dynamic nonpoint source pollution control policy ambient transfers and uncertainty when a regulator cannot observe or infer individual emissions corrective policy must rely on ambient pollution data assuming this kind of environment we study a class of dierential games of pollution control with prot functions that are polynomial in the global pollution stock given an open loop emissions strategy satisfying mild regularity conditions an ambient transfer scheme is exhibited that induces it in markov perfect equilibrium mpe proposed transfers are a polynomial function of the dierence between actual and desired pollution levels moreover they are designed so that in mpe no tax or subsidy is ever levied their applicability under stochastic pollution dynamics is studied for a symmetric game of polluting oligopolists with linear demand we discuss a quadratic scheme that induces agents to adopt markovian emissions strategies that are stationary and linearly decreasing in total pollution total expected ambient transfers are non positive and their magnitude is linearly increasing in physical volatility the size of the economy and the absolute value of the slope of the inverse demand function however if the regulator is interested in inducing a constant emissions strategy then in expectation transfers vanish the total expected ambient transfer is compared to its point source equivalent

a cournot mechanism for pollution control under asymmetric information the contribution of this paper is to show that a simple nonlinear tax can achieve a long run socially optimal level of pollution without the regulator knowing marginal abatement costs firms are charged their differential contribution to total damages evaluated at the upper margin of current emissions this induces a cournot game in pollution levels we show that the nash equilibrium exists corresponds to the socially optimal long run output and emission levels and number of firms is stable and can be reached by iterative computations where conjectures are formed using a linear estimator based on past emission levels

a derivation of the marginal abatement cost curve abstract the relationship between a firm s technology and its marginal abatement cost mac curve is explored even under the simplest specifications the mac curve will be kinked at some point except under a special assumption which in reality could easily be violated the nondifferentiability implies that the choice of instrument under uncertainty may depend on the targeted level of emissions reduction also stability conditions for dynamic tax mechanisms may be violated in the neighborhood of the kink point a policy implication is that in some cases output restrictions are as efficient as emissions restrictions in contrast to previous results

co creation with production externalities co creation the participation of customers in the design and production of goods and services has been gaining popularity in recent years in this research we incorporate firm pricing into the joint production process allowing us to study 1 production externalities between firm and customers 2 production externalities among customers and 3 optimal pricing by firms we show that given a choice a monopoly firm will opt for co creation with customers rather than deal with passive price taking consumers furthermore the firm will increase the effort it devotes to co creation as the number of potential co creating customers increases we show that the profit of a firm facing a centralized pattern of externalities among customers with an expert or lead user in the center can be higher than its profit when facing a decentralized pattern of externalities among customers and clearly dominates its profit when customers do not have any cross externalities thus we provide a different justification for the use of lead users one that depends on their network centrality and not on having lower cost more information or greater ability than the firm because the decentralized pattern has more links than the centralized pattern our results demonstrate the importance of the pattern of links between customers and not just their number in determining the profitability of co creation furthermore we find that the lead user s externality spillover to other connected users her neighbors acts as a force multiplier on the efforts exerted by all participants in equilibrium specifically a higher spillover from the lead user increases the efforts of the firm the neighbors and the lead user herself and this may lead to beneficial outcomes for all finally we show that in co creation environments a monopolist firm may benefit by committing to a single price rather than exercising price discrimination this is because the pricing structure affects customers incentive to invest effort in the innovation production stage

government management of village commons comparing two forest policies abstract when monitoring or enforcement is difficult governments may find it impossible to manage village forest commons directly village level institutions might be better able to manage these commons yet villagers management objectives may not coincide with those of the state this article considers the effects of two different government policies on the local management of village commons one policy tool attempts to induce villagers to conserve forest commons by giving them a share of the timber harvest we investigate the question of whether or not this scheme joint forest management jfm is preferred either by the villagers or the government to a simple benchmark policy under which the government harvests at random we show that when villagers are sufficiently patient for any equilibrium jfm policy there exists a benchmark policy which gives villagers the same level of utility however whether the government is similarly indifferent between these two arrangements depends on the villagers ability to enforce collective agreements and on the curvature of villagers utility functions

