence systematically the disputes are sometimes rooted in differences about theory or sources of data but they are magnified by methodological confusion especially over concepts and operational definitions that produce perverse empirical results serious theoretical errors include inadequate appreciation of the role of uncertainty in deterrence as well as selection biases that undermine empirical tests rigorous examination of our previous work in light of recent criticism discloses very robust findings on the conditions for deterrence success and failure

market structure and fiscal policy effectiveness in a monopolistic competition macromodel with endogenous market structure the fiscal multiplier is shown to consist of two components the first depicts the response of output to a fiscal expansion through the conventional channels that disregard the role of market imperfections the second component captures the effects of firms market power as well as the policy induced change in market structure the latter effect which has not been taken into account in existing studies is shown to be quite significant in raising the fiscal multiplier even above unity and in improving consumers welfare when the labour market is competitive

markups aggregation and inventory adjustment in this paper i suggest a unified explanation for two puzzles in the inventory literature first estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in sales second estimates of inventory speeds of adjustment in firm level data are significantly higher than in aggregate data the paper develops a multisector model where inventories are held to avoid stockouts and price markups vary along the business cycle the omission of countercyclical markup variations from inventory targets introduces a downward bias in estimates of adjustment speeds obtained from partial adjustment models when the cyclicality of markups differs across sectors this downward bias is shown to be more severe with aggregate rather than firm level data similar results apply not only to inventories but also to labor and prices montercarlo simulations of a calibrated version of the model suggest that these biases are quantitatively significant

comparing four models of aggregate fluctuations due to self fulfilling expectations abstract this paper compares four equilibrium business cycle models with increasing returns to scale production technologies that allow for aggregate fluctuations due to self fulfilling expectations necessary and sufficient conditions for the existence of stationary sunspot equilibria are derived numerical examples demonstrate that the degree of increasing returns necessary for the existence of stationary sunspot equilibria lies in the upper range of available empirical estimates the paper also shows that persistent fluctuations are not a necessary property of these four models when the only source of fluctuations is changes in people s expectations about the future path of the economy journal of economic literature classification numbers e32 d43

the effects of the breakup of at t on telephone penetration in the united states the breakup of att that is the price of basic access was well below its incremental or marginal cost the largest component of this cross subsidy arises from the prices of long distance services which are well in excess of their incremental cost however since the price elasticity of basic access is near zero while the price elasticity of long distance services varies from about 0 25 to 1 2 depending on the type of service a large economic efficiency loss occurs why did regulation evolve in the united states to cause this extremely large distortion in prices numerous reasons can and have been put forward see e g peter temin 1987 but our favorite explanation arises from a combination of an outmoded framework of telecommunications regulation and changing technology congressional legislation which established the federal communications commission fcc and remains the basic framework for telecommunications regulation was the communications act of 1934 this legislation led to the current joint regulation of telephone companies by both the fcc and state public utility commissions puc s the communications act codified the goal of universal service the notion that all u s households should have telephone service this policy has been quite successful with u s telephone penetration at 93 3 percent in 1990 according to the current population survey cps yet the fcc is basically in charge of setting long distance prices while state puc s are in charge of setting basic access prices both of which are important factors in telephone penetration during the post world war ii period the technology was changing so that the cost of long distance service was decreasing markedly while the cost of labor intensive basic access continued to rise essentially in line with inflation the so called separations system of regulation established to divide the cost of the public telephone network between federal and state regulatory jurisdictions created increasing cross subsidies as the contribution from long distance grew with increases in both the price cost ratio of long distance and increases in long distance demand economists were aware of this problem and in the 1970 s recommended that longdistance prices be decreased and basic access prices be increased indeed to a first approximation if the basic access price elasticity is zero the first best tax solution of a tdiscussants glenn a woroch gte laboratories molly k macauley resources for the future gerald faulhaber university of pennsylvania

endogenous markups and the effects of income taxation theory and evidence from oecd countries abstract existing studies on the effects of fiscal policy under imperfect competition typically treat each firm s price cost markup as fixed this paper examines the implications of endogenising the markup in a simple model of income taxation under monopolistic competition it is demonstrated that an increase in income tax reduces the number of firms lessens competition among surviving firms and raises the optimal markups in the new steady state through this channel the effects of income taxation on the key macroeconomic variables as well as on consumer welfare are unambiguously enlarged the simple model prediction is largely supported by cross section regressions with data from oecd countries

the impact of alternative forms of state regulation of at t on direct dial long distance telephone rates federal and state regulatory agencies have traditionally used rate of return regulation to set profit and rate levels for utilities a price cap framework in which the regulatory agency sets a maximum rate below which the regulated utility has pricing flexibility is possibly a more efficient alternative to rate of return regulation this article presents an econometric analysis that compares at t s prices of intrastate long distance telephone service in states that allow at t pricing flexibility with those in states that do not the results of this analysis suggest that at t s daytime evening nighttime and weekend rates are significantly lower in states that allow pricing flexibility than in states that use rate of return regulation

imitation and innovation driven development under imperfect intellectual property rights abstract developing countries employ about two fifth of the world s researchers originate one quarter of world expenditures on r d and their inventions are subject to imitation nevertheless the previous literature focuses on north south setups in which the south is restricted to imitating northern inventions to analyze the effects of ipr policies on developed and developing countries we extend this literature to allow not only for southern innovation and imitation of northern goods but also for imitation targeted at southern innovations we find the effects of iprs on r d and welfare to be non monotonic and dependent on innovation efficiency and an innovation threshold in the south for sufficiently strong iprs the south engages in original r d and stronger iprs promote southern innovation welfare and a reduction in the north south wage gap below the threshold a strengthening of ipr protection fails to promote innovation and decreases welfare stronger iprs exclusively for southern firms can benefit both regions by shifting southern resources from the imitation of northern goods to original southern innovation

