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

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

changing threat perceptions and the efficient provisioning of international security this paper proposes a mechanism for structuring international institutions to efficiently provision global security against the threat of a rogue nation the effects of security effort by an alliance member are assumed to be non rival and non excludable for other members specifically this effort has both positive and negative effects as security measures prevent attacks by the rogue nation but also involves loss of commercial and diplomatic benefits further the alliance members are assumed to have heterogeneous tastes regarding the desired security level the allies act strategically vis a vis one another with regard to security provision and the alliance a whole acts strategically with respect to the rogue nation which strategizes in turn importantly this paper investigates how the evolution of public opinion in the respective countries facing the rogue nation s threat impacts the proposed mechanism

essays on duopoly competition with asymmetric firms is profit maximization always an evolutionary stable strategy abstract we propose both a well mixed and spatially structured evolutionary game to analyze the competitive behavior of retail firms in duopolistic markets firms from two different populations high low efficiency compete and the available strategies are i profit or ii revenue maximization under bounded rationality assumptions firms can update their behavior through dynamic learning mechanisms in addition to a replicator dynamics approach we develop an agent based model to increase realism and to capture possible spatial effects on firms strategic behavior a convergence between the methods is observed and given specific conditions revenue maximization may corresponds to an evolutionary stable strategy ess

sequential bargaining in a market with one seller and two different buyers abstract a matching and bargaining model in a market with one seller and two buyers differing only in their reservation price is analyzed no subgame perfect equilibrium exists for stationary strategies we demonstrate the existence of inefficient equilibria in which the low buyer receives the good with large probability even as friction becomes negligible we investigate the relationship between the use of nash and sequential bargaining nash bargaining seems applicable only when the sequential approach yields a unique stationary strategy subgame perfect equilibrium

market power in emission permit markets theory and evidence from the eu ets a well known result about market power in emission permit markets is that efficiency can be achieved by full free allocation to the dominant firm i show that this result breaks down when taking the interaction between input and output markets into account even if the dominant firm perceives market power in the permit market alone i then examine the empirical evidence for price manipulation by the ten largest electricity firms during phase i of the eu ets i find that some firms excess allowance holdings are consistent with strategic price manipulation and that they cannot be explained by price speculation or by precautionary purchases to insure against uncertain future emissions my results suggest that market power is likely to be an empirically relevant concern during the early years of emission permit markets

nash equilibria in models of fiscal competition abstract this paper analyzes nash equilibria in a simple model of an economy with jurisdictions engaging in fiscal competition small number nash equilibria in which tax rates are the strategic variables are shown not to coincide with nash equilibria in which public expenditure levels are the strategic variables

bargaining foundations of shapley value1 a transferable utility economy in which each agent holds a resource which can be used in combination with the resources of other agents to generate value according to the characteristic function v is studied using a dynamic model of bargaining the main theorem establishes that the payoffs associated with efficient equilibria converge to the agents shapley values as the time between periods of the dynamic game goes to zero in addition it is demonstrated that an efficient equilibrium exists and is unique when an additivity condition is satisfied to demonstrate the sensitivity of the solution to the institutional detail we modify the model to allow for partnerships and show that the shapley value is no longer achieved

equilibrium selection and the dynamic evolution of preferences abstract a population of fully rational agents plays a symmetric 2 player game in biological fitnesses but each agent s play is determined by his payoffs which are free to evolve according to survival of the fittest pressures an equilibrium selection mechanism is assumed to exist and deliver a unique outcome for any given profile of payoffs this allows the evolution of payoffs to be modeled as a well defined replicator dynamics the existing static stability results that efficient strict nash implies stability and stability implies efficiency are translated to this dynamic context although the latter gives way to indeterminacy in the absence of a specific equilibrium selection mechanism a strong form of stability is established for the efficient outcome of games with common interests whilst a weaker stability result is provided for efficient mixed strategy equilibria of doubly symmetric games the results are illustrated using the equilibrium selection mechanism provided by global games

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

supply chain disruption management and evolutionarily stable strategies of retailers in the quantity setting duopoly situation with homogeneous goods this paper develops an indirect evolutionary game model with two vertically integrated channels to study evolutionarily stable strategies ess of retailers in the quantity setting duopoly situation with homogeneous goods and analyzes the effects of the demand and raw material supply disruptions on the retailers strategies every channel consists of one manufacturer and many a sufficiently large number of retailers that sell products in different markets by adopting two pure marketing strategies profit maximization and revenue maximization we find that revenue maximization strategy may prevail and profit maximization strategy may become extinct two strategies may coexist i e all retailers in one channel will choose profit maximization strategy and all retailers in the other will choose revenue maximization strategy the ess of retailers depends on the relative size of the market scale and unit cost the supply chain disruptions affect the ess of retailers we also introduce a recovery model of the supply chain under disruptions and illustrate the effect of disruptions on the ess and on the average profits of channels in a market using a numerical simulation

