an estimate of the welfare gain from fiscal equalization in the last several years it has become a commonplace in canadian economics that intergovernmental grants may be necessary in a federal state to prevent inefficiencies in the geographic allocation of factors of production this paper uses winer and gauthier s recent results on fiscally induced interprovincial migration to estimate both the actual and potential efficiency gain produced by the current equalization program these are found to be a minute fraction of the program s cost une evaluation des gains d efficacite engendres par la perequationfiscale depuis plusieurs annees la science economique canadienne admet que les subventions intergouverne mentales sont sans doute necessaires dans un etat federal pour eviter toute inefficacite dans la repartition geographique des facteurs de production le present article s appuie sur les resultats recents de winer et gauthier au sujet des migrations interprovinciales induites par des incitations fiscales pour evaluer les gains d efficacite reels et potentiels decoulant du programme de perequation en vigueur i1 s avere que ceux ci representent une fraction infime des cofuts du programme the idea that decentralized fiscal systems may give rise to inefficient migration is by now well established in the literature on fiscal federalism so too is its corollary that a system of grants can be used to neutralize such inducements to inefficiency the seminal contribution to the literature is buchanan s 1950 paper on fiscal equity buchanan argued that in order to achieve both horizontal equity and least price distortion in a federal state it would be necessary to neutralize any differences across jurisdictions in the fiscal treatment of individuals the intuition of the argument is simple if bi is the per capita benefit created by provincial expenditures in province i ti the per capita tax burden and mpi the marginal product of labour in province i then for any i j mpi mpj a necessary condition for the maximization of national

buyer experimentation and introductory pricing we study the pricing decisions of a monopolist seller in a two period model in which buyers and the seller are all uncertain about a good s quality we assume that buyers not only learn from experience but also may experiment that is increase the amount of information by consuming more we define an introductory price to be a first period equilibrium price lower than that which maximizes period 1 profit the motivation for introductory pricing is that under certain conditions the seller prefers its buyers to be better informed about quality a lower initial price increases consumption and hence information we consider two versions of the model identical buyers with a public signal of quality heterogeneous buyers who each receive a private quality signal 2001 elsevier science b v all rights reserved

on the form of the locational efficiency condition in local public goods models this paper clarifies the treatment of congestion costs in models with migration and impure public goods in particular it is shown that the proposition that the form of the locational efficiency condition is independent of the level of public good provision depends critically on the measure of congestion costs that is used and does not hold in general

efficiency and equalization payments in a federal system of government a synthesis and extensions of recent results this paper investigates the rationale for a system of equalization transfers in a federal system of government the existing sources of inefficiency of resource allocation in economies with more than one level of government are synthesized in the framework of a simple decentralized multiprovince model with mobile factors of production the sources of inefficiency arise first because migrants respond at the margin to incorrect signals owing to the phenomena of rent sharing and fiscal exterality and second because of global rather than local inefficiencies the model is then extended to consider the role of the federal government in providing intergovernmental transfers in the face of such inefficiencies in addition to synthesizing the sources of inefficiency in federal models the equity arguments for equalization are briefly recounted efficacite et paiements de perequation dans un systeme federal de gouvernement synthese et extensions de certains resultats recents ce memoire examine la logique qui soustend un systeme de paiements de perequation dans un systeme fdderal de gouverement les auteurs utilisent un modele simple d un systeme multi provincial decentralise avec des facteurs de production mobiles pour definir les sources d inefficacite dans l allocation des ressources dans les dconomies qui possedent plus d un niveau de gouvernement ces inefficacites proviennent de ce que d abord ceux qui se deplacent le font en reponse a la marge a des signaux incorrects engendres par le partage de la rente sur la base de la residence et par les phenomenes d exteralites fiscales elles sont aussi le resultat d inefficacites globales plutot que locales dans le cadre de ce modele les auteurs analysent le role du gouvernement federal effectuant des transferts inter gouverementaux pour corriger ces inefficacites en plus de presenter une synthese des sources d inefficacite dans les regimes federaux les auteurs font un bref rappel en passant a l ensemble des arguments fondes sur l equite qu on utilise pour rationaliser les paiements de perequation this paper is a linear combination of two papers presented at the may 1982 meetings of the canadian economics association in halifax entitled the case for equalization payments by the authors and recent developments in the theory of regional economic policy in canada by boadway the authors are grateful for comments by the discussants jim johnson and baxter macdonald and by jack mintz brian scarfe gerard belanger david sewell tom courchene and the referees we are especially heavily indebted to dan usher for many stimulating comments and suggestions while the work was in progress some of the above persons will undoubtedly disagree with the emphasis we have chosen to put on various aspects of the analysis for policy purposes support for some of this work has been provided by the economic council of canada and is gratefully acknowledged canadian journal of economics revue canadienne d economique xv no 4 november novembre 1982 printed in canada imprimd au canada 0008 4085 82 0000 0613 01 50 1982 canadian economics association this content downloaded from 207 46 13 127 on wed 12 oct 2016 04 27 47 utc all use subject to http about jstor org terms 614 robin boadway and frank flatters

reassessment of the tiebout model abstract the tiebout model has been the reference point for the classical approach to fiscal federalism its emphasis on mobility benefit taxation and the advantages of fiscal competition have informed fiscal federalism since the seminal contributions of musgrave and oates this paper reviews the influence that the tiebout model has had on fiscal federalism and argues that while its insights remain relevant for local government it is far from compelling as a positive description of or a normative prescription for fiscal federalism at the state level some aspects of alternative approaches are presented which lead to different perspectives than tiebout inspired ones

factor mobility and income redistribution in a federation abstract jurisdictions in a federation redistribute income by taxing capital and providing transfers to labor capital and labor move to earn higher returns net of taxes or gross of transfer benefits between jurisdictions in determining its redistributive policy the government for each jurisdiction thus takes into account the effects of its policy on the movement of factors from and to the jurisdiction hence the extent of redistribution depends on the mobility of factors the mobility of capital or labor leads to less redistribution than under autarky however mobility of both capital and labor may lead to more redistribution than if only capital moves as a consequence increased mobility of factors is not necessarily harmful to redistribution