targeted and untargeted subsidy schemes evidence from postdivestiture efforts to promote universal telephone service abstract normative economic analysis traditionally has pointed toward the merits of policies wherein prices reflect the economic cost of providing a good or service subsidization policies are nevertheless common in a variety of industries where such subsidies occur economists have long advocated targeting those subsidy flows to maximize their effectiveness and minimizing the allocative inefficiency caused by financing of the subsidy despite the apparent consensus in economic thought on this subject empirical evidence of the relative effectiveness of targeted versus untargeted subsidies to date has been lacking in this article we address this lacuna by examining a set of large scale targeted and untargeted subsidy flows that have developed side by side each with the same nominal policy goal promoting universal telephone service specifically we test empirically the relative contributions of the alternative subsidy mechanisms in promoting the policy goal of maximizing subscription to the public s

do auctions and forced divestitures increase competition evidence for retail gasoline markets to foster competition governments can intervene by auctioning licenses to operate or by imposing divestitures the dutch government has done exactly that organizing auctions to redistribute tenancy rights for highway gasoline stations and imposing divestitures of such stations on the four major companies we evaluate this policy experiment and find that the auctioning of licenses without an obligation to divest has no discernible effect on prices an obligation to divest lowers prices by 1 3 2 3 at divested sites moreover prices decrease by 0 9 1 2 at sites nearby this suggests that the observed price decreases are at least partly due to competitive spillovers

general deterrence between enduring rivals testing three competing models general deterrence unlike immediate deterrence has rarely been analyzed in a systematic comparative manner we outline a research design for doing so by studying the circumstances under which in a set of enduring rivalries challengers are likely to initiate militarized disputes we indicate the conceptual and operational steps necessary to make and empirically compare predictions stemming from three often competing theoretical frameworks rational deterrence a general model of rational conflict initiation and a cognitive psychological model of behavior emphasizing risk orientation and misperception the results of probit analysis on a pooled time series of enduring rivalries since 1945 provide support for hypotheses from each of the different theoretical models

testing for employer monopsony in turn of the century coal mining isolated company towns are often cited as likely examples of labor monopsony this article tests for monopsony power by estimating inverse labor supply elasticities using a county level panel dataset on nonunion west virginia coal mining from 1897 to 1932 the model specification incorporates dynamics in such a way that an estimate of the gap between marginal revenue product and the wage can easily be computed as a weighted average of short and long run inverse elasticities modest estimated short run inverse elasticities and very small long run inverse elasticities imply that coal operators enjoyed little if any monopsony power over their workers

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

the cyclical behavior of the price cost markup countercyclical markups constitute the key transmission mechanism for monetary and other demand shocks in new keynesian models this paper tests the foundation of those models by studying the cyclical properties of the markup of price over marginal cost the first part of the paper studies markups in the aggregate economy and the manufacturing sector we use bils s 1987 insights for converting average cost to marginal cost but do so with richer data we find that all measures of markups are either procyclical or acyclical moreover we show that monetary shocks lead markups to fall with output the second part of the paper merges input output information on shipments to the government with detailed industry data to study the effect of demand changes on industry level markups industry level markups are found to be acyclical in response to demand changes

competition and productivity growth the case of the u s telephone industry i introduction there are few empirical studies on the relative performance of firms in competitive and monopolistic markets this contrasts with the large body of literature that compares the performance of privately owned and governmental firms one reason for the scarcity of studies of the former type is that competitive and monopolistic firms rarely coexist in the same industry and country 1 this makes it difficult to distinguish between industry and market structure effects on the other hand relying on intercountry comparisons as for example caves christensen and swanson 1981 do for u s and canadian railroads renders the analysis potentially sensitive to country effects the telephone industry in the united states offers one of the best opportunities for empirical analysis of the consequences of competition and monopoly some new entry in the long distance telephone market was allowed by the early 1960s while entry and competition in the local telephone market had yet to materialize by the beginning of the 1990s hence it is appropriate to focus on differences in performance between at t long lines and the regional monopolies 2 since there may be differences in initial conditions between the local service and long distance markets comparisons of performance should control for such differences both markets however clearly employ very similar technology this holding other relevant conditions constant should lead to similar changes in productivity to sharpen the analysis we focus on differences in the annual rate of productivity growth and not the level while local exchange carriers lecs still largely maintain their monopolistic position rapid technological advance in telecommunications is changing the established market structure in the local telephone industry the recent u s telecommunications act of 1996 was aimed at eliminating legal barriers that have suppressed technically feasible local competition certainly some competition in local telephone markets is under way is such competition socially justified and an appropriate objective of public policy the effect of competition on productivity growth holds at least part of the answer we need to know whether competitive markets are likely to raise efficiency in assessing how much effort should go into reducing entry barriers and increasing competition in the local telephone markets still another policy issue on which our study has a bearing is the relation of firm scale to costs for example in the context of recent mergers of regional telecommunication companies are reductions in costs and increases in productivity a plausible expectation competitive effects in the telephone industry have been examined mainly through aggregate time series data thus oum 1990 using chessler s competition index for long distance service concludes there have been positive effects of competition on productivity whereas crandall 1991 using a time dummy finds the results inconclusive 3 at the firm level denny fuss and waverman 1981 and kiss 1983 decompose total factor productivity tfp growth for bell canada through estimated cost functions nadiri and prucha 1989 measure productivity growth for the u s bell system with several alternative cost models but none of these careful firm level studies focuses on competitive effects ying and shin 1993 on the other hand do examine the spillover effect of the at t divestiture on cost saving by the regional companies their interesting study which shows positive spillover effects does not however permit strong conclusions because of the shortness of the period examined 1976 87 ii the state of competition in the u s telephone industry before the divestiture of at t the u s telephone industry consisted of several vertically integrated common carriers at t accounted for about 80 of industry revenues through a group of 22 operating companies plus the at t long lines