using rank data to estimate health state utility models in this paper we report the estimation of conditional logistic regression models for the health utilities index mark 2 and the sf 6d using ordinal preference data the results are compared to the conventional regression models estimated from standard gamble data and to the observed mean standard gamble health state valuations for both the hui2 and the sf 6d the models estimated using ordinal data are broadly comparable to the models estimated on standard gamble data and the predictive performance of these models is close to that of the standard gamble models our research indicates that ordinal data have the potential to provide useful insights into community health state preferences however important questions remain

environmental policy in a federation with special interest politics and inter governmental grants the paper explores the potential effect of intergovernmental grants igg on sub national local environmental policy in a federal structure in the model a politically inclined local government receives campaign contributions from the polluters lobby in return for lower pollution taxes a benevolent federal government uses igg as an incentive to reduce the resulting distortion in the local pollution tax igg are formulaic transfers that are conditional on pollution levels lower pollution in a sub national jurisdiction relative to others translates into a higher share of the grant and vice versa in equilibrium the grant effect reduces the distortion created in the pollution tax by the lobby effect and may even lead to a higher than pigouvian tax when the local government assigns a large enough weight on social welfare and or when the grant is large enough further igg result in the tax levels of jurisdictions becoming interdependent in an interesting way environmental policies in two jurisdictions may become strategic complements or substitutes depending on their relative pollution levels the possibility of strategic substitution implies that federal welfare may not increase even when environmental policy becomes stricter in one state

longitudinal methods to investigate the role of health determinants in the dynamics of income related health inequality the usual starting point for understanding changes in income related health inequality irhi over time has been regression based decomposition procedures for the health concentration index however the reliance on repeated cross sectional analysis for this purpose prevents both the appropriate specification of the health function as a dynamic model and the identification of important determinants of the transition processes underlying irhi changes such as those relating to mortality this paper overcomes these limitations by developing alternative longitudinal procedures to analyse the role of health determinants in driving changes in irhi through both morbidity changes and mortality with our dynamic modelling framework also serving to identify their contribution to long run or structural irhi the approach is illustrated by an empirical analysis of the causes of the increase in irhi in great britain between 1999 and 2004

money burning and multiple equilibria in bargaining abstract this paper synthesizes recent work on delay and multiple equilibria in complete information rubinstein bargaining we identify a general principle money burning underlying prior results and develop a general model of the phenomena money burning is a threat by one player to destroy surplus which can serve to enhance that player s bargaining power if it is credible our results show that the uniqueness and efficiency properties of the subgame perfect equilibrium of rubinstein bargaining are vulnerable to players ability to burn money journal of economic literature classification number 026

stochastic programming for decentralized newsvendor with transshipment abstract this paper discusses a family of two stage decentralized inventory problems using a unifying framework taxonomy depicted as a multilevel graph this framework allows us to model and link different problems of competing retailers who independently procure inventory in response to uncertain demand and anticipated inventory decisions of other retailers in this family of problems in the ex post stage the retailers exercise recourse actions in response to the realized demand and competitors chosen procurement levels for example retailers could coordinate inventory transshipment to satisfy shortage with overage based on profit sharing agreements our framework provides a unifying parsimonious view using a single methodological prism for a variety of problems equally importantly as recourse options are laid out our framework clarifies and contributes a modeling connection between problems in a clear taxonomy of models this unifying perspective explicitly links work that appeared in isolation and offers future research directions

vertical foreclosure with the choice of input specifications we develop an equilibrium model of vertical foreclosure with the choice of input specifications vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would as an independent firm provide a generalized input the changes in incentives with vertical integration can be explained by the externalities the choice of a specialized input entails vertical integration allows the upstream firm to internalize the benefit of raising the rival firm s costs at the downstream level we derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences

firm survival and industry evolution in vertically related populations this paper examines how the density and governance of vertically related populations affect the life chances of organizations we integrate the literatures on organizational ecology and vertical integration to develop a theory of how 1 specialized upstream industries affect downstream survival rates 2 the prevalence of different governance forms among upstream and downstream organizations moderates this relationship and 3 different forms of governance exert differential competitive pressures on focal organizations we find evidence supporting our hypotheses in an empirical examination of the downstream laser printer industry and upstream laser engine industry this paper was accepted by jesper sorensen organizations

on the efficiency of decentralized exchange with resale possibilities this paper studies decentralized exchange by bilateral matching and bargaining when resale is possible decentralized exchange involves the risk that goods and services may be allocated inefficiently if low valuation buyers consume while high valuation buyers do not then social welfare is reduced if resale is possible and transaction costs are negligible we would nevertheless expect an efficient allocation to result from decentralized exchange this paper suggests that this depends on the nature of the commodity while the allocation of a durable good will be efficient the allocation of a consumable good need not

modelling sf 6d health state preference data using a nonparametric bayesian method this paper reports on the findings from applying a new approach to modelling health state valuation data the approach applies a nonparametric model to estimate sf 6d health state utility values using bayesian methods the data set is the uk sf 6d valuation study where a sample of 249 states defined by the sf 6d a derivative of the sf 36 was valued by a representative sample of the uk general population using standard gamble the paper presents the results from applying the nonparametric model and comparing it to the original model estimated using a conventional parametric random effects model the two models are compared theoretically and in terms of empirical performance the paper discusses the implications of these results for future applications of the sf 6d and further work in this field