experimental evidence on dynamic pollution tax policies abstract this paper uses laboratory experiments to provide primary empirical evidence on dynamic pollution tax policies in particular we investigate a setting where a regulator with incomplete information uses a pollution tax mechanism with a simple endogenous tax rate adjustment rule to cost effectively meet a pollution standard this mechanism provides the opportunity for firms to strategically abate in order to reduce future tax rates the experiments vary important policy design features such as the type of tax ambient or emissions the initial tax rate and the tax rate adjustment speed we find that in equilibrium the pollution standard is met on average for each of these settings the observed long run tax rates vary considerably across policy designs which can be explained with a theory that allows for a mix of strategic and myopic firms along with the recognition that the incentives generated by the policy design can influence whether an agent plays myopically or strategically

incentive based policy design for pollution control and biodiversity conservation a review this paper provides a succinct review of the main developments in the literature on incentive based policy mechanisms in the contexts of pollution control and biodiversity conservation dating from the early beginnings of the science in the 1960s a focal point in the review is on the design features of these policy mechanisms key developments in policy design were originally established in controlling externalities arising from pollution and have since been extended to policy design tailored towards biodiversity conservation special emphasis is given to the spatial characteristics of the environmental problems underlying both pollution control and biodiversity conservation the paper concludes by drawing some lessons and setting out elements of a future research agenda in both policy domains

a note on quarterly returns to investment in ordinary shares 1919 1970 two tests of market efficiency this note analyses the data of foldes and watson 1982a it gives some statistics to test for weak form efficiency fama 1976 for quarterly returns xt for a valueand equally weighted equity portfolio and for 2 per cent consols gross and net of tax all series show a very high degree of randomness which implies a high quality in index construction the second test has returns for shares and consols regressed on inflation for the whole period and for five sub periods to see if they account for inflation foldes and watson 1982b in an excellent and detailed paper have examined uk and us equity portfolio returns over 1926 1970 for normality stationarity seasonal variation autocorrelation and a variance curve the autocorrelation section uses spectral analysis integrated spectra and a firstorder autoregression for the united states to see if the series are random it used only one uk equity portfolio value weighted money terms gross of tax but the spectra of this and value weights real terms and equal weights money terms were similar spectral analysis is the least reliable method of testing for dependence in financial returns given the very small samples used here and the need for covariance stationarity for return data this is discussed in praetz 1979 with the very difficult problem of testing for a flat spectrum the time domain tests using serial correlations and a runs test are much more powerful and easier to understand table 1 comprises 12 quarterly serial correlation coefficients r l r 12 an omnibus test of them chi squared 24 124 r j 2 durbin watson dw statistic dw xt xt 1 2 x2 and z runs a standardized statistic of the number of runs minus its expectation over the standard deviation of runs it has value weighted and equally weighted equity portfolios and 24 per cent consols gross and net of tax for whole period a 1 per cent significance level is used because of the large sample however not one statistic is significant supporting a very high degree of randomness a quarterly seasonal pattern praetz 1975 would have large positive values at r 4 r 8 etc which is clearly not the case here weak form efficiency means that a market cannot be exploited systematically for economic profit which is supported by the very low values of the statistics in table 1 cooper 1982 has studied the uk and other countries for randomness but at daily weekly and monthly intervals so the quarterly data used here are for a much longer period of time the only other index with dividends added over a comparable period is the de zoete equity index which has much more dependence in its returns over time benjamin 1980 the stock returns and inflation are related to market efficiency in an efficient market all relevant public information such as inflation should be reflected in market prices this is the semi strong form of market efficiency

u k financial market returns 1955 2000 we present and analyze new monthly index series for u k financial assets covering equities bonds bills and inflation the data are consistent with the crsp ibbotson series for the united states we use our indices to estimate equity and bond premia and to make international comparisons especially with the united states germany and japan we illustrate potential uses of the new series by investigating stock market seasonality inflation linked bonds real dividend growth rates and the small firm effect while some of our findings resemble u s results we also report differences between u k and u s stock market behavior copyright 2001 by university of chicago press