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

fiscal externality rent sharing and equalisation transfers in japan this article describes a quantitative analysis of japanese equalisation transfers based on the fiscal externality models of hartwick boadway and flatters in particular it examines whether the actual level of equalisation transfers matches the theoretically optimal level from the efficiency point of view although the purpose of interregional fiscal transfer is not necessarily in the pursuit of an efficient allocation of resources equalisation transfer surely affects it it is often said in japan that the equalisation transfer may distort efficiency too much and that it is one of the causes of serious fiscal conflict between the metropolitan area and local rural prefectures the quantitative results show that the actual amount of transfers from resource rich to resource poor prefectures was below the optimal level in the 1980s however the resource poor prefectures have received an excessive transfer after 1990 specifically the direction of the optimal transfer might change in the second half of t

competition between private and public schools vouchers and peer group effects a theoretical and computational model with tax financed tuition free public schools and competitive tuition financed private schools is developed students differ by ability and income achievement depends on own ability and on peers abilities equilibrium has a strict hierarchy of school qualities and two dimensional student sorting with stratification by ability and income in private schools high ability low income students receive tuition discounts while low ability high income students pay tuition premia tuition vouchers increase the relative size of the private sector and the extent of student sorting and benefit high ability students relative to low ability students

ex post redistribution in a federation implications for corrective policy abstract this paper analyzes whether changes in the timing of equalizing transfers to state governments necessitate an adjustment in federal corrective policy according to the existing literature assuming an ex ante choice of transfers the corrective grant is equal to the marginal damage benefit inflicted by externality generation when the federal government accommodates state finances ex post the grant differs in formula from existing prescription allocative federal policy corrects state policy incentives twofold it entails a correction for the distortion in the marginal benefit of state spending as in earlier literature and for the distortion in the marginal cost of public funds induced by the ex post provision of transfers the required grant rule is generically disproportionate to the equilibrium externality even with lump sum taxation furthermore the ex post provision of transfers is critical for the nature of the equilibrium inefficiency equalizing transfers at least partly internalize consumption spill overs but simultaneously establishes a new source of inefficiency as a final result the existing prescription for allocative federal policy continues to apply if the public good is pure

uncertain spatial demand and price flexibility a state space approach to duopoly abstract sufficient conditions for a unique price equilibrium in terms of the uncertainty distribution and the state contingent consumer distributions are given for spatial duopoly also considered are efficiency and endogenous locations for the symmetric case and comparative statics on price flexibility

incentive equivalence with fixed migration costs abstract if migration between communities is costless and if policy makers in each community anticipate the migration response to policy changes then the interests of the two communities are perfectly aligned decentralization is efficient this incentive equivalence is well known however the first order approach used in virtually all the literature may obscure the fact that no convexity assumptions need be made about technology or tastes this fact underscores the relevance of incentive equivalence even when there are scale economies in the public sector here the consequences of positive migration costs for this incentive equivalence are considered in contrast with much of the literature migration costs are assumed the same for everyone this formulation differs from the more common attachment to home assumption of heterogeneous migration costs conditional on the direction of migration interests of different communities are still perfectly aligned but natives of different communities may prefer different directions of migration weakening incentive equivalence if local policy makers have the power to induce large changes in migration flows however incentive equivalence fails only if economies of scale in population are important so that communities may be under populated

transboundary pollution and household mobility are they equivalent abstract recent research has shown that perfect household mobility can serve as a disciplinary mechanism inducing national policy makers to internalize interregional externalities caused by transboundary pollution this paper develops a differential game to illustrate that the result is not necessarily robust when migration costs and explicit dynamics are introduced the paper shows that if governments constantly reoptimize imperfect household mobility leads to a tragedy of the commons and individual countries overemit even when pollution is purely local moreover these dynamic externalities get worse as the degree of household mobility increases and there is a qualitative difference between almost perfect and perfect mobilty that is a discontinuity at zero migration costs

inter regional transfers and the induced under taxation of economic rents abstractinter regional transfers and the induced under taxation of economic rents regional studies this paper shows that if taxes on economic rent are assigned to anticipatory first moving regions and inter regional transfers are mandated centrally rents are under taxed relative to optimal levels this provides a possible explanation for low rent capture observed in australia and canada two resource rich federal economies that also have fiscal equalization transfers between regions

centralization fiscal federalism and private school attendance a cge model is used to analyze the impact of public school financing on private school attendance the common perception that public school finance centralization will necessarily lead to greater private school attendance is not correct in such a model even when that centralization involves an extreme equalization as in california furthermore if centralization is less dramatic as in most states declines in private school attendance are even more pronounced this weakens the speculation that low exit rates to private schools in centralizing states imply that general public school quality does not drop as a result of such centralization

a dynamic oligopoly structural model for the prescription drug market after patent expiration this article incorporates consumer learning and heterogeneity into a dynamic oligopoly model for the prescription drug market in the model both firms and patients need to learn the generic qualities via patients experiences generic firms entry decisions are endogenous but their entry timings depend on a random approval process i apply the model to examine the impact of shortening the expected generic approval time although this policy experiment brings generics to the market sooner it increases a potential entrant s likelihood of entering a crowded market and hence could reduce the total number of generic entrants and consumer welfare

a differential game approach to investment in product differentiation abstract we consider a dynamic oligopoly where firms invest to increase product differentiation and an externality effect operates in the r d activity via the demand functions in the fully noncooperative setting we find that the degree of differentiation resulting from r d effort is higher the larger is the population of firms in the industry if firms cooperate in the r d activity by setting up an r d cartel aggregate investment is larger and product substitutability is lower than in the decentralised case