changes in health related quality of life a compensating income variation approach this paper investigates the relationship between negative changes in health and life satisfaction using a sample from the household income and labour dynamics of australia survey we use panel da

using discrete choice experiments to estimate a preference based measure of outcome an application to social care for older people this paper reports the results of a study that used discrete choice experiment dce methodology to estimate quality weights for a of social care outcome measure to reflect different states of need a five dimensional profile measure was developed experimental design techniques were used to derive a sample of states for which preferences were elicited the dce approach was employed to elicit values and regression techniques used to estimate a model that could predict index scores for all 243 possible outcomes the utility model estimated on the basis of 297 responses had good test retest reliability and converged with preferences elicited from a rating exercise

the effects of a content requirement on a foreign duopsonist abstract this paper considers the operation of a local content requirement in a duopsony between domestic and foreign firms and demonstrates its consequences for the domestic producer of a final good it is shown that content protection may have perverse effects on a foreign firm s profits and may be welfare improving overall shifting profits from the domestic firm to both the foreign firm and domestic input producers

health care costs on the rise again since 1999 health care costs have been growing faster than national income this rapid growth has occurred as the ability of private and public purchasers to reduce service utilization and bargain for lower prices has fallen insurers have recouped lost profits through higher premiums and new technologies have driven up costs throughout the sector private insurance market responses to these rising costs may lead to reductions in the number of people with insurance and to increased fragmentation of the insurance market over time technological change in medicine both increases costs and improves the quality of care the challenge for public policy is to maintain insurance and some degree of equity in the face of these rising costs

estimating the population utility function a parametric bayesian approach abstract in this paper we consider the health utility index mark ii for quantifying and describing a population s health related quality of life over health states composed of multiple attributes this measure can be used for various purposes such as evaluating the severity of the effect of a disease or comparing different treatment methods we present a bayesian framework for population utility estimation and health policy evaluation by introducing a probabilistic interpretation of the multi attribute utility theory maut used in health economics in doing so our approach combines ideas from the maut and bayesian statistics and provides an alternative method of modeling preferences and utility estimation

on the evolutionary stability of altruistic and spiteful preferences abstract this note demonstrates that a result on evolutionary stability presented by bester and guth bester h guth w 1998 journal of economic behavior and organization 34 193 209 applies under more general preference and payoff functions

trade wars and trade talks when governments meet in the international arena their actions reflect the political situations at home previous studies of trade relations have focused on governments that are immune from political pressures and that act as benevolent servants of the public interest here we introduce domestic politics into the analysis of international economic relations we study the interactions between national leaders who are concerned both with providing a high standard of living to the general electorate and collecting campaign contributions from special interest groups our analysis sheds light on the determinants of the structure of protection in non cooperative and cooperative policy equilibria

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

the evolution of preferences and competition a rationalization of veblen s theory of invidious comparisons we examine how preferences evolve by natural selection in a competitive environment similar to that characterizing much of our evolutionary past we find that the evolutionarily stable preferences in this context exhibit a concern not only for absolute payoffs but also for relative payoffs and that this intensifies the degree of competition relative to what obtains when players consider only absolute payoffs we argue that this has consequences for the equilibrium population size we argue that the premise of this analysis is consistent with the available anthropological evidence and that the prediction is broadly consistent with the findings of experimental game theory

resale markets and the assignment of property rights the consumption of an indivisible good causes identity dependent externalities to non consumers we analyse resale markets where the current owner designs the trading procedure but cannot commit to future actions we ask the following questions 1 doer the identity of the initial owner matter for the determination of the final consumer 2 is the outcome always efficient the major conclusion of our paper is that the irrelevance of the initial structure of property rights arises in resale processes even if there are transaction costs that hinder efficiency this result complements the coasian view where the irrelevance of the assignment of property rights is a consequence of efficiency