strategic interaction and the statistical analysis of international conflict although strategic interaction is at the heart of most international relations theory it has largely been missing from much empirical analysis in the field typical applications of logit and probit to theories of international conflict generally do not capture the structure of the strategic interdependence implied by those theories i demonstrate how to derive statistical discrete choice models of international conflict that directly incorporate the theorized strategic interaction i show this for a simple crisis interaction model and then use monte carlo analysis to show that logit provides estimates with incorrect substantive interpretations as well as fitted values that can be far from the true values finally i reanalyze a well known game theoretic model of war bueno de mesquita and lalman s 1992 international interaction game my results indicate that there is at best modest empirical support for their model

evaluating the integration of contiguous discontinuous markets this paper applies the concepts of structural models of markets market integration and market discontinuity to show that discontinuous markets alter the integration characteristics of continuous markets when analyzing systems of contiguous markets some of which are discontinuous it appears that the continuous markets are less well integrated when the discontinuous markets are operating than when they are not operating

regulatory bias in the price structure of local telephone service this article combines a discrete choice model of demand for residential local telephone access and an optimal price regulation model to estimate the welfare weights that state regulators implicitly place on consumers with different incomes and locations i find no evidence of a bias towards rural consumers on average but the relative weight on low income consumers in a geographic area can vary as a function of the proportions of rural and poor population and the political characteristics of the regulator i also measure the welfare consequences of deviating from total consumer surplus maximization and disconnecting prices from costs

sales and monetary policy this paper analyses the efiect of monetary policy in a model where sales occur in equilibrium some consumers are loyal to a particular brand of a good others are bargain hunters as a result producers flnd it optimal to sell their goods at a normal price through some retailers and at a sale price through others the margin of adjusting the amount sold on sale is potentially very important if producers can adjust the fraction sold on sale with sticky prices and wages money is approximately neutral if we ignore the reasons behind sales but that result changes dramatically when we consider that producers optimally choose to sell some of their goods on sale owing to strategic substitutabilities in the sales decision money has strong procyclical efiects

increasing returns and externalities in uk manufacturing myth or reality i apply the method of caballero and lyons to industry level data for uk manufacturing i find evidence for a positive external effect arising from the expansion of manufacturing as a whole but expansion at the sectoral level was found not to generate external effects nor was any evidence found for increasing returns which are internal to the industry here returns appear to be constant i argue that external effects at the level of aggregate manufacturing cannot be explained away as due to measurement error or cyclical effects however alternative explanations such as economy wide shocks cannot be totally excluded

product substitutability and competition in long distance telecommunications i introduction the growing availability of detailed firm level data and advances in econometric techniques have led to the estimation of industry structural parameters in order to evaluate proposed policy changes hausman leonard and zona 1994 in particular estimates of own and cross elasticities of demand are used to draw inferences about competition under various assumptions about producer behavior e g hausman 1994 and stern 1994 generating estimates of structural parameters requires not only price and demand data but often requires firm level factor price data to be used as instrumental variables even when firm level factor price data are available they may not fulfill the independence requirements of residual demand estimators because the competitors purchase from the same input market because the data requirements for the estimation of marshallian demand elasticities are less severe they may yield unbiased estimates residual demand elasticities can then be constructed under various assumptions about the extent of pricing coordination among producers this article carries out this process for the u s long distance telecommunications industry a unique and detailed data set that includes firm level output price and factor price information is employed the analysis focuses on the so called basket 1 services which are ordinary interstate and international message toll service operator assistance and calling card service these services are generally regarded as the ones in which at t is likely to possess the most market power despite the detailed nature of the available data some of the factor prices are shown to lead to biased estimates when used as instrumental variables results from specifications that omit these instruments indicate that at t faces a marshallian demand elasticity of about 10 residual demand elasticities are estimated for various assumptions regarding the degree of pricing coordination in the industry for plausible assumptions regarding the degree of price coordination among firms at t s residual demand elasticity is likely below 5 implying an industry dead weight loss of less than 1 5 revenues since the courts and the federal communications commission fcc opened u s long distance telecommunications to competitive entry the number and size of entrants has grown to the point that at t once the legal monopolist now supplies less than half of the total market the fcc s incremental approach to deregulating at t decreased regulatory oversight in specific product markets as competition became more vigorous and culminated in its 1995 decision to declare at t nondominant essentially deregulating at t the results of this analysis tend to support this decision nevertheless debate over the extent of competition continues primarily to evaluate the claim that allowing the bell operating companies bocs into these markets will yield consumer benefits from still more vigorous competition this analysis suggests that these benefits are likely to be small hence as brennan 1987 points out the case for permitting boc entry into long distance should focus on whether they are likely to provide the service at lower cost or whether they have scope for discriminatory actions rather than on whether they will make the long distance market substantially more competitive ii previous studies the extent of competition in the u s long distance industry and the effects of price regulation have been the subject of policy interest and the focus of a few empirical studies macavoy s 1995 analyses lead him to conclude that the industry is increasingly collusive his event study finds that a portfolio of mci and sprint stock realizes positive abnormal returns when an at t price increase is reported while this indicates that the industry is imperfectly competitive it could result from either unilateral or coordinated pricing behavior

divestiture and its implications for innovation and productivity growth in u s telecommunications this study has sought to determine the impact of policy changes that led to the breakup of the monopoly structure of u s telecommunications on productivity and research activities of at t a simultaneous equations model is used to examine the relationship between research intensity market share firm size and total factor productivity tfp before and after divestiture the results show that the effect of divestiture on productivity is negative but that competition has a significantly positive effect contrary to popular argument competition led to significant increases in r d investment by at t the study also finds a strong and positive relationship between r d and productivity in the postdivestiture period marked by its absence in the predivestiture years scale economies remain important indicating the industry continues to favor large firms

market definition in antitrust analysis a regression based approach alleged violations of either sherman 2 s antimonopoly strictures or clayton 7 s proscriptions against anticompetitive mergers necessarily involve a particular product and must occur in a particular place that is the plaintiff in either a 2 or 7 suit must define a relevant market within which the violation alleged has occurred even in the most mundane antitrust analysis however market definition is rarely readily accomplished and unaccompanied by a series of caveats and the possibility of the opposing parties in an antitrust suit failing to contest each other s proffered definition is virtually nil 2 because economists from

