optimal incentive schemes with many agents the grossman hart principal agent model of moral hazard is extended to the multiple agent case to explore the use of relative performance in optimal incentive contracting under the assumption that the principal chooses incentive schemes to implement agent actions as nash equilibria necessary and sufficient conditions are derived for the optimality of independent contracts of rank order tournaments and for attainability of the first best in this context the relation of the principal s welfare to the correlation between the underlying randomness in outputs of different agents is also investigated finally some problems with the nash equilibrium implementation assumption are discussed in this paper we extend the grossman hart analysis of the principal agent problem to a multiple agent setting in this version of the problem a risk neutral principal is assumed to observe the output or a performance index for each risk averse agent the output of any agent depends on a privately observable action chosen by the agent and an exogenous random variable the realization of which is not observed either by the principal or by the agent before choosing its action we especially focus attention on the role of relative performance evaluation in optimal incentive contracts and the way this depends on properties of the underlying production technology and the joint distribution of the random variables affecting the outputs of different agents in section 2 of the paper we consider the principal s problem of finding an optimal incentive scheme and an action tuple for agents subject to the constraint that the latter be implemented as a nash equilibrium between agents by the chosen incentive scheme where agents must attain at least their reservation utilities a characterization of optimal incentive schemes is derived analogous to the grossman hart characterization for the single agent problem this characterization is then utilized to find sufficient and generically necessary conditions for a optimal contracts for any agent to be independent of the performance of other agents and b optimality of rank order tournaments where payments depend solely on ordinal comparisons of output across agents we then describe a necessary and sufficient condition for the principal to extract maximum advantage from relative performance clauses i e achieve the first best level of expected utility in the multiagent situation an implication of this result is that under fairly weak conditions perfect correlation in the underlying production uncertainties for different agents enables the principal to attain the first best if and only if sufficiently heavy penalties can be inflicted on agents we then enquire what happens in intermediate cases of non perfect correlation it turns out that while in general the principal s welfare is a continuous function of the correlation coefficient it is not always nondecreasing in the latter because the correlation coefficient is not a general measure of association between two random variables but rather a measure of linear association between them

endogenous export prices and the taiwan us trade imbalance to explain the perplexing issue of why taiwan s trade imbalance with the us has persisted despite the depreciation of the dollar we estimate a four equation model to determine the direct pass through dpt and indirect cost adjustment ica effects of exchange rate changes on taiwan s export prices the ica effect is important in the case of taiwan because it imports mostly intermediate goods for the production of manufactured goods that are exported our findings support the view that dpt and ica effects reduce the effectiveness of exchange rate as a mechanism for international trade adjustment

tobacco consumption and policy in the united kingdom in recent years several structural changes and sequences of shocks have occurred in the market for tobacco in the uk including an explosive growth in smuggling this study examines whether it is still possible to estimate a reliable plausible tobacco demand equation from time series data for the uk whilst allowing for all of the various shocks and structural changes a second objective of this study is to use the estimated demand function to evaluate tobacco policy in the uk including the scope for using tax increases to achieve reduced consumption and increased revenues it is found that smuggling has diminished the revenue yield of higher rates of duty but total consumption of tobacco has been reduced in addition to the introduction of further measures to control smuggling policy may need to place more emphasis in the future on health campaigns and smoking restrictions

competition among contests when several contests compete for the participation of a common set of players a contest s allocation of prizes not only induces incentive effects but also participation effects our model predicts that an increase in the sensitivity with which contest outcomes depend on players efforts makes flatter prize structures more attractive to participants in equilibrium contests that aim to maximize the number of participants will award multiple prizes if and only if this sensitivity is sufficiently high moreover the prize awarded to the winner is decreasing in the contests sensitivity we provide empirical evidence from professional road running using race distance as a measure of sensitivity we show that steeper prize structures are more attractive to top ranked runners in longer that is less sensitive races in line with our theory longer races do in fact offer steeper prize structures

taiwan s trade imbalance and exchange rate revisited this article applies the recently developed econometric method of autoregressive distributed lag ardl model to re examine the relationship between the exchange rate and bilateral trade imbalance for taiwan and its several trading partners china hong kong the us japan south korea and malaysia the implication of this issue is critical to policy makers particularly after china and taiwan joined the world trade organization wto in late 2001 and early 2002 respectively the empirical evidence shows a stable long run relationship of bilateral trade balance and real exchange rate between taiwan and its trading partners except japan other findings indicate that except for the us there is no specific pattern supporting the j curve phenomenon for these trading partners