centralized pricing versus delegating pricing to the salesforce under information asymmetry the issue of delegating pricing responsibility to the salesforce is of interest to marketing academics and practitioners it has been shown by lal 1986 that under certain situations with information asymmetry it is more profitable for the firm to delegate pricing authority to the salesforce than to have centralized pricing in this paper we re examine situations where information asymmetry exists and analyze its effect on the decision of the firm to set a price or delegate pricing responsibility to the salesforce using contract theory we find that when the salesperson s private information can be revealed to the firm through contracting centralized pricing performs at least as well as price delegation we derive the optimal centralized pricing contract under a set of standard assumptions used in the economics and business literature

international pollution control cooperative versus noncooperative strategies abstract international pollution control involving two neighboring countries is modeled as a simple two player dynamic game each country produces a good that is consumed by domestic households production of each consumption good results in emissions of pollutants households in each country derive utility from the consumption of the domestically produced good but incur costs through the total stock of pollution stock externality in this setting we characterize cooperative as well as noncooperative pollution control strategies of the governments of the two countries that maximize the discounted stream of net benefits of a representative consumer it turns out that when the governments are restricted to use linear strategies noncooperative behavior results in overall losses for both countries if on the contrary governments use nonlinear markov perfect strategies and the discount rate is small enough a pareto efficient steady state pollution stock can be supported as a differentiable subgame perfect equilibrium thus the emergence of first best solutions cooperative outcomes does not require any institutional arrangements threats retaliation etc but can be brought about through the use of nonlinear markov perfect equilibrium strategies

mechanism design with interdependent valuations efficiency ggagents valuations are interdependent if they depend on the signals or types of all agents under the implicit assumption that agents cannot observe their outcome decision payoffs previous literature has shown that with interdependent valuations and independent signals efficient design is impossible this paper shows that an efficient mechanism exists in an environment where first the final outcome e g allocation of the goods is determined then the agents observe their own outcome decision payoffs and then final transfers are made

feedback nash equilibria for non linear differential games in pollution control abstract dynamic problems of pollution and resource management with stock externalities often require a differential games framework of analysis in addition they are represented realistically by non linear transition equations however feedback nash equilibrium fbne solutions which are the desired ones in this case are difficult to obtain in problems with non linear quadratic structure we develop a method to obtain numerically non linear fbne for a class of such problems with a specific example for shallow lake pollution control we compare fbne solutions by considering the entire equilibrium trajectories with optimal management and open loop solutions and we show that the value of the best fbne is in general worse than the open loop and optimal management solutions

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

an econometric analysis of global waste paper recovery and utilization the main purpose of this paper is to provide aneconometric analysis of the most importantdeterminants of inter country differences inwaste paper recovery and utilization rates byemploying pooled t

improving channel coordination through franchising in this paper we explore the role of franchising arrangements in improving coordination between channel members in particular we focus on two elements of the franchising contract namely the royalty structure and the monitoring technology we begin with a simple analysis where a manufacturer distributes its product through a retailer and the retail demand is affected by the retail price and the service provided by the retailer in this context we show that neither royalty payments nor monitoring are needed for full coordination we then extend the model to allow for free riding by franchisees and show that although monitoring helps affect the behavior of the franchisees royalty payments are still unnecessary to coordinate the activities of the franchisor and the franchisees finally we show that in environments where factors affecting retail sales are controlled by both the franchisor and the franchisee royalty payments provide the necessary incentives for the franchisor while monitoring systems are used to ensure that franchisees also behave in the best interest of the channel our general results are found to be consistent with those in brickley and dark 1987 and norton 1988 who conclude that franchising is affected by principal agent problems our theory finds special support in the work of lafontaine 1988 where it is concluded that the incidence of franchising is related to cost of monitoring and the importance of franchisor investments