another look at the radner stiglitz nonconcavity in the value of information abstract this paper revisits the well known result of r radner and j stiglitz 1984 in bayesian models of economic theory elsevier amsterdam which shows that under certain conditions the value of information exhibits increasing marginal returns over some range their result assumes that both the number of states and the number of signal realizations are finite assumptions which preclude most analyses of optimal information acquisition we provide sufficient conditions that yield this nonconcavity in the value of information in a general framework the role that these conditions play is clarified and illustrated with several examples we also discuss the robustness of the nonconcavity result and the difficulties involved in getting the value of information to be globally concave journal of economic literature classification number d83

process and product innovation by a multiproduct monopolist a dynamic approach abstract we adopt a dynamic approach to model the behaviour of a multiproduct monopolist investing in process innovation and either product differentiation or product proliferation or both irrespective of the number of activities appearing in the r d portfolio we prove that depending on initial conditions there may exists substitutability between process innovation and either form of product innovation along the optimal path towards the steady state while in the latter only complementarity emerges looking at the threefold investment plan we qualitatively characterise the ranking of r d activities in terms of the consumer reservation price and the extent of the spectrum of varieties

price competition for an informed buyer abstract this paper investigates price competition with private information on the demand side two sellers each offer a different variety of a good to a buyer endowed with a private binary signal on their relative quality the model provides an informational foundation to differentiation in hotelling s price competition game equilibrium comparative statics is performed with respect to the prior belief and the precision of the private information competition is fierce when the prior strongly favors one seller and private signals are relatively uninformative sellers equilibrium profits may fall with the revelation of public information and are nonmonotonic in the prior belief journal of economic literature classification numbers c72 d43 d82 l15

cross country differences in intergenerational earnings mobility international studies of the extent to which economic status is passed from one generation to the next are important for at least two reasons first each study of a particular country characterizes an important feature of that country s income inequality second comparisons of intergenerational mobility across countries may yield valuable clues about how income status is transmitted across generations and why the strength of that intergenerational transmission varies across countries the e rst section of this paper explains a benchmark measure of intergenerational mobility commonly used in u s studies the second section summarizes comparable empirical e ndings that have accumulated so far for countries other than the united states the third section sketches a theoretical framework for interpreting cross country differences in intergenerational mobility

redistribution within and across the regions of a federation the authors reconsider the literature on redistribution within a federation with mobile agents they conclude that redistribution is a function best assigned to the national government local governments with diverse preferences for redistribution distort individual migration decisions the authors also examine the fiscal externality literature which has made an efficiency argument for interregional transfers they show that if local governments have the same preferences for redistribution the nash equilibrium is efficient if preferences are diverse the authors show that nationally imposed interregional transfers do not address the source of the inefficiency nevertheless interregional transfers are shown to be a part of decentralized behavior

optimality free mobility and the regional authority in a federation abstract this paper examines the efficiency properties of a federation characterized by strategically competing regions and freely mobile homogeneous individuals analyses of this economy have concluded that achieving a pareto optimal will require intervention by a national authority this paper makes one basic point the nash equilibrium of regional authority behavior is pareto optimal the implication is that there is no role for a national authority in either providing interregional transfers or correcting for decentralized provision of public goods the nash equilibrium involves samuelson public goods provision and regions purchasing preferred population distributions with optimal interregional transfers

product differentiation and location decisions under demand uncertainty we investigate hotelling s duopoly game of location then price choices with quadratic transportation costs and uniformly distributed consumers under the assumption that firms are uncertain about the exact location of demand we characterize the unique equilibrium and the socially optimal locations contrary to the individual level random utility models location uncertainty is a differentiation force in equilibrium increases in the variance of the uncertainty lead to greater differentiation higher expected equilibrium prices and profits and a greater welfare loss

experimentation in two sided markets we study optimal experimentation by a monopolistic platform in a two sided market the platform provider is uncertain about the strength of the externality each side is exerting on the other setting participation fees on both sides it gradually learns about these externalities by observing actual participation levels this provides an informational rationale for introductory pricing with the platform provider charging a fee below the myopically optimal level on at least one side of the market if the externality that the other side exerts is sufficiently well known and weaker than the externality it experiences the platform provider extracts surplus from that side by charging it a fee above the myopically optimal level this interplay between learning and surplus extraction is crucial to the market outcome and its dynamics

the impressive contribution of canadian economists to fiscal federalism theory and policy the study of fiscal federalism has been central to the research of canadian economists since the rowell sirois report to mark the 50th anniversary of the founding of the canadian economics association it is fitting to take stock of their contributions we focus on the period since 1982 and emphasize the main scholarly publications of an inclusive array of canadian economists and economists in canadian universities our attention is devoted to applications in the context of federal and provincial governments setting aside related issues in municipal government finance we briefly discuss instances where the fiscal federalism literature has informed policy debates including through policy research institutes government commissions and international organizations la contribution impressionnante des economistes canadiens a la theorie et a la politique du federalisme fiscal l etude du federalisme fiscal a ete un element central de la recherche des economistes canadiens depuis la commission rowell sirois au moment de celebrer le 50eme anniversaire de la fondation de l association canadienne d economique le moment est approprie pour prendre la mesure de leurs contributions on se concentre sur la periode apres 1982 et on souligne les principales publications savantes d un ensemble inclusif d economistes canadiens et d economistes dans les universites canadiennes une attention particuliere est portee aux applications dans le contexte federal et provincial mettant de cote les enjeux relies a la finance municipale on discute brievement des instances ou la litterature sur le federalisme fiscal a eclaire les debats de politiques publiques y compris a travers les instituts de recherche sur les politiques publiques les commissions gouvernementales et les organisations internationales