capacity utilization under increasing returns to scale abstract this paper overcomes an important objection against the empirical relevance of the benhabib farmer model as a potential account of actual business cycle fluctuations this is attributable to an elasticity effect and a returns to scale effect of capacity utilization these effects are closely related to the empirical puzzles that capital appears to play an insignificant role in explaining cyclical movements in output and that the estimated labor elasticity appears to be larger than labor s share due to these effects multiple equilibria and persistent fluctuations can easily occur in a growth model for externalities mild enough so that the aggregate labor demand curve is downward sloping analyses show that the propagation mechanism generated by capacity utilization under mild increasing returns is capable of explaining the periodic patterns of u s business cycles documented by watson journal of economic literature classification numbers e32 e22 c52

can imperfect competition explain the difference between primal and dual productivity measures estimates for u s manufacturing it is well known that under the assumptions of constant returns to scale perfect competition and the absence of factor hoarding primal and dual productivity measures should be highly correlated the apparent lack of correlation is usually attributed to fixed factors of production in this paper i propose an alternative explanation by relaxing the assumption of perfect competition by controlling for the presence of a markup component i demonstrate that both productivity measures are in fact highly correlated for u s manufacturing the analysis also provides an alternative method of estimating a markup of prices over marginal cost that avoids certain difficulties inherent in some existing methods of estimation

raw materials processing activities and protectionism a country s export sector may encompass a raw material as well as a final commodity that processes that raw material a general equilibrium model is developed in a competitive setting to analyze a nation s optimal strategy in restricting raw materials exports when allowance is made for potential beneficial effects on the export price of processed goods when faced with a foreign tariff on exports of the processed commodity a country s optimal response could entail an easing of raw materials export constraints instead of retaliation illustrations are provided of the 1986 american tariff on canadian exports of cedar shakes and shingles

input contracts market structure and the empirical specification of price cost margins abstract we examine the implications for the empirical specification of the margins concentration relationship of different forms of contracting for intermediate inputs we offer an alternative explanation why the results of profit margin regressions depend on whether the margin is deflated by gross output or net output 1997 elsevier science s a

chain gangs and passed bucks predicting alliance patterns in multipolarity contemporary balance of power theory has become too parsimonious to yield determinate predictions about state alliance strategies in multipolarity kenneth waltz s theory predicts only that multipolarity predisposes states to either of two opposite errors which this article characterizes as chain ganging and buck passing to predict which of these two policies will prevail it is necessary to complicate waltz s theory by adding a variable from robert jervis s theory of the security dilemma the variable of whether offense or defense is perceived to have the advantage at least under the checkerboard geographical conditions in europe before world wars i and ii perceived offensive advantage bred unconditional alliances whereas perceived defensive advantage bred free riding on the balancing efforts of others

the relativity ability to tax coal in the western states over the past decade state governments have begun to acknowledge an implicit relationship between states in the tax setting process the recent taxation literature suggests that differences in tax burdens do affect economic decisions and that states do compete with each other when designing tax policy moreover there has been a growing interest in the theoretical models of strategic interactions between regions as they compete for tax revenues natural source laden states enjoy an advantage in the collection of own source revenues reserves of coal oil copper or other natural resources with a national market provide states with an opportunity to exploit their advantage through the imposition of severance taxes the purpose of this study is to examine the relationship between the western states in their relative power to tax the extraction of coal in section ii of this paper we examine earlier work on the taxation of western coal section iii contains the details of the coal model we use in section iv we determine the composition of the western coal market and the strategic tax setting behavior of the state governments involved in section v we discuss our empirical results 17 refs 2 tabs

rules of origin as commercial policy instruments this article examines the role of rules of origin as a commercial policy instrument that targets the input composition of imports using a three country partial equilibrium structure we demonstrate conditions under which the imposition of a binding rule will be welfare improving for an importer facing competitive export suppliers we further show that employing rules of origin in this way would be complementary to rather than a substitute for conventional optimal tariffs copyright economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the war trap revisited a revised expected utility model the expected utility framework developed in the war trap is revised to correct several deficiencies risk taking orientations are now treated as an integral part of the model by introducing concavity or convexity into the utility functions the zero sum properties of the theory are largely eliminated and the tendency toward interpersonal comparisons of utility is removed several earlier results are replicated with the new model and with annual capabilities data new propositions are deduced that identify important limitations on conflict initiation and relationships resulting from differences in perceptions are tested support is found for the contention that the revised version of the theory of which the original model is a special case is a powerful tool for integrating many extant hypotheses about conflict and for explaining a substantial portion of the tendency for some threats to escalate to violence or warfare and for others to be resolved peacefully

buyers strategies entry barriers and competition in markets where sellers have customer specific investments and buyers can make credible but costly commitments to switch suppliers buyers strategies attenuate the market power of sellers furthermore since current prices and a buyer s decision to switch suppliers are related limit pricing becomes an equilibrium limit prices increase with the time it takes a buyer to switch suppliers and with buyers switching costs but fall with the level of sunk investments thus sunk investments may restrain the sellers ability to exert market power the paper questions then the standard inverse relationship between market performance and sunk investments

the escalation of great power militarized disputes testing rational deterrence theory and structural realism realism we test the relative explanatory power of these two theoretical approaches on the escalation of deterrence encounters among great powers from 1816 to 1984 we derive a set of hypotheses from each model operationalize them for systematic empirical analysis and test the hypotheses on 97 cases of great power deterrence encounters by means of probit analysis the results are that the hypotheses derived from deterrence theory receive considerable support whereas none of the hypotheses derived from structural realism are supported in contemporary research on the causes of international conflict the realist paradigm has been the dominant theoretical approach within this broad framework however scholars have developed at least two prominent alternative models of the conditions under which conflict is likely to arise the first approach structural realism 1 focuses on the attributes of the international system while the second deterrence theory is largely dyadic and emphasizes the resolve and relative military capabilities of adversarial states while both theoretical approaches attempt to identify the conditions under which international crises and wars are likely to arise their