do tournaments have incentive effects much attention has been devoted to studying models of tournaments or situations in which an individual s payment depends only on his or her output or rank relative to that of other competitors academic interest derives from the fact that under certain sets of assumptions tournaments have desirable normative properties because of the incentive structures they provide our paper uses nonexperimental data to test whether tournaments actually elicit effort responses we focus on professional golf tournaments because information on the incentive structure prize distribution and measures of individual output players scores are both available we find strong support for the proposition that the level and structure of prizes in pga tournaments influence players performance

aggregate cigarette demand and regional differences in china national educational level final consumption expenditure average propensity to cigarette consumption apcc and cigarette price are adopted to research the regional and national aggregate cigarette demand of china under the condition that the effects of anti smoking education in the chinese current educational system are not remarkable the theoretical model shows that cigarette demand will increase with the increase of national educational level empirical analysis points out that cigarette demand increases with the increase of educational level estimates also suggest that cigarette price consumption expenditure and apcc will affect cigarette demand significantly and that there are great differences for cigarette demand by region

information shocks and cigarette addiction views from dynamic panels with common structural changes in this article we attempt to evaluate the impact of various information shocks on cigarette consumption in contrast to the existing studies we do not impose any break points a priori we use recently developed techniques for sample splitting in the data on us cigarette demand and find that using a time index as a transition variable can cluster cigarette demand into four distinct regimes in the past four decades a myopic to rational switch in cigarette consumption behaviour was observed in response to various anti smoking information events in particular we find strong evidence in support of the rational addiction model in the 1980s and 1990s moreover in line with the theoretical prediction our estimate of the long run elasticity is twice as large as the short run elasticity our empirical framework should improve policy makers understanding of the dynamics of cigarette consumption in response to various anti smoking campaigns and stress the role of sound policy making in improving smoking con

imperfect competition in auction designs we study the competition between two owners of identical goods who wish to sell them to a pool of potential buyers the sellers compete simultaneously setting reserve prices for their second price sealed bid auctions upon observing the set reserve prices the buyers decide simultaneously in which auction to bid we show that this game has at least one equilibrium and that all equilibria are inefficient reserve prices are not driven to zero cost we also discuss where and why the parallel between optimal auction design and optimal pricing in the case of monopoly breaks down for oligopoly

putting out fires an examination of the determinants of state clean indoor air laws 1 introductionfew products have generated as much public scrutiny as tobacco in light of the health consequences associated with smoking the federal government took several steps in the 1960s such as published health warnings and restrictions on cigarette advertising to reduce the incidence of smoking beginning in the 1970s state governments began to play an increasing role in the anti smoking campaign by adopting clean indoor air laws which restricted smoking in particular locations such as restaurants bars and work sites 1various studies including wasserman et al 1991 chaloupka 1992 chaloupka and saffer 1992 and yurekli and zhang 2000 generally confirmed that clean indoor air laws are effective at reducing cigarette demand however the nature of the smoking restriction appears to matter in particular chaloupka 1992 and chaloupka and saffer 1992 found that restrictions on smoking in public places reduced cigarette demand whereas restrictions at private work sites do not significantly reduce demand 2due to variations in antismoking laws across states only a few studies have addressed the demand for clean indoor air laws in a survey of individuals from san luis obispo california for example boyes and marlow 1996 found nonsmokers and women to be more supportive of a smoking ban in restaurants and bars alternatively chaloupka and saffer 1992 used state level data and found that differences in smoking restrictions in public places and at private work sites depend on several factors including cigarette prices income tobacco production religious affiliation and political activity more recently hersch del rossi and viscusi 2004 found that voting preferences of state residents and the political affiliation of lawmakers were the main factors that affect whether or not a restriction is adopted at a specific location for example restaurants bars malls enclosed arenas and hospitals however smoking habits could have an effect on voting preferences therefore these results could show the indirect effect of tobacco consumption on smoking restrictions there are several limitations of the existing literature that lead to a need for further analysis first studies have ignored the potential role of cigarette taxation as a determinant of smoking bans for example if states adopt a general antismoking position taxes could be used in conjunction with smoking bans to reduce tobacco consumption thus depending on the argument states may view taxation as a policy substitute or a policy complement to clean indoor air laws second the potential endogeneity of right hand side variables has not been addressed for example tobacco consumption is often included as a determinant of smoking bans however tobacco consumption may potentially be endogenous in general studies have found that restrictions on smoking in public places reduce cigarette demand which implies that cigarette consumption is potentially endogenous in the reverse regression of smoking on restrictions it is unfortunate that the literature has not addressed this possibility in a systematic manner 3 third except for hersch del rossi and viscusi 2004 studies have failed to account for differences in the demand for clean indoor air laws across different restricted locations this study addresses these limitations by estimating the demand for clean indoor air laws using a panel of state level data by using a panel data set we were able to control for state specific effects that made it more or less likely that a given state had a smoking ban in a particular area specifically we accounted for the potential endogeneity of cigarette consumption and taxation within a random effects probit model of the adoption of smoking restrictions across six locations public places government buildings private work sites schools health care facilities and restaurants