input versus output monitoring who is the residual claimant abstract we observe that residual claimancy can be a source of rent in a principal agent relationship we show that the choice between input or output monitoring will be chiefly determined by the identity of the residual claimant of the principal agent relationship the principal will find input monitoring more efficient if the principal is the residual claimant and he will find output monitoring more efficient if the agent is the residual claimant if residual claimancy is a choice the principal will be the residual claimant under input monitoring under output monitoring residual claimancy is not an issue if both residual claimancy and the monitoring instrument can be chosen the principal will choose to monitor input and to be the residual claimant journal of economic literature classification numbers d23 d82 l22

price versus quantity monitoring in an adverse selection context this article explores the relative usefulness of price information over quantity information the main finding is that price monitoring can induce a sales level that is greater than the full information sales level this imposes additional selling costs on the agent and reduces that agent s rents the analysis identifies sufficient conditions for the principal to prefer price monitoring over quantity monitoring business format franchises exhibit many of the features of the setting analyzed here and the article s findings have implications for designing information systems in that sector of the economy

nonpoint source pollution taxes and excessive tax burden if a regulator is unable to measure firms individual emissions an ambient tax can be used to achieve the socially desired level of pollution with this tax each firm pays a unit tax on aggregate emissions in order for the tax to be effective firms must recognize that their decisions affect aggregate emissions when firms behave strategically with respect to the tax setting regulator under plausible circumstances their tax burden is lower under an ambient tax relative to the tax which charges firms on the basis of individual emissions firms may prefer the case where the regulator is unable to observe individual firm emissions even if this asymmetric information causes the regulator to tax each firm on the basis of aggregate emissions

using automatic tax changes to control pollution emissions abstract in the absence of information about abatement costs the level of emissions tax needed to achieve a target level of pollution abatement is unknown this problem can be overcome by using an iterative procedure in which the tax is adjusted when current emissions exceed or fall short of the target this idea has become part of the standard textbook material but there has been no formal analysis of its dynamic properties we find that emissions can be reduced to the target whether firms behave strategically or not but the strategic element changes the welfare properties of the mechanism

efficiency inducing taxation for polluting oligopolists abstract we show that there exists a time independent tax rule that guides polluting oligopolists to achieve the socially optimum production path the optimal tax is dependent on the current pollution stock and it may be negative when the pollution stock is low a surprising result is that the optimal tax rule may give firms a subsidy for an initial time interval even though under laissez faire their output always exceeds the socially optimal output this subsidy however induces firms to produce less than they would under laissez faire

environmental policy a la carte letting firms choose their regulation under uncertainty the optimal choice between price and quantity instruments depends on the technology of the regulated firms which is often private information we consider an environmental policy that delegates the prices versus quantities decision to the firms by offering them the choice between an emissions tax and permit trading such an approach is currently used in swiss climate policy we provide a detailed characterization of the optimal policy and show that this approach reduces expected social costs compared to a pure tax or permit trading regime we demonstrate that an optimal allocation of firms to instruments can be achieved despite substantial informational constraints and that all firms gain from the introduction of the instrument choice compared to optimally designed single instrument policies furthermore we discuss the conditions under which this approach is likely to be preferable to a hybrid regulation

optimal incentive contracts with multiple agents abstract a setting in which a single principal contracts with two agents who possess perfect private information about their own productivity is considered with correlated productivities each agent s private information also provides a signal about the other agent s productivity in contrast to the setting in which there is only one agent it is shown that such private information may be of no value to the agents it is only if the agents are risk averse that their private information may allow them to command rents moreover when the agents are constrained only to reveal their private information truthfully as a nash equilibrium the pareto optimal incentive scheme may induce the agents to adopt strategies other than truth telling this leads to the consideration of truth telling equilibria that are not pareto dominated in the subgame played by the agents among all such equilibria the one preferred by the principal restricts one agent to tell the truth as a dominant strategy and the other as a nash response to truth

demand signalling under unobservable effort in franchising linear and nonlinear price contracts we study the signalling strategy of a principal who is privately informed about its high demand potential to an uninformed risk neutral agent we analyze the model in the context of a contract between a franchisor and a franchisee we examine the distortions of a two part pricing scheme necessary to credibly inform the franchisee agent we also study whether the inability of the franchisor principal to observe the agent s effort moderates or exaggerates the distortions from the first best two part pricing scheme a surprising outcome is that even though the principal incurs greater signalling cost the magnitude of distortion in the two part scheme is smaller when service is unobservable than when it is not thus a signalling strategy employing the fixed and variable fees is harder to detect under moral hazard empirical studies failing to control for moral hazard may incorrectly conclude that signalling strategy does not occur we later consider a three part scheme to verify whether or not the schem