internal versus external economies in european countries in this paper sectoral production functions are estimated with a two digit disaggregation for eight european countries corresponding to the period 1978 1992 distinguishing between internal economies of scale and intersectoral external effects in order to avoid the possibility that the regressions carried out by way of panel data techniques are spurious the integration order of each variable has been identified using unit root similarly the hausman procedure has been applied to test the exogeneity of the variables and determine whether the most appropriate estimations should be sur or three stage least squares

the gains from merger or collusion in product differentiated industries a merger in an industry with differentiated products increases the market power of the merging firms to the extent that their products are close substitutes and that other firms produce only more distant substitutes such a merger makes the residual demand curve of each partner steeper by shifting each in the direction of the industry demand curve 2 the extent of this increase in market power depends upon the own elasticity of demand for each merging firm s product as well as the cross elasticity of demand for each with all other firms products as a result evaluating the effect of a merger between two firms with n 2 other competitors would seem to require the estimation of at least n2 parameters all of the price elasticities of demand a formidable task that extremely difficult estimation task is unnecessary however the necessary information is contained in the slopes of the two single firm residual demand curves before the merger and the extent to which the merged firm will face a steeper demand curve for example suppose a merger between two u s brewing firms say pabst and anheuser busch were proposed it is not particularly important to determine whether it is competition from miller or competition from stroh or from heileman or which puts the most effective brake on anheuser busch s pricing only the total effect of these other firms and the particular effect of competition from pabst are of interest this paper proposes econometric procedures for estimating the demand system that merger partners will face based only on pre merger data the key to the procedures is that the effects of all other firms in the industry are summed together formally we start with a model of an n firm product differentiated industry manipulation of the model removes the prices and quantities of all but two firms this reduces the dimensionality of the problem to manageable size rather than an n firm demand system we estimate a two firm residual demand system in this way the technique extends our econometric method for

deterrence the elusive dependent variable the testing of theory in international relations requires clearly articulated assumptions the specification of scope conditions rigorously formulated propositions appropriate tests and a valid and reliable data set against which to test the propositions this last requirement has generally been the most neglected dimension of research in this article we examine two prominent studies of immediate extended deterrence by paul huth and bruce russett that do not deal adequately with the problems intrinsic to constructing a valid data set for quantitative analysis t the problems are particularly acute in the testing of theories of deterrence because of the difficulties inherent in identifying deterrence successes which leave few if any behavioral traces and of inferring the intentions of would be challengers our analysis explores these problems and suggests ways of testing theories of deterrence that can reduce the threats to valid inference 2 we would like to thank the canadian institute for international peace and security and

nuclear superiority and the balance of resolve explaining nuclear crisis outcomes scholars have long debated whether nuclear superiority or the balance of resolve shapes the probability of victory in nuclear crises but they have not clearly articulated a mechanism linking superiority to victory nor have they systematically analyzed the entire universe of empirical cases beginning from a nuclear brinkmanship theory framework i develop a new theory of nuclear crisis outcomes which links nuclear superiority to victory in nuclear crises precisely through its effect on the balance of resolve using a new data set on fifty two nuclear crisis dyads i show that states that enjoy nuclear superiority over their opponents are more likely to win nuclear crises i also find some support for the idea that political stakes shape crisis outcomes these findings hold even after controlling for conventional military capabilities and for selection into nuclear crises this article presents a new theoretical explanation and the first comprehensive empirical examination of nuclear crisis outcomes

vertical foreclosure and international trade policy international differences in the cost of production of a key intermediate product can mean that a domestic firm is dependent on supplies from a foreign vertically integrated firm this paper considers the incentives for the foreign firm and foreign country to supply the domestic firm when the firms compete in a cournot or bertrand market for the final product the vertical supply decision is significantly affected by domestic supply conditions for the input and a domestic tariff on final product imports optimal policy by the exporting country may require a tax on both exports or a subsidy on both exports countries that are dependent on imports of a key intermediate product or raw material from a dominant world supplier are often concerned about the price and the availability of imports a notable current example involves the computer industry japanese suppliers with the help of the japanese government recently restricted the exports of dram semiconductors substantially raising their price these suppliers control about 80 of the market for semiconductors and the higher prices and shortage in supply have forced u s producers of computers to curtail production and increase prices vertically integrated japanese firms such as toshiba and n e c have benefitted both from increased profits in the export market for semiconductors and from the improvement in their competitive position in the market for final computers as this example indicates the price and availability of imported supplies can depend on both public and private incentives in the exporting country in this paper we first examine the private incentives for a vertically integrated firm to export an intermediate product to a higher cost rival lowering its rival s costs the exporting firm may choose vertical foreclosure thus fully cutting off supplies we then consider the public interest of the exporting country does the exporting country gain by encouraging the export of the intermediate product or alternatively might government foreclosure occur the government is in a position to affect the quantity of exports of both the input and the final product by an appropriate choice of export tax and subsidy policies

competition among hospitals the traditional view of hospital competition has posited that hospitals compete primarily along quality dimensions in the form of fancy equipment to attract admitting physicians and pleasant surroundings to entice patients price competition among hospitals is thought to be non existent this paper estimates the effects of various hospital market characteristics on hospital prices and expenses in an attempt to determine the form of hospital competition the results suggest that both price and quality competition are greater in markets that are less concentrated although the net effect of the two on prices is insignificant it appears therefore that despite important distortions hospital markets are not immune to standard competitive forces

the extent of the market examines the classical theory of the market in this paper authors consider the role of price market determination price movement in competitive and monopolistic markets extension of commodity markets