the incentive effects of tournaments revisited evidence from the european pga tour this analysis of data from the 1987 european men s professional golf association pga tour strongly supports the hypothesis that the level and structure of prizes in pga tournaments influence players performance specifically players performance appears to vary positively with both the total money prizes awarded in a tournament and the marginal return to effort in the final round of play a value that varies among players largely depending on how the prize money is allocated among finishers of different ranks the authors suggest that these results together with the similar results of their earlier study of the 1984 u s men s pga tour may have implications for the design of compensation systems for certain groups of workers such as corporate executives college professors and salespeople

exchange rate pass through evidence from aggregate japanese exports the pass through of exchange rate changes to prices has been the subject of both theoretical and empirical investigations much of the recent interest in pass through was stimulated by the unprecedented movements in the u s dollar during the 1980s and by the potential for these movements to have lasting consequences on the domestic economy still unresolved in these studies is whether pass through to the u s market has declined over the past decade and if so why possible explanations include e g a growing dependence on imports changes in the structure of competition in the u s market or even unfair practices by foreign firms this issue is crucial to evaluating the long term effects of recent movements in u s dollar exchange rates this paper seeks to shed light on these issues indirectly by focusing on the stability of pass through in aggregate japanese exports japan is an obvious case study both because of its increasing presence in world trade and because of the continuing concern expressed frequently in the popular press over the large and persistent bilateral trade imbalances between japan and her major trading partners especially the u s two general criticisms of empirical studies in this area are the poor quality of the data analyzed and the lack of formal justification for the empirical modeling strategies employed these problems are addressed in this study in two ways first the data set used represents a significant improvement over those employed in other aggregate analyses this data from the bank of japan is unique because it is available on a monthly basis and because export prices as opposed to unit values are reported in both domestic and contractual currencies thus the exchange rate measure this study uses corresponds exactly to the export bundle that is we do not use the trade weighted exchange rate index commonly employed in addition to aggregate export price data this data set also contains six sector specific price indexes which permits a comparison of aggregate results with those at the sector or industry level second the problem of dynamic specification is addressed by estimating each equation in error correction form this methodology has been advocated as a means of avoiding illusory

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

mechanism design by competing sellers a dynamic model with many sellers and buyers is constructed agents failing to trade may trade in the next period an equilibrium is found where sellers hold identical auctions and buyers randomize over the sellers they visit the distribution of buyer valuations is endogenous an auction with efficient reserve is an optimal mechanism from each seller s point of view in spite of the ability of any seller to alter the distribution of buyer types participating in the seller s mechanism by altering the mechanism copyright 1993 by the econometric society

a model of exchange rate pass through abstract exchange rate pass through is the phenomenon whereby changes in the value of foreign exchange are reflected in changes in import prices this paper presents a partial equilibrium model in which firms are price setters who anticipate exchange rate changes in equilibrium firms strategies incorporate expectations about the exchange rate consistently and are best responses to the strategies of all others in the world market it is shown that exchange rate changes give rise to import price changes but the degree of exchange rate pass through depends upon domestic and foreign market structures and the exchange rate regime in general exchange rate pass through is higher if the home market is monopolistic or if the foreign market is competitive