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

the value of information in efficient risk sharing arrangements suppose that agents share risks in competitive markets we show that better information makes everyone worse off if the economy has a representative agent that is the economy s demand for state contingent consumption equals the demand of a hypothetical agent who owns all the economy s wealth the representative agent moreover is normatively unrepresentative although each agent dislikes information the representative agent is indifferent although we emphasize pure exchange our results imply that a representative agent model might seriously misstate the welfare effects of improved information in an economy with production and risk sharing even if it performs well otherwise

experimentation and competition abstract this paper examines the effect of competition on firms efforts to experiment and learn about market demand consumers are assumed to know prices only at sellers they have actually visited but must bear search costs to find the prices of other sellers under these conditions we show that firms incentives to experiment are diluted by comparison with the monopoly case and that this effect is stronger the smaller the search cost the learning environment we portray gives rise to several time paths which have been empirically documented including penetration pricing cream skimming and cyclical pricing journal of economic literature classification numbers c73 d43 d83

price dispersion and learning in a dynamic differentiated goods duopoly we study the evolution of prices set by duopolists who are uncertain about the perceived degree of product differentiation customers sometimes view the products as close substitutes sometimes as highly differentiated as the informativeness of the quantities sold increases with the price differential there is scope for active learning by firms when information has low value to the firms they charge the same price as would be set by myopic players and there is no price dispersion when firms value information more highly on the other hand they actively learn by creating price dispersion such price dispersion arises in a cyclical fashion and is most likely to be observed when the firms environment changes sufficiently often but not too frequently firms payoffs are higher when they use correlated pricing strategies contrary to what one might expect such coordination need not hurt consumers provided they are sufficiently impatient

negatively correlated bandits we analyse a two player game of strategic experimentation with two armed bandits either player has to decide in continuous time whether to use a safe arm with a known pay off or a risky arm whose expected pay off per unit of time is initially unknown this pay off can be high or low and is negatively correlated across players we characterize the set of all markov perfect equilibria in the benchmark case where the risky arms are known to be of opposite type and construct equilibria in cut off strategies for arbitrary negative correlation all strategies and pay offs are in closed form in marked contrast to the case where both risky arms are of the same type there always exists an equilibrium in cut off strategies and there always exists an equilibrium exhibiting efficient long run patterns of learning these results extend to a three player game with common knowledge that exactly one risky arm is of the high pay off type

competing in taxes and investment under fiscal equalization the paper considers a model of federation with two heterogeneous regions that try to attract the capital by competing in capital income taxes and public investment that enhance the productivity of capital regions choices determine allocation of capital across the regions and their revenues under a tax sharing scheme this framework allows for the examination of different approaches to fiscal equalization schemes boadway r flatters f 1982 efficiency and equalization payments in a federal system of government a synthesis and extension of recent results canadian journal of economics 15 613 633 weingast b r 2006 second generation fiscal federalism implication for decentralized democratic governance and economic development working paper hoover institution stanford university we show that tax competition distorts downwards public investments and that the equalization grants discourage public investments with a little effect on equilibrium taxes however the equalization schemes remain beneficial not only for the federation and under a low degree of regional asymmetry also for each region c 2008 elsevier b v all rights reserved

price and quantity experimentation a synthesis this paper compares experimentation about product differentiation in a linear setting under four market structures quantity setting and price setting monopoly cournot and bertrand duopoly quantity setting firms always experiment by raising their quantities and the monopolist experiments relatively more than the duopolists a price setting monopolist does not experiment the value of information to bertrand duopolists may be positive or negative depending on the degree of product differentiation when information is valuable price setting duopolists experiment by lowering prices a numerical example indicates that the intensity of experimentation is higher in a cournot duopoly than in a bertrand duopoly c 2001 elsevier science by all rights reserved

on the role of job assignment in a comparison of education systems abstract this paper re examines how differences in systems for financing education influence gdp by highlighting a neglected function of education policy it affects the magnitude of gains from job assignment when more productive jobs demand more skill privately financed education can increase productivity gains from matching between jobs and skill by increasing the availability of highly educated people this differs from the standard argument that publicly financed education increases the total amount of human capital by equalizing educational opportunities it is shown that if job opportunities have large variations in productivity education policy may face a serious efficiency equity trade off

risk sharing in a federation with population mobility and long horizons in this paper risk sharing among individuals within and across regions in a federation with population mobility and infinite horizons is considered it is shown that the regional authorities will not fully exploit gains from interregional risk sharing when population mobility is imperfect in the nash equilibrium there is complete risk sharing among the individuals within each region however which corresponds to the policies of the central authority regional authorities who care about their reputation may be able to commit to an efficient allocation it is possible that improvements in the degree of mobility will make such commitments less likely jel classification h77 e61 and f36 le partage du risque dans une federation ou la population est mobile et l horizon temporel long ce memoire examine le partage du risque entre personnes a l interieur des regions et entre regions dans une federation ou il y a mobilite de la population et horizon temporel infini on montre que les autorites regionales n exploiteront pas pleinement les gains en provenance d un partage inter regional du risque quand la mobilite de la population est imparfaite cependant dans un equilibre a la nash il y a partage complet du risque entre les individus de chaque region ce qui correspond aux politiques des autorites centrales les autorites regionales qui tiennent a leur reputation peuvent etre capables de s engager a une allocation efficace il est possible que les ameliorations dans le degre de mobilite rendent ces engagements moins probables

ability tracking school competition and the distribution of educational benefits abstract to study the effects of ability grouping on school competition we develop a theoretical and computational model of tracking in public and private schools we examine tracking s consequences for the allocation of students of differing abilities and income within and between public and private schools private schools tend to attract the most able and wealthiest students and rarely track in equilibrium public sector schools can maximize attendance by tracking students public schools retain a greater proportion of higher ability students by tracking but lose more wealthy lower ability students to the private sector consequently socioeconomic status is a predictor of track assignment in public schools for the entire population public sector tracking has small aggregate effects on achievement and welfare but results in significant redistribution from lower to higher ability students