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

estimating the impact of low income universal service programs this policy study uses u s census microdata to evaluate how subsidies for universal telephone service vary in their impact across low income racial groups gender age and home ownership our demand specification includes both the subsidized monthly price lifeline program and the subsidized initial connection price linkup program for local telephone service our quasi maximum likelihood estimation controls for location differences and instruments for price endogeneity the microdata allow us to estimate the effects of demographics on both elasticities of telephone penetration and the level of telephone penetration based on our preferred estimates the subsidy programs increased aggregate penetration by 6 1 for households below the poverty line our results suggest that automatic enrollment programs are important and that linkup is more cost effective than lifeline which calls into question a recent fcc 2012 decision to reduce linkup subsidies in favor of lifeline our study can inform the evaluation of similar universal service policies for internet access

endogenous markups intensity of competition and persistence of business cycles in order to study the propagation mechanism of business cycles in particular to investigate how the intensity of competition affects market structure and output persistence over business cycles this paper presents a real business cycle model with imperfect competition and increasing returns to scale this analysis considers the markups of price over cost to be endogenous with endogenous markups two standard forms of oligopolistic competition bertrand and cournot are considered results show that 1 the propagation mechanism in the sense of output persistence is greater under cournot 2 the propagation mechanism is unequivocally greater with imperfect competition regardless of whether markups are endogenous or not and 3 under imperfect competition the propagation mechanism is greater with endogenous markups than with exogenous markups overall these results suggest that more intense competition produces lower persistence in output growth and thus a weaker propagation mechanism in a calibration exercise these differences were also found to be quantitatively important

the econometrics of nonlinear budget sets traditional empirical analysis of consumer demand has usually made the assumption of linear budget sets that is the consumer is assumed to purchase any desired quantity at a constant price subject to a budget constraint the major exception to this framework is the analysis of demand when some goods are rationed 2 in the rationed case the price is constant up to a quantity limit in contrast to the rationed case here i consider the situation where the price varies with the amount of the good purchased empirical situations with nonconstant prices come readily to mind and of course they have received much recent attention from theorists since mirrlees 44 paper on optimal nonlinear taxation the following examples are meant to give a partial listing of cases when nonlinear budget sets occur i electricity prices many electric utilities engage in declining block pricing that is the marginal price of successive kwh s of electricity decrease at a given number of points determined by total demand thus the budget set is piecewise linear houthakker 36 was the first to propose an approach to this problem taylor 51 analyzes the problem at length and hausman kinnucin and mcfadden 31 use an instrumental variables estimator to provide consistent estimates of the demand function

crime and punishment the role of norms in crisis bargaining in this work i test the proposition that normative standards of behavior can influence state actions in security related conflicts specifically i examine the construction of norms in the settlements of security related disputes and the effects these settlements have on subsequent militarized interactions i argue that dispute settlements alter subsequent crisis bargaining in two important ways first they act as normative referents that alter the interpretation of subsequent crisis bargaining behavior both by identifying a solution to the dispute which alleviates fears of demands for future concessions and by defining a set of acts which both sides consider illegitimate second in combination with the response to their violation dispute settlements inflict reputational costs on states that violate them i test these arguments against a realist theory of crisis bargaining through an analysis of 122 reinitiated international crises between 1929 and 1979 i find strong support for the hypothesis that states can and do construct normative standards that guide their behavior in international crises whereas realist theory receives only mixed support

on the extent of the market wholesale gasoline in the northeastern united states this paper develops the classical view of the extent of markets by introducing explicitly in the analysis the concept of arbitrage costs arbitrage or transaction costs imply that market boundaries are essentially stochastic while a set of products or regions may have binding arbitrage conditions i e may be in the same market at a given point in time they may not at another thus in defining a market the probability that a set of agents or regions would h3ve binding arbitrage conditions has to be assessed this paper develops an econometric methodology to estimate the transaction costs required to arbitrage among a given set of products as well as the probability that that set of products would be bound by binding arbitrage condi tions finally the methodology is applied to wholesale gasoline in the northeastern part of the united states address for communications pablo t spiller herbert hoover memorl l bldg 9348 stanford ca 94305

resolving the impasse on hospital scale economics a new approach the existence of scale economies in hospitals in important for both public and managerial policy yet production and cost function studies have found conflicting evidence more recently more sophisticated studies have typically found scale diseconomies which is inconsistent with the views of industry participants and observers in the early 1980s california deregulated both private and public health insurance medical which provides a natural laboratory for examining hospital efficiency using stigler s original and multivariate survivor analysis we resolve the conflict in favour of scale economies and reconcile the controversy the survivorship methodology in simple to apply and a useful tool in conjunction with statistical cost and production studies

rational deterrence in an imperfect world this chapter applies recent economic research on games with incomplete information to the calculus of deterrence 1 we do not attempt to provide a complete theory of rational deterrence the focus is on the role of reputation and signaling in establishing deterrence we show how strategic players signal a reputation for strength from the perspective of an internally consistent equilibrium model

estimating the residual demand curve facing a single firm this paper presents an econometric technique for estimating the single firm residual demand curve that does not require the estimation of demand cross elasticities the technique is particularly suited for the estimation of firm market power in product differentiated industries where cross elasticities are notoriously difficult to measure one estimated parameter is directly related to a firm s markup of price over marginal cost when product differentiation is extensive when an industry consists of a dominant firm and a price taking fringe when a consistent conjectures equilibrium is the correct oligopoly solution concept when firms are stackelberg leaders relative to their environment or when firms are perfect competitors the estimates can indicate power over price in other circumstances an instrumental variables technique is employed using firm individuated factor prices to identify firm specific residual demand yet even when instruments are unavailable the technique produces elasticity estimates biased in the conservative direction of disproving market power this methodology is applied to estimate the market power of three firms in an industry characterized by product differentiation brewing over our 1962 82 sample period pabst and coors had similar national market shares and each had high shares in several states yet pabst was virtually a price taker while coors possessed substantial market power anheuser busch had market power in the early part of the sample but little after 1975 when miller brewing changed the competitive nature of the industry