contest theory and sport contrary to most sports fans economists tend to view tournaments not only as a mechanism to identify the most able and most talented athlete s but also as an instrument to increase the athletes effort levels by designing an adequate compensation system that takes into account the specificities of the contest under consideration the paper proceeds in two different steps first it reviews the available evidence on sports contests and identifies some puzzles that have not yet been resolved in the literature the empirical separation of selection and incentive effects and the impact of incentive pay in team settings second it addresses these puzzles and offers some new evidence supporting the basic assumptions offered by economic theory copyright 2003 oxford university press

the optimal allocation of prizes in contests we study a contest with multiple not necessarily equal prizes contestants have private information about an ability parameter that affects their costs of bidding the contestant with the highest bid wins the first prize the contestant with the second highest bid wins the second prize and so on until all the prizes are allocated all contestants incur their respective costs of bidding the contest s designer maximizes the expected sum of bids our main results are 1 we display bidding equlibria for any number of contestants having linear convex or concave cost functions and for any distribution of abilities 2 if the cost functions are linear or concave then no matter what the distribution of abilities is it is optimal for the designer to allocate the entire prize sum to a single first prize 3 we give a necessary and sufficient conditions ensuring that several prizes are optimal if contestants have a convex cost function

u s japanese bilateral trade and the yen dollar exchange rate an empirical analysis the united states has recently experienced unprecedented balance of trade deficits the merchandise trade deficit reached an all time high of over 61 billion in 1983 and for 1984 was 108 billion japan is often singled out as the major contributor to this deficit in 1984 roughly one third of the u s merchandise trade deficit and over one half of the u s manufacturing trade deficit was with japan moreover since shifts in trade balances are widely regarded as a function of changes in exchange rates there has been a tendency to focus on the general depreciation of the yen in terms of the dollar which began in 1978 in explaining the u s trade deficit this paper explores empirically the response of the u s japanese trade balance in manufacturing to movements in the yen dollar rate the analysis based on both structural and reduced form approaches provides a test of the conventional view that the weak yen has been a major factor explaining the japanese penetration into the u s manufacturing sector while japanese protectionism has effectively insulated japan s markets from u s competition our analysis does not support this view we find u s imports from japan essentially insensitive to exchange rate movements but u s exports to japan highly exchange rate elastic since u s manufacturing imports from japan dominate corresponding exports 58 billion to 8 billion in 1984 we conclude that even a sustained appreciation of the yen in terms of the dollar is unlikely to reduce significantly the u s manufacturing trade deficit in section ii of this paper we specify structural and reduced form models explaining u s bilateral manufacturing trade with japan in section iii we present and evaluate struc

auctionin entry into tournaments a research tournament model with heterogeneous contestants is presented for a large class of contests the optimal number of competitors is two this insight makes designing the tournament easier and highlights the importance of selecting highly qualified contestants while customary uniform price and discriminatory price auctions are intuitively appealing mechanisms for solving this adverse selection problem in practice they generally will not be efficient mechanism for selecting contestants instead we propose an alternative auction format that is equally simple to implement and efficiently selects the most qualified contestants to compete regardless of the form of contestant heterogeneity

executive compensation and principal agent theory the empirical literature on executive compensation generally fails to specify a model of executive pay on which to base and test hypotheses regarding its determinants in contrast this paper analy

salaries and piece rates compensation can take many forms remuneration can come as pecuniary payments as fringes such as health and pension benefits or as a nonpecuniary reward such as plush office furniture that costs the firm less than it benefits the worker a significant literature has examined the trade offs between pecuniary and nonpecuniary compensation the modern work having been pioneered by rosen 1974 more recently another body of literature has examined the selection of method of total compensation ignoring the distinction between pecuniary and nonpecuniary payment this work has focused on risk and incentive factors it has resulted in comparisons of compensation based on absolute output levels to that based on relative performance it has also led to explorations of the relation of compensation to experience over the work life 2 little attention has been paid to what may be among the most important and obvious distinction in methods of compensation namely the choice between a fixed salary for some period of time that is paying on the basis of input and some workers receive compensation that is specified in advance and not directly contingent on performance instead it depends on an input measure such as hours worked for others compensation is directly related to output this essay is an attempt to predict a firm s choice of compensation method piece rates are defined more rigorously among the more important factors discussed are worker heterogeneity incentives sorting considerations monitoring costs and asymmetric information one result is that salary workers tend to be of lower quality and more homogeneous than are their piece rate counterparts numerous additional results are provided helpful comments by victoria lazear and yoram weiss are gratefully acknowledged support was provided by the department of labor and the national science foundation 1 see lazear and rosen 1981 stiglitz 1981 holmstrom 1982 green and stokey 1983 2 see lazear 1979 1981 and harris and holmstrom in press