the distribution of wealth and the efficiency of institutions the distribution of wealth and the efficiency of institutions this paper explores the effect on economic efficiency of the distribution of wealth and systems for enforcing property rights we construct a two person two period economy in which each person can consume plant transfer or steal corn we find circumstances in which redistribution of wealth is pareto optimal and in which increasing sanctions against theft to their maximum level is not these results suggest that it is not only important to consider distribution in the design of property institutions but also that redistribution itself may serve to increase the efficiency of systems of property rights i introduction a fundamental insight of economics is that property rights may foster creation of wealth nevertheless property rights which can be freely violated serve no function so that to be meaningful they must be enforceable effective enforcement requires the existence of enforcement systems to monitor violations impose sanctions and provide for restitution of stolen property an effective enforcement system produces obvious desirable effects by deterring theft and providing for restitution it assures that individuals will appropriate the fruits of their labors and hence enforcement serves to increase efficiency it is a standard observation in the literature on crime and punishment that the possibility of crime may lead potential victims to alter their behavior in efficiency reducing ways the possibility of street crime may for example empty the streets neher 1978 conversely the establishment of an effective enforcement system can return people to the streets both by deterring theft or reducing the probability that it will occur and by providing for restitution in the event theft occurs and the thief is apprehended we refer to these efficiency enhancing effects of enforcement as deterrence and restitution effects however the benefits of operating an enforcement system must be weighed against its costs such a system may be resource using and may yield undesirable as well as desirable effects thus maintaining a criminal justice system entails direct costs resources to operate a police force courts and prisons and indirect costs in that potential criminals may modify their behavior to adjust to the prospect of sanctions in efficiency reducing ways see becker 1968 usher 1986 a criminal may for instance dissipate resources in the face of expected sanctions or otherwise deploy them in an inefficient fashion to escape appropriation hence the tendency of criminals to exhibit apparently high discount rates observed by wilson and herrnstein 1985 may reflect the prospect of sanction rather than indicate a strong preference for immediate gratification as they suggest likewise the reduced risk of appropriation may explain the willingness of criminals to pay large transactions costs to maintain secrecy in swiss bank accounts we refer to these efficiency reducing effects of enforcement systems as sanction effects cheung 1970 and others have observed that the costs of enforcing property rights may depend on their distribution 1 ehrlich s 1973 finding that there is a positive relation between the level of crime and the degree of income inequality is supportive of this view beyond this it has frequently been suggested that redistribution may increase respect for property rights along with monitoring and sanctions the notion that giving people more to lose can render them more law abiding is central to liberal theories of rehabilitation it is also embedded in efficiency wage models where high wages are shown to be economical to the extent they increase the efficacy of sanctions and extend an employer s basis for control see for example eaton and white 1983 yellen 1984 any wealth transfers to individuals must of course come from other individuals

us and them the origin of identity and its economic implications we investigate the origins of identity and the innate proclivity to draw a distinction between insiders and outsiders we propose an evolutionary explanation we argue that identity arises because it facilitates survival in an evolutionary setting we endogenize preferences and demonstrate that the evolutionarily stable preferences fashioned by natural selection would draw a distinction between insiders and outsiders we then work out the implications of such preferences in two contemporary scenarios one entailing rent seeking behavior and the other involving public good provision our results are in conformity with empirical evidence

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

political consumerism and public policy good complements against market failures political consumerism has become over the past years an ever growing phenomenon by which citizens express through their consumption their political environmental and ethical opinions this paper discusses political consumerism from an economic science perspective focusing on the link between political consumerism and public policies it wonders to what extent political consumerism may represent an effective and fair instrument against market failures overall it seems that it would be better to consider it as a complement to conventional public policies

good times bad times and vertical upstream integration abstract we consider a set of downstream firms each of which has a stochastic requirement for a particular input downstream firms can produce the input themselves yet do not trade it upstream firms produce the input to sell it through a walrasian market to downstream firms efficient pooling of capacities requires the input to be produced by upstream firms and traded in the market yet downstream firms will always vertically integrate by producing some of its own input needs a downstream firm cuts down on aggregate input demand thus depressing prices in the market

the failing firm defense this paper evaluates the welfare consequences of the failing firm defense ffd in the eu and u s merger laws to this end i combine an oligopoly model with an endogenous valuations auction model the ffd is shown to work reasonably well for consumers unless small firms are too small the ffd may however lead to total surplus losses due to a least danger to competition ldc condition which favors small and thus possibly inefficient firms it is also shown that in a multi firm setting the ffd increases the incentive for predation only when the assets are industry specific

optimal cross licensing arrangements collusion versus entry deterrence this paper analyzes optimal cross licensing arrangements between incumbent firms in the presence of potential entrants the optimal cross licensing royalty rate trades off incentives to sustain a collusive outcome vis a vis incentives to deter entry with the threat of patent litigation we show that a positive cross licensing royalty rate which would otherwise relax competition and sustain a collusive outcome dulls incentives to litigate against entrants our analysis can shed light on the puzzling practice of royalty free cross licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry deterrence mechanism

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

frontrunners and laggards the strategy of environmental regulation under uncertainty the extant literature on the political economy of environmental regulation does not provide a unified theoretical explanation for three salient stylized facts first companies voluntarily invest to reduce the environmental burden that they cause under threat of regulation second ex ante estimates of the compliance cost tend to be systematically higher than ex post estimates finally regulators use limited information provided by the industry i construct a game theoretic model of environmental regulation under uncertainty with a benevolent regulator in equilibrium companies undertake voluntary action to induce regulation that raises barriers to entry this profit driven behavior is not always socially detrimental however as the regulator obtains a credible commitment to production and a more accurate estimate of the compliance cost additionally the results provide a selection explanation for the mismatch between ex ante and ex post cost estimates if companies condition compliance on the installation cost only low cost companies install in equilibrium the analysis combines regulatory capture with social welfare maximization to explain the curious combination of voluntary action and low ex post compliance cost without serious information collection by the regulator