derivative ideas and the value of intangible assets we build a general equilibrium model where growth is driven by two invention types fundamental ideas that cause creative destruction and derivative ideas that enhance the value of existing inventions the model provides a new mapping from microeconomic patent data to aggregate total factor productivity growth and the aggregate value of privately owned knowledge we show how to measure the frequency of derivative ideas and the rate of creative destruction we estimate that derivative ideas account for 70 80 of all patents and their presence more than doubles the value of knowledge capital relative to what the measured innovation rate might otherwise imply

contracting productivity growth in this paper we analyze the interactions between growth and the contracting environment in the production sector allowing incompleteness in contracting implies that viable production relationships for firms and workers and therefore the profitability of industries depend on the rates of innovation and growth the speed at which new innovations arrive in turn depends on the profitability of production for the usual reasons examined in the endogenous growth literature we show that these interactions can have important implications which are consistent with observed phenomena in both the micro and macro environment in particular we demonstrate that a technological shock increasing productivity of research can through this interaction lead to a productivity slowdown and a shift in labor market contracts away from firms providing implicit guarantees of lifetime employment and towards shorter term contractor type arrangements we show the consistency of an increase in the proportion of the labor force under short term employment increased relative returns of workers in high productivity sectors and increased income inequality with a productivity slowdown of finite duration

capabilities uncertainty and resolve a limited information model of crisis bargaining this paper presents and solves a crisis bargaining game under limited information the sides alternate offers from three possible offers with war and its costs starting if the target s counteroffer is rejected the equilibrium of the model falls into four different cases these four cases are analyzed to determine how the sides communicate through their offers and how the costs of war initial beliefs misperceptions and distribution of capabilities drive the probabilities of a crisis and war the model demonstrates a joint selection bias misspecification problem in empirical studies of crises arising from the unobservable nature of beliefs several empirical studies of crisis bargaining are discussed in the light of this methodological problem new patterns of evidence are found that support the presence of the selection problem and their conclusions are reexamined

a unified theory and test of extended immediate deterrence we present a unified theory and test of extended immediate deterrence unified in the sense that we employ our theoretical deterrence model as our statistical model in the empirical analysis the theoretical model is a straightforward formalization of the deterrence logic in huth 1988 and huth and russett 1984 coupled with private information concerning utilities our statistical analysis suggests that the attacker and defender s decisions are influenced by the balance of forces nuclear weapons defender protege military alliances arms transfers and trade as well as the regime types of those involved many of these findings contradict previous research by huth 1988 and huth and russett 1988 we find that many of the variables involved in the deterrence calculus are nonmonotonically linked to the probability of deterrence success or war we illustrate the results with case studies of the soviet japanese dispute over manchukuo 1937 1938 and the berlin blockade 1948

dominant carrier market power in us international telephone markets an econometric model is used to examine market power in us international telephone markets lerner index estimates suggest at t s collection rate cost margin was between 12 and 24 during 1991 to 1995 although lerner estimates imply deadweight welfare losses of up to us 261 million per annum such losses are small compared to those from the inefficient pricing of international interconnection settlement rate cost margins on us bilateral markets of approximately 89 translate into a us 4907 million transfer from consumers to carriers in 1995

is the dominant firm dominant an empirical analysis of at t s market power in this article we estimate the degree of market power held by at t in the interstate long distance market in the postdivestiture period our approach makes use of the dominant firm competitive fringe model to impose the structure needed both to obtain estimates of the relevant structural parameters and to translate these parameters into an estimate of at t s residual demand elasticity and associated lerner index because of the continued presence of regulation and other considerations however a direct estimation of the residual demand elasticity is not feasible consequently we take a more indirect approach that combines estimation of the elasticity of fringe firm supply market demand estimation and extant market share data to generate estimates of the desired elasticity the resulting estimates strongly support the conclusion that at t lacks significant market power in the postdivestiture long distance market

spatial price competition a semiparametric approach we investigate the nature of price competition among firms that produce differentiated products and compete in markets that are limited in extent we propose an instrumental variables series estimator for the matrix of cross price response coefficients demonstrate that our estimator is consistent and derive its asymptotic distribution our semiparametric approach allows us to discriminate among models of global competition in which all products compete with all others and local competition in which products compete only with their neighbors we apply our semiparametric estimator to data from u s wholesale gasoline markets and find that in this market competition is highly localized

estimating monopoly behavior with competitive recycling an application to alcoa this article develops a structural model of the aluminum industry during the period between world war i and world war ii it takes into account both the intertemporal nature of alcoa s cost minimization problem and the competitive recycling sector the model enables estimation of alcoa s degree of market power while allowing for the effect of competition from recycled aluminum previous work has emphasized alcoa s control over the size of the secondary sector in the long run as a source of market power for alcoa the results here indicate that alcoa could exert little influence in this regard but nonetheless had substantial market power

contrasting rational and psychological analyses of political choice we contrast the rational theory of choice in the form of expected utility theory with descriptive psychological analysis in the form of prospect theory using problems involving the choice between political candidates and public referendum issues the results showed that the assumptions underlying the classical theory of risky choice are systematically violated in the manner predicted by prospect theory in particular our respondents exhibited risk aversion in the domain of gains risk seeking in the domain of losses and a greater sensitivity to losses than to gains this is consistent with the advantage of the incumbent under normal conditions and the potential advantage of the challenger in bad times the results further show how a shift in the reference point could lead to reversals of preferences in the evaluation of political and economic options contrary to the assumption of invariance finally we contrast the normative and descriptive analyses of uncertainty in choice and address the rationality of voting

revisiting reputation how past actions matter in international politics policy makers and political scientists have long believed that states must make policy with an eye to maintaining a good reputation especially a good reputation for resolve recent work however has argued that reputations for resolve do not form and hence that past actions do not influence observers behavior in subsequent interactions this conclusion is theoretically problematic and unsupported by the evidence offered by reputation critics in particular juxtaposing reputation for resolve to power and interests is misleading when past actions influence observers beliefs about interests while the common approach of looking at crisis decision making misses the impact of reputation on general deterrence we thus derive hypotheses about conflict onset from both the arguments of reputation critics and the logic of more standard reputation arguments which we put to statistical test we find that past action is closely connected to subsequent dispute initiation and that the effects of reputation generalize beyond the immediate circumstances of the past dispute although reputation is not all important leaders are well advised to consider the reputational implications of policy decisions in international conflict