the other side of the trade off the impact of risk on executive compensation the principal agent model of executive compensation is of central importance to the modern theory of the firm and corporate governance yet the exiting empirical evidence supporting it is quite wea

firms choice of method of pay using data from the bls industry wage survey the author tests the theory that firms choose their methods of pay by balancing the gains from more precise links between performance and pay against m

taiwan s exports and trade imbalance against us and japan an empirical analysis the persistence of the bilateral trade surplus between taiwan and the usa and the bilateral trade deficit between taiwan and japan despite the significant appreciation or depreciation of the nt dollar during the early 1980s to the mid 1990s renewed interest to seek explanations for these phenomena to assess the above proposition a polynomial distributed lag pdl method is imposed on the impact of changes in the real exchange rate on the bilateral trade structure particularly export demand and trade imbalance between taiwan the usa and japan from 1981 to 1998 the empirical findings show that 1 the real income factors have important effects on the real exports in both cases 2 the real exchange rates and the real imports are not major determinants of the export demand from taiwan to the usa but they do play an important role on the real exports from taiwan to japan 3 the real exchange rate has significant effect on the real trade surplus with the usa and on trade deficit with japan but the real

competition among sellers who offer auctions instead of prices abstract in this paper we study a large market in which sellers compete by offering auctions to buyers instead of simple fixed price contracts two variants of the model are studied one extends a model first analyzed by wolinsky rev econ stud 55 1988 71 84 in which buyers learn their valuations only after meeting sellers the other variant extends the model of mcafee econometrica61 1993 1281 1312 in which buyers know their valuations before they choose among available auctions the equilibrium array of auctions is characterized for each case and the efficiency properties of the equilibria are analyzed journal of economic literatureclassification numbers d41 d44 d82

clean indoor air laws addiction and cigarette smoking cigarette demand equations derived from the becker and murphy 1988 model of relational addiction are estimated which include alternative measures of state level clean indoor air laws the laws have been the most widely used tool in the recent years of the anti smoking campaign survey data taken from the second national health and nutrition examination survey augmented with county level cigarette prices and excise taxes and state level measures of restrictions on smoking are used to estimate the demand equations clean indoor air laws are found to have a significant negative impact in average cigartte consumption increased restrictiveness of these laws beyond some basic level however is not found to further reduce smoking the effects of these restriction are found to differ across sexes average consumption among men is significantly reduced by the passage of the laws whereas smoking among women is unaffected finally cigarette prices are found of have a significant negative impact on consumpti

the strategic choice of managerial incentives do firms with separate owners and managers maximize profits we address this question for an oligopoly where managers compete in quantities or prices as in the cournot or bertrand models and owners choose their managers incentives we find that there is a strategic aspect in the problem of selecting incentives and that profit maximizing behavior does not result in particular in the oligopoly we study the behavior of firms competing in quantity price more closely resembles perfectly competitive collusive behavior than cournot bertrand behavior

executive compensation and tournament theory empirical tests on danish data this article adds to the empirical literature on tournament theory as a theory of executive compensation i test several propositions of tournament models on a rich data set containing information about 2 600 executives in 210 danish firms during a 4 year period i ask are pay differentials between job levels consistent with relative compensation is pay dispersion between levels higher in noisy environments is the dispersion affected by the number of tournament participants is average pay lower in firms with more compressed pay structures does wider pay dispersion enhance firm performance most of the predictions gain support in the data

contests with an unknown number of contestants this paper studies rent seeking contests where the contestants do not know the number of actively competing contestants two models are compared in the first all players are risk neutral in the second all have constant absolute risk aversion if the expected fraction of active contestants is low an increase in the number of potential contestants increases individual rent seeking efforts this effect is in contrast to the complete information case where individual rent seeking efforts decrease in the number of contestants the effect is more likely under risk neutrality but also possible under risk aversion equilibrium rent seeking efforts are lower under risk aversion if and only if the expected fraction of active contestants is low