comarketing alliances should you contract on actions or outcomes comarketing alliances often involve multiple partners and a given partner s marketing efforts on behalf of the alliance can indirectly affect the demand of the other partners individual partners however can ignore the effects of such an externality and invest suboptimally to the detriment of the alliance this paper examines the relative effectiveness of outcome and action based contracts in providing the alliance partners with the incentives to invest appropriately we develop a mathematical model in which a focal firm e g sony contracts with two partners e g mcdonald s and old navy when each of these partners is privately informed about the impact of the alliance on its demand our analysis evaluates the strengths and weaknesses of outcome or output and action based or input based contracts in settings with varying levels of the demand externality we find that when there is either no externality or a relatively weak positive externality there is a strict preference for output based contracts that preference however is reversed with a sufficiently strong positive externality this paper explains the underlying rationale for these findings this paper was accepted by preyas desai marketing

governance and contract choice theory and evidence from groundwater irrigation markets abstract this paper examines the role governance institutions play in the adoption of contracts we develop a simple model of the contracting relationship in a setting where unverifiable outcomes exist and use it to interpret data on groundwater irrigation contracts in bangladesh a distinguishing feature of this market is the variety of village level institutions which impose different degrees of punishment for contract violation consistent with the model we find households adopt contracts that rely on unverifiable outcomes which are not formally contractible when punishment for contract violation is weak conversely households adopt contracts that rely on formally contractible and verifiable outcomes when punishment is severe this evidence is consistent with contract terms being chosen optimally given what is or is not formally contractible

analysis of nash equilibria in a class of capital accumulation games in a simple capital accumulation game we study existence and dynamic properties of the cooperative solution two kinds of markov perfect equilibria mpe and a trigger strategy equilibrium in the cooperative solution the stock always converges towards a steady state this property is shared by our first mpe whereas the second type of mpe may result in complicated dynamics a pareto comparison of both mpe depends on the parameter specifications but can turn out either way finally we show how the players can achieve the efficient payoffs of the cooperative solution as an equilibrium outcome by using trigger strategies

competition under industry stock driven prevailing market price environmental consequences and the effect of uncertainty abstract we address competition between several firms that cause pollution when producing fully substitutable products these firms comprise the industry and each individual firm charges for its products the market price determined by the difference between cumulative market supply and demand i e by the industry s stock we find that although the greater the number of firms competing for the same primary market the lower the market price and the higher the industry inventory surplus the reduction in price at market equilibrium is insufficient to stimulate greater aggregate sales that is greater competition does not necessarily induce higher industry output and pollution furthermore we show that commitment production pollution strategies compared to contingent strategies do not necessarily result in lower pollution especially when the number of competing firms is not high market uncertainty is low and proportional pollution taxation is high

small pollution markets tradable permits versus revelation mechanisms abstract a simple two period model with two polluters is analyzed they emit a homogeneous hazardous substance and they are given tradable permits to pollute the social planner issues permits and tries to learn the cost of reducing pollution by observing the quantity of permits traded in the first period it is shown that although efficient trade is prevented by strategic considerations by the polluters the planner learns something from observing only quantities comparisons are made between this approach and that of mechanism design and it is concluded that the latter is superior in theory but sensitive to collusion by the firms

taxing average emissions to overcome the shutdown problem abstract the paper shows that the optimal regulation of stock pollutants can require fluctuating emissions even in the absence of uncertainty the optimum cannot be implemented by the usual pigouvian flow tax since it leads to a shutdown problem a remedy for the problem is to use a linear tax given by a mechanism that effectively taxes average emissions over time an alternative is to use tax schedules depending on cumulative emissions over a short period of time a calibration using cost estimates of greenhouse gases suggests that potential gains from fluctuating carbon emissions are considerable