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

competition in crime deterrence this paper studies competition between jurisdictions in the eradication of crime in one story criminals choose the jurisdiction in which they will commit their crimes while jurisdictions choose the amount of resources devoted to deterrence to protect local production in another story the criminals cannot change jurisdictions but they can not rob the owners of mobile capital jurisdictions choose the amount of resources devoted to the deterrence of local crime so as to secure property rights and to attract capital in both stories competition between jurisdictions leads to overdeterrence relative to the pareto optimal level

optimal protection of property rights in a general equilibrium model of growth we incorporate weak property rights into an otherwise standard general equilibrium model of growth and second best optimal policy in this setup the state plays two of its key roles it protects property rights and provides public services the government chooses policy the income tax rate as well as the allocation of collected tax revenues between law enforcement and public services to maximize the growth rate of the economy the focus of our analysis is on how weak property rights generate multiple decentralized competitive equilibria the different properties of these equilibria and the implications of second best optimal policies

multi sector model of tradable emission permits this paper presents a multi sector model of tradable emission permits which includes oligopolistic and perfectly competitive industries the firms in oligopolistic industries are assumed to exercise market power in the tradable permit market as well as in the product market specifically we examine the effects of the initial permit allocation on the equilibrium outcomes focusing on the interaction among these product and permit markets it is shown that raising the number of initial permits allocated to one firm in an oligopolistic industry increases the output produced by that firm under certain conditions raising a clean less polluting firm s share of the initial permits can lead to reductions in both the product and permit prices we discuss criteria for the socially optimal allocation of initial permits considering the trade off between production inefficiency and consumer benefit

endogenous protection foreign direct investment and protection building trade abstract we introduce the possibility of foreign direct investment fdi in a strategic oligopolistic setting with endogenous protection and find that a number of unique subgame perfect equilibria may arise including a new result we call protection building trade this phenomenon occurs in our model when foreign firms locating production in the home country try to increase protectionist pressures in the home country through increased exports to provide larger barriers against other foreign competitors in future periods we discuss how the foreign firm behavior surrounding significant u s protectionist actions including the vers on japanese automobiles may be consistent with protection building trade behavior

evolution and kantian morality what kind of preferences should one expect evolution to favor we propose a definition of evolutionary stability of preferences in interactions in groups of arbitrary finite size groups are formed under random matching that may be assortative individuals preferences are their private information the set of potential preferences are all those that can be represented by continuous functions we show that a certain class of such preferences that combine self interest with morality of a kantian flavor are evolutionarily stable and that preferences resulting in other behaviors are evolutionarily unstable we also establish a connection between evolutionary stability of preferences and a generalized version of maynard smith s and price s 1973 notion of evolutionary stability of strategies

the evolutionary logic of honoring sunk costs i introduction economists claim that sunk costs should not figure in current decision making because by definition these expenditures cannot be retrieved and should be treated as bygones but there is a large literature both experimental and anecdotal in which people are observed to waste resources by honoring bygones that could not possibly make them better off see e g arkes and blumer 1985 arkes and ayton 1999 mcafee mialon and mialon 2010 thaler 1980 such excess in wasting resources is unlikely to have been tolerated by nature in the process of evolution if it did not serve some purpose to enhance fitness in our remote past the purpose of this study is to suggest such a function whereby evolutionary processes have hardwired a concern for sunk costs in human decision making 1 the concept of honoring sunk costs has been referred to in the literature as the concorde fallacy 2 arkes and blumer 1985 have a number of other examples of good money being thrown after bad economists have provided various explanations for why sunk costs appear salient to humans kanodia bushman and dickhaut 1989 and prendergast and stole 1996 propose a theory where reputational effects make agents unwilling to change their decisions mcafee mialon and mialon 2010 have suggested several models involving information content reputation or constraints on decision making that provide rational reasons for taking sunk costs into account likewise baliga and ely 2011 have proposed a model in which sunk costs may acquire salience as a memory kludge because they may contain information about the value of a project previously initiated but whose value has now been forgotten carmichael and macleod 2003 have proposed a model where in a bilateral bargaining situation the norm of taking account of sunk costs resolves the hold up problem that typically results in underinvestment thaler 1980 arkes and blumer 1985 and whyte 1986 suggested a prospect theory approach to understanding sunk cost effects arkes and blumer 1985 the philosopher nozick 1993 and others have argued that honoring sunk costs can alleviate problems of time inconsistency and temptation john may believe that going to the theater is a good thing but when the time comes he cannot rouse himself to do so because it would require relinquishing whatever else appears appealing at the time to circumvent this john buys tickets in advance as a precommitment device but to do this he must believe in the first place that his future self is going to honor sunk costs 3 whatever the reason for the time inconsistent preferences say hyperbolic discounting the honoring of sunk costs may be used to remedy the problem of time inconsistency but nozick for example offers no reason for why sunk costs are honored in the first place we offer an evolutionary reason to suggest why nature may have hardwired a proclivity in humans to honor sunks costs a reason that differs from those offered in the articles cited above we propose that the built in salience of sunk costs is an adaptation to the problem of self control self control problems may arise in decision making because contrary to our untutored perceptions the human brain has a triune 4 rather than a unitary structure maclean 1989 panksepp 1998 because of the way the brain has evolved different regions within it defined by their own neuroanatomical and neurochemical features deal with different aspects of action and behavior although interconnected through chemical and neuronal pathways the different control centers tend to act autonomously and may conflict in their responses to stimuli when the emotional or motivational centers which lie in the sub cortical limbic system push us to certain actions that the rational persona in the cortex wishes to deny there is a conflict and the problem of self control arises panksepp 1998 301 notes