the desegregating effect of school tracking this paper makes the following point detracking schools that is preventing them from allocating students to classes according to their ability may lead to an increase in income residential segregation it does so in a simple model where households care about the school peer group of their children if ability and income are positively correlated tracking implies that some high income households face the choice of either living in the areas where most of the other high income households live and having their child assigned to the low track or instead living in lower income neighbourhoods where their child would be in the high track under mild conditions tracking leads to an equilibrium with partial income desegregation where perfect income segregation would be the only stable outcome without tracking

mobility targeting and private school vouchers simulations are derived from a three district model of low middle and highincome school districts calibrated to new york data with housing stocks that vary within and across districts in this model it is demonstrated that school district targeted vouchers are similar in their impact to nontargeted vouchers but vastly different from vouchers targeted to low income households furthermore strong migration effects are shown to significantly improve the likely equity consequences of voucher programs jel 122 128 h73 persistent frustration with the perceived low quality of public education exacerbated by concerns over the inherently unequal levels of public school quality across school districts has caused policy makers courts and researchers to investigate modifications and alternatives to the current public school system one idea that has received increasing academic and public attention is that of private school vouchers with proponents arguing that the competitive pressures of voucher programs would cause improvements in the efficiency of the publicschool system while at the same time addressing equity concerns if vouchers can be targeted to low income households or low income school districts but aside from a few limited experiments in some u s cities our experience with vouchers in the united states remains virtually nonexistent this limits the amount of information researchers can derive from standard empirical analysis in that it forces them to rely on only current nonvoucher induced differences in competition despite important suggestive results such work may not anticipate all the impacts from a large scale policy such as the voucher policies currently under discussion at the same time theoretical models of school finance are also limited in that they often either focus on only one particular aspect of the general equilibrium school finance problem or they are too rich and complex to yield crisp predictions

entry in foreign markets under asymmetric information and demand uncertainty author affiliation rafael moner colonques department of economic analysis and eri ces university of valencia campus dels tarongers avda dels tarongers s n 46022 valencia spain rafael moner uv es corresponding authorvicente orts dagger department of economics and international economics institute university jaume i castellon campus riu sec avda sos baynat s n 12006 castellon spain orts eco uji esjose j sempere monerris double dagger department of economic analysis and eri ces university of valencia campus dels tarongers avda dels tarongers s n 46022 valencia spain jose j sempere uv es acknowledgment we would like to thank christos constantatos amparo urbano the editor laura razzolini and two referees for their useful comments and suggestions we gratefully acknowledge the financial support from spanish ministerio de educacion y ciencia and feder projects sej2004 07554 econ and sej2005 08764 econ 1 introductionentry into foreign markets entails a number of difficulties one such difficulty is a lack of knowledge of the market characteristics which may persuade foreign firms to not enter the domestic market this paper elaborates on the idea that domestic firms hold an informational advantage over foreign firms see hirsch 1976 scherer 1999 in a two period model of entry mode choice we offer a complementary explanation for a foreign firm s choice between foreign direct investment fdi and exports when fdi is the entry mode that provides better knowledge of local demand then our contribution focuses on a firm s incentive to become multinational and exploit the advantages of being close to the market market seeking fdi rather than to exploit cost advantages in different locations efficiency seeking fdi the foreign expansion of firms through exports and fdi is very likely to involve uncertainty since the environment in their home market is different from the one they will face in foreign markets in fact dissimilarities of any kind create obstacles to successful entry buckley and ghauri 1999 informational asymmetries between local and foreign brands that can eventually affect the mode of entry may be particularly significant in consumer goods industries such as consumer electronics pharmaceuticals software automobiles household appliances and personal computers the hypothesis in our paper is reasonably intuitive yet to the best of our knowledge it has not received much attention in the literature a couple of notable exceptions are horstmann and markusen 1996 and jain and mirman 2001 in particular we analyze the role of differential information in determining the foreign firm s entry mode decision the model that we examine assumes that inverse demand is linear and stochastic specifically the demand intercept consists of an unknown recurrent term which captures the idiosyncratic features of local economy and an additive period specific random shock the host firm which is only informed about the recurrent term is the sole producer in the initial time period and this generates a noisy market signal 1 then the foreign firm uses the information conveyed by the observation of the first period output choice and price to update its prior beliefs about the stochastic demand in a bayesian fashion the second period unfolds in two stages in the first stage the foreign firm selects its mode of entry which has some implications if it enters as an investor then it incurs a fixed cost whereas it incurs a variable unit cost if it enters as an exporter furthermore if investment takes place then the foreign firm learns the recurrent term of the stochastic demand otherwise it employs its updated beliefs in the second stage decisions there is cournot competition in the second stage which amounts to either solving a duopoly under symmetric information and identical marginal costs when entry occurs through direct investment or solving an asymmetric duopoly both in terms of information and marginal costs when entry is via exports

experimentation and learning in a differentiated products duopoly abstract this paper explores price setting behavior in the context of a duopoly in which firms are uncertain about the degree of product differentiation firms learn from the difference in their realized demands in light of the price differential the informativeness of this market experiment is shown to be increasing in size of the price differential in markets with highly substitutable products price dispersion is enhanced as firms adjust their prices so as to generate more information in markets with highly differentiated products firms compress their prices as they prefer to reveal less about the extent of product differentiation journal of economic literature classification numbers d43 d83 l13

multiproduct activity in an experimental differentiated oligopoly in a symmetric differentiated experimental oligopoly with multiproduct firms we test the predictive power of the corresponding bertrand nash equilibria subjects are not informed on the specification of the underlying demand model in the presence of intense multiproduct activity and provided that a parallel pricing rule is imposed to multiproduct firms strategies tend to confirm the non cooperative multiproduct solution