a structural approach to market definition with an application to the hospital industry a structural approach to market definition market definition is essential to merger analysis because no standard approach to market definition exists opposing parties in antitrust cases often disagree about the extent of the market these differences have been particularly relevant in the hospital industry where the courts have denied seven of eight merger challenges since 1994 due largely to disagreements over geographic market definition we compare geographic markets produced using common ad hoc methodologies to a method that directly applies the ssnip test to hospitals in california using a structural model our results suggest that previously employed methods overstate hospital demand elasticities by a factor of 2 4 to 3 4 and define larger markets than would be implied by the merger guidelines s hypothetical monopolist test the use of these methods in differentiated product industries may lead to mistaken geographic market delineation and was likely a contributing factor to the permissive legal environment for hospital mergers

competition in the interexchange telecommunication market abstract using an econometric model that allows the nature of the oligopoly interaction to be determined by the data we estimate residual demand elasticities for the switched inter lata local access and transport area services of at t mci and sprint for the 9 year period from the third quarter of 1989 to the first quarter of 1998 these estimates fall in the relatively inelastic 1 5 to 1 9 range statistical tests of the several elasticity relationships decisively reject hypotheses of perfect competition and a cournot interaction but do not reject the hypothesis that the market functioned as a coordinated oligopoly

firm dynamics and markup variations implications for sunspot equilibria and endogenous economic fluctuations this paper analyzes how the interaction between firms entry and exit decisions and variations in competition gives rise to self fulfilling expectation driven fluctuations in aggregate economic activity and in measured total factor productivity tfp the analysis is based on a dynamic general equilibrium model in which net business formation is endogenously procyclical and leads to endogenous countercyclical variations in markups this interaction leads to indeterminacy in which economic fluctuations occur as a result of self fulfilling shifts in the beliefs of rational forward looking agents when calibrated with empirically plausible parameter values and driven solely by self fulfilling shocks to expectations the model can quantitatively account for the main empirical regularities characterizing postwar u s business cycles and for 65 of the fluctuations in measured tfp

welfare effects omitted variables and the extent of the market this paper offers an economic interpretation of kling s 1989 finding that single price change measures of consumer surplus will provide an unbiased measure for a multiple price change provided the prices are perfectly correlated the explanation lies in recognizing that correlation in this case serves to define the commodity extent of the market using this link the paper demonstrates how the insights involved in defining general equilibrium demand functions or equivalently residual demand models can be adapted to fit the issues raised with travel cost models in accounting for the effects of substitutes

an examination of market power in the intrastate long distance telephone service markets evidence from a natural experiment abstract during the preceding 2 decades state public utility commissions have experimented extensively with regulating telecommunications carriers more recently many states have more or less deregulated long distance service this paper employs a panel data set of states to examine whether the competitive conduct of long distance carriers was affected by these events a methodology is developed to estimate changes in the market conduct parameter following states decisions to price deregulate long distance service this effect is isolated by using a difference in difference estimator that compares the change in market conduct of the treatment group states deregulated during the study period to the change in market conduct of the control group states deregulated throughout the study period my hypothesis is that elimination of price regulation altered the carriers market conduct and that this change in conduct explains in part the price differences in regulated and deregulated markets the result

open access and the evolution of the u s spot market for natural gas federal regulations promoting open access transportation dramatically altered the organizational structure of the u s market for natural gas in the 1980s generally unbundling the merchant and transport functions of interstate pipelines an empirical analysis of wellhead spot prices is undertaken to examine the effect of open access on the geographic scope of the spot market using monthly spot price data from 1984 91 three statistical tests are applied and compared price correlations granger causality and cointegration we find that open access integrated the regional wellhead markets into a national competitive market for natural gas the effects of unbundling on contracts for natural gas are then investigated incentives for long term contracts between pipelines and producers are shown to be effectively removed by the introduction of competitive buying and selling of gas at the wellhead through open access

does uncertainty matter consumer behavior under three part tariffs in communication information and other industries three part tariffs are increasingly popular a three part tariff is defined by an access price an allowance and a marginal price for any usage in excess of the allowance empirical nonlinear pricing studies have focused on consumer choice under two part tariffs we show that consumer behavior differs under three part tariffs and assess how consumer demand uncertainty impacts tariff choice we develop a discrete continuous model of choice among three part tariffs and estimate it using consumer level data on internet usage our model extends prior work in accommodating consumer switching to competitors thereby capturing behavior in competitive industries more accurately our empirical work shows that demand uncertainty is a key driver of choice among three part tariffs consumers expected bill increases with the variation in their usage steering them toward tariffs with high allowances consequently demand uncertainty decreases consumer surplus and increases provider revenue a further analysis of consumers responsiveness to the different elements of a three part tariff under the provider s current pricing structure reveals that prices affect a consumer s tariff choice more than her usage quantity and that the allowance plays a strong role in consumer tariff choice based on our results we derive implications for pricing with three part tariffs

thinking creatively about markets abstract the paper takes a broad view of how economists identify market boundaries three types of definition are distinguished trading markets anti trust markets and strategic markets the first is based on the familiar law of one price while the second follows us dij guidelines and is designed to identify positions of market power neither of these definitions suits the needs of one of the more recent and fastest growing users of economics namely those responsible for corporate strategy decisions inside firms the paper reviews why market definitions are a fundamental part of strategy decisions and identifies several ways that such users might define market boundaries

innovation by heterogeneous leaders we develop a schumpeterian growth model in which leaders and followers conduct research and development rd this result is consistent with the actual behaviors of some previous leader firms such as sony and eastman kodak moreover we show that subsidizing the r d of followers can promote the aggregate r d of leaders because promotion of followers r d decreases increases the number of leaders with larger smaller quality leads and smaller larger r d investments