a characterization for the negative welfare effects of cost reduction in cournot oligopoly abstract this paper characterizes the welfare effects of cost reductions in a cournot model with linear costs under linear demand a small reduction in a firm s marginal cost reduces welfare if and only if its market share is less than 1 2n 2 or equivalently its marginal cost exceeds a critical level determined by the market a large cost reduction by the firm increases welfare if and only if its magnitude is at least twice the difference between the current marginal cost and its critical value the paper also extends the results to non linear demand but the characterizations become less tractable

selective contracts foreclosure and the chicago school view abstract i examine a mechanism by which exclusive supply contracts may inefficiently deter entry into the market in the model the incumbent supplier selectively offers contracts only to some buyers and convinces them to consent by guaranteeing them low prices the contracts strengthen the monopoly position of the incumbent supplier and allow it to extract rents from the remaining buyers that were not offered contracts aside from the favorable contract terms buyers have another reason to consent to the exclusivity scheme the latter raises the input costs of rival buyers that were not offered contracts the model has potential applications to the recent microsoft antitrust case 1994 i define exclusive supply contract as an agreement under which an upstream firm becomes the exclusive supplier of a downstream firm the downstream firm is prohibited from buying from other suppliers

the evolutionary role of toughness in bargaining the experimental evidence on the endowment effect kahneman et al j polit economy 98 1990 1325 1348 and the self serving bias in negotiations babcok and loewenstein j econ perspect 11 1997 1337 1343 suggests that individuals enter a tough state of mind when they have to make a stand vis a vis somebody else in this work we show how a toughness bias in bargaining may indeed be evolutionary viable when the inherent toughness of the bargainer is observed by the opponent this opponent will adjust his behavior accordingly in a way which may enhance the actual payoff of the biased bargainer suppose then that a population consists initially of individuals with different inherent degrees of toughness or softness they are often matched at random to bargain and biases which are objectively more successful tend to appear more frequently in the society we characterize a salient class of bargaining mechanisms under which the population will consist asymptotically of individuals with some moderate degree of toughness

competition policy in the united states an overview this paper provides a summary of the basic policies in the united states that affect the state of competition in u s markets much of the paper focuses on antitrust policy but a substantial fraction of the paper is devoted to regulatory policies for both types of policies the paper explains the basic structures of the policies and also provides discussions of recent developments copyright 1993 by oxford university press

the estimation of a preference based measure of health from the sf 36 this paper reports on the findings of a study to derive a preference based measure of health from the sf 36 for use in economic evaluation the sf 36 was revised into a six dimensional health state classification called the sf 6d a sample of 249 states defined by the sf 6d have been valued by a representative sample of 611 members of the uk general population using standard gamble models are estimated for predicting health state valuations for all 18 000 states defined by the sf 6d the econometric modelling had to cope with the hierarchical nature of the data and its skewed distribution the recommended models have produced significant coefficients for levels of the sf 6d which are robust across model specification however there are concerns with some inconsistent estimates and over prediction of the value of the poorest health states these problems must be weighed against the rich descriptive ability of the sf 6d and the potential application of these models to existing and future sf 36 data set

an experimental evaluation of strategic preemption abstract this paper reports the results of a series of two stage two person noncooperative games where one player can strategically preempt the other in one of our designs the subgame perfect equilibrium entails complete preemption in the other it entails partial preemption the data show that players tend to completely preempt when it is privately optimal however when partial preemption is privately optimal a non trivial fraction of players persist in choosing the non preemptive structure this may result because of occasional irrational behavior following preemptive play which induces some dominant agents to play less aggressively

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

is altruism evolutionarily stable and envy and malevolence remarks on bester and guth abstract in a convincing analysis of the conditions and strength of altruism bester and guth journal of economic behavior organization vol 34 1998 193 209 unfortunately restrict the interpretation of their results their paper provides us with an analysis of the conditions and strength of malevolence or envy as well

endogenous timing in the presence of non monotonicities the aim of this paper is to generalize the endogenous timing game proposed by hamilton and slutsky games and economic behavior 1990 2 pp 29 46 by allowing the payoff or the marginal payoff of a player to become non monotonic with respect to the strategy of the opponent we propose a taxonomy of the subgame perfect nash equilibria based on the characteristics of the payoff functions proposed by eaton canadian journal of economics 2004 37 pp 805 29 we determine under which conditions of the initial payoff functions commitment has a social value and when the simultaneous move nash equilibrium is commitment robust and discuss its pareto efficiency

an empirical test of the resource based theory strategic regulation in the dutch audit industry the resource based view of the firm is a recent strategic management theory that seeks to identify the resources that may provide firms with a sustainable competitive advantage this paper has two purposes first the paper relates strategic management arguments to parallel lines of reasoning in industrial organization theory and argues that strategic regulation is a major source of sustainable competitive advantage the second purpose of the paper is to report the results of an empirical test of the resource based theory on the basis of a longitudinal data set on the postwar history of the dutch audit industry a key determinant of this history proves to be strategic regulation which stimulates demand for audit services and protects rent producing resources