technical note a comparison of bertrand and cournot profits in oligopolies with differentiated products we compare equilibrium profits of bertrand price and cournot quantity competition in oligopolies with an arbitrary number of nonsymmetric firms offering differentiated substitutable products under an affine demand function we provide a precise characterization of the profit relationship in terms of 1 the number of firms 2 their relative quality and cost differences and 3 the competition intensity defined as the maxiumum absolute value of total change in competitors demand over change in own demand due to a unit change in own price we first examine the case where firms have the same demand sensitivity to own price and the same demand sensitivity to competitor prices but different cost and quality parameters for this case we prove that the total profit of the industry under cournot competition is at least as high as the total profit under bertrand competition if the number of firms is less than 28 or if the competition intensity is less than 0 909 or if the differences in quality and cost competitiveness between firms are small we also prove that for each firm the profit achieved under cournot competition is at least as high as the profit achieved under bertrand competition if the number of firms is less than eight or if the competition intensity is less than 0 739 we then provide numerical and analytical results that qualitatively support the same conclusions for general affine demand functions with variable demand sensitivities to prices

an empirical model of optimal dynamic product launch and exit under demand uncertainty this paper considers the decision problem of a firm that is uncertain about the demand and hence profitability of a new product we develop a model of a decision maker who sequentially learns about the true product profitability from observed product sales based on the current information the decision maker decides whether to scrap the product central to this decision problem are sequential information gathering and the option value of scrapping the product at any point in time the model predicts the optimal demand for information e g in the form of test marketing and it predicts how the launch or exit policy depends on the firm s demand uncertainty furthermore it predicts what fraction of newly developed products should be launched on average and what fraction of these products will fail i e exit the model is solved using numerical dynamic programming techniques we present an application of the model to the case of the u s ready to eat breakfast cereal industry simulations show that the value of reducing uncertainty can be large and that under higher uncertainty firms should strongly increase the fraction of all new product opportunities launched even if their point estimate of profits is negative alternative simpler decision rules are shown to lead to large profit losses compared to our method finally we find that the high observed exit rate in the u s ready to eat cereal industry is optimal and to be expected based on our model

redistributive policy with labour mobility across countries it is generally believed that international labour mobility lowers the level of redistribution each country wishes to undertake this paper considers a model with two countries where each government redistributes income between two types of individuals using a general equilibrium model it is shown that there are situations where the level of redistribution in one of the two countries is in fact higher than in the absence of individual mobility this higher level of redistribution is explained by the migration induced changes in the structure of the population in both countries namely by the increase in the proportion of high income individuals in the country that may experience excessive redistribution

groundwater use under incomplete information abstract this paper introduces a game theoretic model of groundwater extraction in a two cell aquifer under incomplete information a novel assumption is that individual users have incomplete knowledge of the speed of lateral flows in the aquifer although a user is aware that his neighbor s water use has some influence on his future water stock he is uncertain about the degree of this impact we find that the lack of information may either increase or decrease the rate of water use and welfare in a two period framework the relevant characteristic is the ratio of the periodic marginal benefits of water use depending on whether this ratio is convex or concave the average speed with which the aquifer is depleted decreases or increases when users learn more about the local hydrologic properties of groundwater in principle welfare may decrease even in cases when the groundwater allocation is closer to the efficient groundwater allocation

on distinguishing between leviathan and public interest governments in a federal state the purpose of this paper is to derive testable implications for the proposition that provincial governments in a specific federal system are leviathans that is revenue maximizers the leviathan model associated with brennan and buchanan 1980 hypothesizes that governments behave like monopolies who seek to maximize their revenue this model is contrasted with an alternative hypothesis the public interest theory a theoretical model of a federal state based on the canadian system is constructed and testable implications are derived the principal feature of the model is that it is set in the context of a particular game involving the federal government provincial governments and a consumer in attempting to model this situation care has been taken to try to incorporate as many institutional features of the canadian federal system as possible while still allowing the model to be somewhat parsimonious with some modification the model may be applicable to other countries with similar federal systems

convergence and migration among provinces have regional disparities in canada changed over the past thirty years this paper assesses the robustness of earlier findings of convergence in the levels and growth rates of provincial per capita gdp and then estimates the extent to which interprovincial and international migration is being influenced by regional differences in incomes and employment excerpt

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

tracking can be more equitable than mixing parents and policy makers often wonder whether and how the choice of a tracked or mixed educational system affects the equality of opportunity i answer this question by analyzing the influence of peers on future educational results i define an equal opportunity policy as one that maximizes the average lifetime income of the worst off type of individuals in society i e students from disadvantaged backgrounds i find that tracking maximizes average lifetime income if the opportunity cost of college attendance is sufficiently high

devolution grants and fiscal competition following half a century of fiscal activism and federal leadership the call now is for downsizing the federal budget and a devolution of fiscal responsibilities to states and localities the call for federalism meant to secure a stronger center in james madison s time now seeks to decentralize this paper outlines the main features of fiscal federalism as i see them sketching a vision which differs in major respects from that offered by the lead paper in this symposium first i highlight the role of distribution which i see as a central function then i focus attention on grants in aid and their role in the federal system finally i consider competition cooperation and coordination between jurisdictions

raising taxes through equalization a simple theory suggests that a common form of federal horizontal equalization grants should cause subnational governments to levy higher tax rates distorting local tax bases and so increasing federal transfers to test this i examine canadian provincial tax policies in the 1972 2002 period consistent with the theory provinces respond to expansions of equalization transfers by increasing their own tax rates i estimate that on average tax rates in grant receiving provinces were substantially and significantly higher as a consequence of the transfer formula jel classification h21 une theorie simple suggere qu une forme usuelle d octrois federaux de perequation horizontale devrait entrainer les gouvernements sub nationaux a imposer de plus hauts taux d imposition modifiant ainsi les bases de fiscalite locale et ce faisant accroissant les transferts federaux pour mettre au test cette hypothese on examine les politiques fiscales des provinces canadiennes pour la periode entre 1972 et 2002 d une maniere qui semble supporter l hypothese les provinces ont repondu a un accroissement des transferts de perequation en accroissant leur propre taux d imposition on estime que les taux moyens d imposition dans les provinces qui recoivent des transferts sont plus eleves de maniere substantielle et significative en raison de la formule de transferts