smoke free air laws cigarette prices and adult cigarette demand i introduction according to the centers for disease control and prevention cdc 2002a cigarette smoking is responsible for more than 430 000 premature deaths each year in the united states as such it represents the single largest cause of preventable deaths in the united states the cdc 2002b estimates that more than 46 million adults in the united states were current smokers in 2000 representing nearly one quarter of the total u s adult population a goal of a major health initiative healthy people 2010 is to reduce smoking prevalence among adults to 12 by 2010 if that goal is to be met a better understanding of the impact public policy plays on adult cigarette demand is needed adult per capita consumption of cigarettes in the united states reached a peak of 4 345 in 1963 and began declining in 1964 the year in which the first surgeon general s report on the health consequences of cigarette smoking was published u s department of health and human services dhhs 1991 at the same time substantial progress was made in reducing the prevalence of adult smoking in the united states according to the national health interview surveys the prevalence of current smoking declined from 42 4 in 1964 to 23 5 in 1999 however the decline in prevalence was much more modest in the 1990s than it was in the previous two and a half decades between 1990 and 1999 the prevalence of cigarette smoking among adults declined by only 2 percentage points much of the progress in curtailing cigarette smoking in the united states can be attributed to the campaign to reduce tobacco use u s dhhs 1991 the public health campaign to reduce tobacco related death and disease in the united states began in the mid 1960s following the release of the first surgeon general s report which causally linked cigarette smoking to lung cancer and a host of other detrimental diseases although consumer education and information dissemination where the mainstay early in the campaign against tobacco the arena shifted to public policy interventions by the 1980s both state and federal governments began increasing cigarette excise taxes and imposing restrictions on smoking in public places and other worksites the implementation of higher excise taxes and stronger smoke free air restrictions continues at all levels of government into the mid 2000s since january 1 2002 37 states and the district of columbia have implemented or passed higher cigarette excise tax rates as of march 18 2005 state excise tax rates on cigarettes ranged from a low of 0 03 per pack in the state of kentucky to 2 46 in rhode island in addition since 1998 when california became the first state to ban smoking in all restaurants and bars numerous other states have followed suit new york massachusetts delaware and rhode island have banned smoking in workplaces restaurants and bars whereas connecticut and maine have banned smoking in all bars and restaurants this article examines the impact of enacting stronger smoke free air restrictions and increasing cigarette prices which will occur as a consequence of cigarette excise tax increases on adult smoking propensity and intensity in the united states unlike previous studies however this article employs a modified two part model of demand in which a generalized linear model glm is employed to yield unbiased elasticity estimates for conditional cigarette demand while controlling for the possibility that smoking sentiment at the state level influences both antismoking policy enactment and changes in smoking behavior as such it provides among the most accurate estimates of the impact of cigarette prices and smoke free air laws on the demand for cigarettes among adults in the united states ii brief review of previous studies numerous econometric studies on the determinants of adult cigarette demand have been published over the past three decades

pricing to market behaviour and exchange rate pass through in japanese exports this paper examines the relationship between exchange rate changes and japanese export pricing behavior employing a methodology which permits the separate measurement of pricing to market behavior and the cost impact of exchange rate changes the results suggest that incomplete pass through of exchange rate changes is a pervasive phenomenon but rejects the widely held view that japanese export firms have relied more heavily on pricing to market strategies during the period of yen appreciation in order to maintain market shares there is also evidence that estimates which capture only pricing to market behavior may over emphasise the degree of pass through to the extent that cost of production is sensitive to exchange rate changes copyright 1994 by royal economic society