inventory holding as a strategic weapon to deter entry recent papers by dixit 1980 and eaton and lipsey 1981 have explored the strategic use of committed product specific capital by an incumbent firm in order to influence a post entry equilibrium and in some cases make entry unattractive by committing or sinking part of the production costs prior to entry the incumbent creates a credible shift in its own reaction function if entry should occur in this way the payoffs in the post entry equilibrium can be influenced to the incumbent s advantage the entry game thus consists of two stages the first in which the incumbent is able to strategically commit itself prior to entry and the second or post entry period in which a duopoly equilibrium is realized the more costs that are put up front by the incumbent the greater is the post entry output it will wish to sell for a given output of the entrant and the lower will be the resulting equilibrium price if the set up or fixed costs of entry are sufficiently high entry may be rendered unprofitable this paper extends the idea in a natural way all the production costs of a quantity of output can be sunk or committed by stockpiling inventory of the product the stock of inventory held by the incumbent firm represents a credible shift in its reaction function in response to entry in the following way the inventory is a stock that can be sold off over time in a way consistent with intertemporal profit maximization constrained by the presence of the entrant moreover the threat to sell off the inventory in response to entry is credible since given that entry has occurred the opportunity cost of the inventory is zero it seems reasonable to require that any strategic asymmetry between incumbent and entrant should be restricted to commitments made by the former prior to entry conditional on such commitments the post entry game should give neither firm a strategic advantage this requirement is the same as the game theoretic concept of perfectness 1 entry can be credibly deterred because the entrant knows that were entry to take place it would be in the incumbent s own interest to follow the anticipated sales programme of inventory in order to demonstrate that entry may be deterred by holding a stock of inventory that is sufficiently large that deterrence can be made the perfect equilibrium of the complete entry game the properties of the equilibrium with entry must be derived the post entry equilibrium is modelled here as a pair of nash strategies in sales programmes if the sales programme anticipated by the entrant in the post entry equilibrium implies a negative present value entry will be deterred thus successful entry deterrence implies that the equilibrium with entry is never realized the incumbent can then continue to receive monopoly profits less the holding cost of the inventory which serves as a credible deterrent to entry but is never sold

multi attribute utility function or statistical inference models a comparison of health state valuation models using the hui2 health state classification system a key issue in health state valuation modelling is the choice of functional form the two most frequently used preference based instruments adopt different approaches one based on multi attribute utility theory maut the other on statistical analysis there has been no comparison of these alternative approaches in the context of health economics we report a comparison of these approaches for the health utilities index mark 2 the statistical inference model predicts more accurately than the one based on maut we discuss possible explanations for the differences in performance the importance of the findings and implications for future research

measurement of health state utilities for economic appraisal health status measurement for use in economic appraisal of health care programmes is reviewed in this paper with particular emphasis on utility measurement a framework for economic appraisal is presented displaying the various components that must be measured and showing how the three forms of analysis cost effectiveness analysis cost benefit analysis and cost utility analysis relate to the framework and to each other one of the components in the framework is health status it can be measured using ad hoc numeric scales willingness to pay receive or health state utilities the determination of health state utilities is reviewed covering the following issues alternative sources of utilities health state descriptions multi attribute utility approach determination of appropriate subjects utility aggregation and accuracy three measurement techniques for health state utilities are described in detail rating scale standard gamble and time trade off the use of these methods is described for both chronic and temporary health states and for both health states considered better than death and those considered worse than death

upgrades switching costs and the leverage theory of tying this article investigates the role of product upgrades and consumer switching costs in the tying of complementary products previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential where essential means that all uses of the complementary good require the initial monopolised product we show that this is not true in settings characterised by product upgrades and consumer switching costs we also discuss various extensions including the role of the reversibility of tying

caveat innovator strategic and structural characteristics of new product introductions abstract the assumptions underlying models of strategic behavior by incumbents are evaluated using a case study of a ground coffee product introduction the assumption underlying earlier strategic models that the entrant does not know the incumbent s payoffs after strategic have been tested does not appear to apply instead strategic behavior is observed to hinge on ex ante uncertainty about the structure of the payoff matrix and the incremental decision making which this uncertainty spawns in this environment strategies which create noise can slow learning and delay entry

homo moralis preference evolution under incomplete information and assortative matching what preferences will prevail in a society of rational individuals when preference evolution is driven by the resulting payoffs we show that when individuals preferences are their private information a convex combination of selfishness and morality stands out as evolutionarily stable we call individuals with such preferences homo moralis a t one end of the spectrum is homo oeconomicus who acts so as to maximize his or her own payoff at the opposite end is homo kantiensis who does what would be the right thing to do in terms of payoffs if all others would do likewise we show that the stable degree of morality the weight placed on the moral goal is determined by the degree of assortativity in the process whereby individuals are matched to interact

regional free trade and social integration this paper analyzes recent free trade arrangements from a positive political economy perspective in contrast to most other literature which fails to take into account geographical factors it is argued here that proximity and transportation costs play an important role in trade arrangements another important also largely neglected factor is the degree of social cohesion in terms of labor standards among potential trading partners a political support maximizing government will consider these factors when balancing political support from free traders and protectionists