ex ante free mobility ex post immobility and time consistency in a federal system abstract this paper examines regional population distribution when there is an interregional transfer policy without commitment we introduce explicitly the following time structure of actions individuals assumed to be identical make decisions on locational choices freely ex ante but are immobile ex post the fiscal policies of the local governments and the central government are implemented after individuals migration decisions the basic result is that locally stable no commitment equilibria are single community equilibria when there is a pure local public good we then illustrate the possibility for the interregional transfer policy to reduce the efficiency of population distribution

market diffusion with two sided learning we analyze the diffusion of a new product of uncertain value in a duopolistic market both sides of the market buyers and sellers learn the true value of the new product from experiments with it buyers have heterogeneous preferences over the products and sellers compete in prices the pricing policies and market shares in the unique markov perfect equilibrium are obtained explicitly the dynamics of the equilibrium market shares display excessive sales of the new product relative to the social optimum in early stages and too low sales later on the diffusion path of a successful product is s shaped

costly buyer search in a differentiated products model an experimental study this study examines whether the content of buyer information and the timing of its dissemination affects seller market power we construct laboratory markets with differentiated goods and costly buyer search in which sellers simultaneously post prices the experiment varies the information on price or product characteristics that buyers learn under different timing assumptions pre and postsearch generating four information treatments theory predicts that price information lowers the equilibrium price but information about product characteristics increases the equilibrium price that is contrary to intuition the presence of informed buyers may impart a negative externality on other uninformed buyers data support the model s negative externality result when sellers face a large number of robot buyers that are programmed to search optimally observed prices conform to the model s comparative statics and are broadly consistent with predicted levels with human buyers however excessive search instigates increased price competition and sellers post prices that are significantly lower than predicted

inter regional insurance this paper considers the problem facing a central government which can insure regional governments by use of intergovernmental grants against region specific and privately observed shocks either to income or demand for or cost of the public good notable results are i depending on the source of the shock the grant may induce over or undersupply of the public good relative to the samuelson rule ii with public good spillovers between regions there is two way distortion of public good supply that is qualitatively different distortions relative to the samuelson rule for different values of the shock iii the solution to the central government s problem may depend qualitatively on whether regional taxation is lump sum or distortionary 1999 elsevier science s a all rights reserved

evaluating the efficiency and equity of federal fiscal equalization abstract theoretically federal transfers that make household location decisions efficient should ignore local cost differences subsidize positive externalities and offset differences in federal tax payments and local taxes levied on non residents but not local tax revenues from residents transfers that redistribute resources equitably across regions will likely target areas with individuals of low earnings potential or low real incomes applying these criteria empirically canadian equalization policy appears neither efficient nor equitable but exacerbates pre existing inefficiencies and underfunds minorities locational inefficiencies cost canada 0 41 of income annually and cause over funded provinces to have populations of 30 beyond their efficient long run levels

on models with an uncongestible public good and a continuum of consumers abstract this short note shows that models with an uncongestible or mildly congestible public good and a non atomic continuum of consumers have an interesting but unfortunate property only an infinite level of public good provision in the continuum economy can be approximated by feasible public good levels in a sequence of economies with finite populations we discuss the theoretical and practical problems this creates for familiar models that employ a continuum of consumers and a finite level of an uncongestible public good

designing tax policy in federalist economies an overview abstract the emerging economic federations of the european union russia and south africa along with the established federations in australia canada and the united states confront the task of designing the institutions for federal fiscal policy this paper reviews the literature on the design of tax policy in federalist economies we conclude that taxation by lower level governments can lead to significant economic inefficiencies and inequities the usual assignment view of federalis recommends central government policies for example resident based taxation or grants in aid to correct these failures these recommendations assume that the central government will act as a benevolent social planner the political economy view of federalism suggests that this assumption is in error and that additional federalist institutions must be considered alternative legislative structures and constitutional rules are considered

household migration and the local public sector evidence from sweden 1981 1984 westerlund o and wyzan m l 1995 household migration and the local public sector evidence from sweden 1981 1984 reg studies 29 145 157 in this paper the relationship between public sector attributes and household characteristics and swedish household migration 1981 4 is studied we report results separately for metropolitan and non metropolitan areas because the per capita levels of the tax base and intergovernmental grants are theoretically important migration determinants where population is sparse whilst the tax rate may be more important where population is dense because fiscal influences are likely to be stronger for short distance migration we apply multinomial logit to a three way choice set staying and migrating short and long distances empirical results support our fiscal hypotheses and are consistent with previous findings on household characteristics westerlund o et wyzan m l 1995 la migration des menages et le secteur public local des preuves provenant de la suede de

fiscal capacity tax effort and optimal equalization grants in this paper we address the question how should the tax burden in a feder ation be distributed across the different jurisdictions so that the social cost of providing government services is minimized using optimal tax theory we derive formulas for the optimal equalization grants that equalize the social marginal cost of raising revenue across all provinces we show how the optimal equalization grants are related to a measure of tax effort based on the marginal cost of public funds and a measure of fiscal capacity that takes into account the elasticity of the tax base and its substitutability with other tax bases

does the diversity of human capital increase gdp a comparison of education systems abstract this paper examines how different education systems affect gdp by influencing the diversity of human capital we construct an overlapping generation model in which agents are heterogeneous in income and innate ability and the final goods are produced with differentiated intermediate goods it is shown that under a realistic condition the diversity of human capital induced by income inequality always lowers the gdp of the next period while the diversity of human capital induced by heterogeneous ability can increase gdp if the produced intermediate goods are sufficiently substitutable and firms have a large span of control hence as public education equalizes education resources across households it mitigates the negative effect of income inequality on gdp while the effects of ability tracking crucially depend on the production structure of the economy