trade balance adjustment with imported intermediate goods the japanese case he purpose of this paper is to analyze the behavior of the japanese trade balance for the period of 1966 80 using a conventional elasticities approach however unlike previous works in this area our approach emphasizes the following key features of japan s foreign trade a almost all exports more than 95 in 1975 are manufactured goods b except for foods 15 2 of imports imports are either used as inputs in the manufacturing sector or manufactured goods which compete with home products consequently by concentrating on the behavior of the manufacturing sector we can explain most of the components of exports and imports in view of this we estimate a model of the manufacturing sector in which firms in the sector use imported fuels and raw materials as inputs and produce outputs sold in both foreign and domestic markets the demand for fuels and raw materials and the supplies of output or output prices in the domestic and foreign markets are all derived from a profit maximizing behavior of the manufacturing sector thus imports of fuels and raw materials are treated as derived demands the most important advantage of such an approach is that we shed light on interactions between domestic and foreign markets on the one hand and between exports and imports on the other this is in sharp contrast to the traditional demand for imports supply of exports approach which estimates each component of the trade balance separately another advantage of our approach is that on the exports side a simultaneous equation estimation method is adopted that is we estimate an export supply or export price equation as well as an export demand equation the importance of this method has been recognized by for example goldstein and khan 1978 these advantages of the approach enable us to capture a number of important features of japan s foreign trade in the analysis of exchange rate effects on the trade balance the following aspects are emphasized first a depreciation of the exchange rate may be partially offset by a change in export price in the opposite direction the magnitude of this offsetting effect is determined by the impacts on export price of competitors price and prices of imported intermediate goods second the impact of depreciation on the trade balance may also be weakened because depreciation raises the price of domestic manufactured goods and decreases people s incentive to switch from foreign to domestic manufactured goods third as stated above imports of fuels and raw materials are derived demands therefore price elasticities of these may not be very large in the short run among other variables affecting the trade balance we focus on cyclical variables such as domestic and foreign incomes there are direct effects of domestic income on the imports of intermediate goods and of foreign income on exports in addition we are especially interested in testing whether or not a domestic recession creates a pressure to increase exports such a possibility has been studied in the literature on the capacity pressure hypothesis see for example dunlevy 1980 in the following we first explain the framework of the analysis and estimate equations for the components of the trade balance the estimates are then used to assess quantitatively the importance of each of the mechanisms discussed above it is shown that all these interrelationships between various components of the trade balance are important we then proceed to present some simulation results that show the effects of exchange rate cyclical variables and input prices on the trade balance they indicate that exchange rate changes exert a quick but not very large impact on the trade balance an increase in the price of fuels leads to an immediate and significant worsening of the trade balance most important cyclical variables have crucial effects on the trade balance it is received for publication april 5 1982 revision accepted for publication december 10 1982 osaka universitv this paper is a substantially revised version of the first half of chapter 4 of the author s ph d dissertation at m i t the author would like to thank stanley fischer anonymous referees of this review and the participants in seminars at the university of tokyo the bank of japan economic planning agency and the ministry of international trade and industry japan for useful comments on earlier versions of the paper

how not to run auctions the european 3g telecom auctions abstract there were enormous differences in the revenues from the european third generation 3g or umts mobile phone license auctions from 20 euros per capita in switzerland to 650 euros per capita in the uk though the values of the licenses sold were similar poor auction designs in some countries facilitated collusion between firms and failed to attract entrants the sequencing of the auctions was also crucial we discuss the auctions in the uk netherlands germany italy austria switzerland belgium greece and denmark

an analysis of the war of attrition and the all pay auction we study the war of attrition and the all pay auction when players signals are affiliated and symmetrically distributed we a find sufficient conditions for the existence of symmetric monotonic equilibrium bidding strategies and b examine the performance of these auction forms in terms of the expected revenue accruing to the seller under our conditions the war of attrition raises greater expected revenue than all other known sealed bid auction forms journal of economic literature classification numbers d44 d82 1997 academic press

comparative statics of contests and rent seeking games this paper develops the comparative statics properties of a contest encountered in patent races and rent seeking games the author shows that symmetric equilibrium expenditure and profit per player decrease with the number of competitors and the discount rate but increase with the value of the prize a fundamental lemma established in the paper shows that a stability condition usually imposed on the model is automatically satisfied the author identifies a class of likelihood or hazard rate functions for which aggregate expenditure increases with the number of competitors and total profits converge to zero copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

digging for golden carrots an analysis of research tournaments contracting for research is often infeasible because research inputs are unobservable and research outcomes cannot be verified by a court sponsoring a research tournament can resolve these problems a model is presented in which contestants compete to find the innovation of highest value to the tournament sponsor the winner receives a prespecified prize the tournament game has a unique subgame perfect equilibrium free entry is not optimal because equilibrium effort by each researcher decreases in the number of contestants an optimally designed research tournament balances the probability of overshooting the first best quality level against the probability of falling short copyright 1995 by american economic association