swords or plowshares a theory of the security of claims to property this paper develops a general equilibrium model of the allocation of resources among appropriative and productive activities the model emphasizes the distinction between offensive weapons which are the instruments of predation and fortifications which provide defense against predation the analysis of this model shows how the equilibrium security of claims to property is determined the analysis focuses on the possibility of a nonaggressive equilibrium in which no resources are allocated to offensive weapons and claims to property are fully secure we also analyze the complex relation between economic welfare and the security of claims to property we find for example that a relatively poor agent could be better off in an equilibrium with less secure claims to property

global terrorism deterrence versus pre emption this paper analyses two anti terrorism policies when a targeted nation s people and property are in jeopardy at home and abroad a country s deterrence decision involves both external benefits and costs as the terrorist threat is deflected while its preemption decision typically gives external benefits when the threat is reduced for all potential targets with damages limited to home interests a country will overdeter while for globalized terror a country will underdeter pre emption is usually undersupplied leader follower behaviour is apt to lessen inefficiency for deterrence but worsen inefficiency for pre emption compared with simultaneous choice equilibrium allocations targeted nations can never achieve the proper counterterrorism policy through leadership ce memoire analyse deux politiques anti terrorisme quand la population et la propriete des nations visees sont en danger tant au pays qu a l etranger la decision de dissuasion d un pays entraine des avantages et des couts externes a proportion que la menace terroriste est evitee alors que la decision de preemption produit typiquement des avantages externes quand la menace est reduite pour toutes les cibles potentielles dans le cas de dommages limites aux cibles dans le pays un pays va etre portea sur dissuader alors que dans le cas de terreur globalisee un pays va etre portea sous dissuader la preemption est generalement sous offerte le comportement leader suiveur est susceptible de reduire l inefficacite de la dissuasion mais d empirer l inefficacite de la preemption par rapport a ce qui se passe quand les choix sont simultanes les nations visees ne peuvent jamais en arriver a la politique d anti terrorisme appropriee par la voie du leadership

role dependent social preferences bargaining results emerge from the interplay of strategic options and social preferences for every bargaining game however the advantage of a player having certain preferences in terms of negotiated equilibrium revenues might differ we explore the hypothesis that preferences change according to the players strength combination simple 1 1 bargaining experiments from the literature are discussed and 2 2 as well as 2 3 assignment market experiments with possible renegotiations are investigated the assumption that players adopt preferences for two to five roles defined by strength combinations of the two bargainers explains the experimental results better than individually constant preferences

the mortensen rule and efficient coordination unemployment we study the implementation of constrained efficient allocations in labour markets where a basic coordination problem leads to an equilibrium matching function we argue that these allocations can be achieved in equilibrium if wages are determined by ex post bidding this holds true even in finite sized markets where the equilibrium matching function has decreasing returns to scale where the hosios rule does not apply both with and without heterogeneity this wage determination mechanism is similar to the one proposed by mortensen 1982 in a different setting

a signaling model of environmental overcompliance abstract we present a theory of unilateral regulatory overcompliance as a signaling device firms that have a competitive advantage in the use of a cleaner but more costly technology overcomply in order to signal to an imperfectly informed benevolent government that compliance costs are low thereby triggering tougher regulation we identify the conditions under which such an overcompliance signaling equilibrium arises showing that there may be over overcompliance in that firms may overcomply even when tougher regulation is not socially desirable we also discuss the differential implications of the signaling theory as compared to other theories of unilateral regulatory overcompliance

the elementary economics of social dilemmas a social dilemma is in essence a prisoners dilemma in a continuous strategy space i discuss a number of social dilemmas that have caught my attention offer an elementary diagrammatic synthesis of them and discuss some of the economic insights that the diagrams capture including incentives for pre commitment finally i model pre commitment via delegation and link results to the literature on the evolution of preferences l economie elementaire des dilemmes sociaux un dilemme social est essentiellement un dilemme du prisonnier dans un espace continu de strategie l auteur discute d un certain nombre de dilemmes sociaux qui ont retenu son attention il en propose une synthese graphique elementaire et discute certaines des suggestions economiques qui decoulent de ces diagrammes comme par exemple les incitations a se pre engager finalement l auteur construit un modele de pre engagement par delegation et relie ses resultats a la litterature sur l evolution des references

endogenous timing in general rent seeking and conflict models we examine simultaneous versus sequential choice of effort in a two player contest the timing of moves determined in a preplay stage prior to the contest subgame as well as the value of the prize is allowed to be endogenous contrary to endogenous timing models with an exogenously fixed prize the present paper finds the following 1 players may decide to choose their effort simultaneously in the subgame perfect equilibrium spe of the extended game 2 the spe does not need to be unique in particular there is no unique spe with sequential moves if the direct costs of effort are zero 3 symmetry among players does not rule out incentives for precommitment to effort locally away from the cournot nash level 4 finally there may be no correlation between win probability and strategic incentives in our framework a finding most central in the analysis of fixed prize contests

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