monopoly competition and information acquisition abstract an incumbent monopolist is uncertain about its linear demand but can acquire public information at a cost we determine how an entry threat affects the firm s information acquisition if returns to scale are constant and the state contingent demands become more dispersed as output increases then entry reduces information acquisition if however either the incumbent or entrant has increasing returns or if the state contingent demands are nonlinear or fail increasing dispersion then entry can increase information finally entry can hurt consumers although entry always increases output it can decrease information consumers sometimes prefer a better informed monopoly to a duopoly

trade and divergence in education systems this article presents a theory on the endogenous choice of education policy and the two way causal relationship between trade and education systems a country s education system determines its talent distribution and comparative advantage the possibility of trade by raising the returns to the sector of comparative advantage in turn induces countries to further differentiate their education systems and reinforces the initial pattern of comparative advantage specifically the nash equilibrium choice of education systems by two countries interacting strategically are necessarily more divergent than their autarky choices and yet less than what is socially optimal for the world

learning reputation and entry deterrence a chain store game with correlated entrants abstract this paper presents a chain store game in which the entrants types are correlated it argues that the uninformed incumbent will experiment to strategically learn or to remain uninformed about the entrants types and play tougher or softer initially when another potential entrant exists

keeping up with the portuguese joneses a study on the spatial dependence of municipal expenditure abstractmunicipalities tend to replicate the size and the composition of their neighbours expenditures independently of being ruled by left wing or right wing parties this is one important concl

outsourcing suppliers as downstream competitors biting the hand that feeds abstract in this paper we highlight an aspect of supplier opportunism in the outsourcing paradox that has largely been ignored by extant research the supplier as a direct competitor of the buyer firm in light of this paradox we offer a game theoretic framework in which we identify conditions under which firms could alleviate or mitigate this outsourcing problem our results show that apart from transaction costs firm level capabilities both ordinary and dynamic play important roles in determining the make only buy only or make and buy options a firm could exercise in countering the threat of the supplier as a potential competitor in the downstream marketplace

a dynamic equalisation model for economic and social capital grants with a south african example abstract a capital grant model has been developed which can be used in developing economies to allocate grants to sub national governments for economic or social capital the model allows these allocations to happen in a way that increases the value of the capital stock whilst at the same time addresses any inter regional inequities or economic inefficiencies the model is also applied to south africa as an illustrative example and the results of three model simulations for that country are presented there is a discussion of the data requirements for the model and how it might be replicated by researchers for other economies

a simple dynamic decentralized leadership model with private savings and local borrowing regulation abstract this paper considers a simple dynamic decentralized leadership model with local borrowing and regional productivity enhancing investment in this model the central government is benevolent but cannot commit to ex post intergovernmental transfer policies while local governments act strategically after accounting for the ex post motives of the central government we then investigate inefficiency in the subgame perfect equilibrium we analyze the effect of central control on local borrowing and show that central control is of no benefit because ex ante local taxation works to offset it we find the model yields different policy implications that central control is effective when extended to the case of residential mobility

entry and vertical differentiation this paper analyzes the entry of new products into vertically differentiated markets where an entrant and an incumbent compete in quantities the value of the new product is initially uncertain and new information is generated through purchases in the market we derive the unique markov perfect equilibrium of the infinite horizon game under the strong long run average payoff criterion the qualitative features of the optimal entry strategy are shown to depend exclusively on the relative ranking of established and new products based on current beliefs superior products are launched relatively slowly and at high initial prices whereas substitutes for existing products are launched aggressively at low initial prices the robustness of these results with respect to different model specifications is discussed

the economics of fiscal decentralization there is no complete overview or discussion of the literature of the economics of federalism and fiscal decentralization even though scholarly interest in the topic has been increasing significantly over recent years this paper provides a general brief but comprehensive overview of the main insights from the literature on fiscal federalism and decentralization in doing so literature on fiscal federalism and decentralization is grouped into two main approaches first generation approach and an emerging second generation approach the discussion generally covers the two notions of fiscal decentralization fiscal autonomy and fiscal importance of subnational governments as the background of the most recently developed index of fiscal decentralization in vo the relevance of this discussion to any further development of a fiscal decentralization index is briefly noted

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association

debt bailouts and constitutions a demand based theory of sub national debt bailouts is presented it is shown that revenue sharing rs arrangements alter the demand for bailouts among politicians with regional constituencies as a bailout usually implies a shift of taxation to the federal tier automatic rs may lead to the formation of pro bailout coalitions formed by indebted states and states that are net recipients of the rs arrangement also rs can act as a commitment device for compensating payments among state representatives making a bailout politically rational the model shows that the state debt bailouts approved by the brazilian senate prior to the enactment of the fiscal responsibility act were fully consistent with politicians that maximize the proceeds accruing to their constituencies

interregional redistribution and mobility in federations a positive approach the paper studies the effects and the determinants of interregional redistribution in a model of residential and political choice we find that paradoxical consequences of inter jurisdictional transfers arise if people are mobile while self sufficient regions are nec essarily identical with respect to policies and average incomes in our model interregional redistribution always leads to the divergence of regional policies and per capita incomes thus interregional redistribution prevents interregional equality at the same time however transfers may allow for more interpersonal equality among the inhabitants of each region the voting population may therefore in a decision over the fiscal constitution deliberately implement such a transfer scheme to foster regional divergence empirical evidence from panel data from oecd countries and candian provinces is consistent with the theory

product homogeneity as a prisoner s dilemma in a duopoly with r d abstract we prove that firms may decide to compete in undifferentiated products due to a prisoner s dilemma generated by externalities affecting r d in product innovation moreover the incentive to invest is higher under price competition than under quantity competition