strategic labour contracts labor contracts affect a firm s cost function and for this reason they can be used as a recommitment device to gain a strategic advantage against other firms in a model that is otherwise neutral it is found that if firms compete in prices then strategic considerations alone yield results similar to those obtained by c azariadis 1983 workers are underemployed and worse off in more adverse states of nature on the other hand if firms compete in quantities then the equilibrium contracts resemble those of j green and c kahn 1983 workers are overemployed and better off in more adverse states

a common agency with incomplete information in the present article i demonstrate that forming a common agency by oligopolistic firms may not be to their advantage if agents have access to private information about their costs bernheim and whinston 1985 1986 pointed out that a common agency allows the firms to sustain the collusive outcome by giving them a vehicle to internalize the externality generated by their pricing or output decisions if agents have access to private information the advantage pointed out by bernheim and whinston may be more than outweighed by the possible existence of an informational disadvantage specifically if the unit costs of different potential agents are correlated the firm may be more successful in extracting the informational rents of its agent if it contracts with an independent agent and not with the same agent as its rival firm when oligopolistic firms contract with independent agents the revenues of one firm reveal implicit information about the unit costs of agents serving competing firms in the same industry however if the unit costs of different agents are correlated revenues also reflect information about the unit cost of the firm s own agent this additional information transmitted by revenues cannot be controlled by the agent s reporting behavior as a result if the firm conditions its agent s payoff upon revenues it can limit the informational rents that this agent can secure due to the existence of private information this possibility of limiting its agent s informational rents is eliminated if the firm contracts with the same agent as its rivals with a common agency the agent can manipulate the reports delivered to all the firms thus reducing the options available to each of them various patterns of agency relationship exist in markets where oligopolistic producers

delegation and commitment in durable goods monopolies this paper studies a simultaneous move infinite horizon delegation game in which the principal of a durable goods monopoly entrusts pricing decisions to a manager who enjoys consuming her monetary rewards but dislikes production effort the delegation contract allows for continual interference with managerial incentives in each period the principal rewards the manager according to her performance we show that when the cost of delegation is low relative to profits the principal can attain the precommitment price plan in a perfect rational expectations equilibrium the paper analyzes the robustness of this result under alternative specifications of timing and objectives we also provide a numerical characterization of the equilibrium strategies for the case of linear quadratic payoffs

strategic delegation by unobservable incentive contracts many strategic interactions in the real world take place among delegates empowered to act on behalf of others managers make strategic decisions that affect profits sales persons have power over setting prices and lawyers and sports agents represent their clients in bargaining processes one of the central messages of game theory is that this could be at least partly due to the strategic advantage delegation may provide to the delegating party the idea that signing binding and publicly observable contracts with a third party may serve as a beneficial commitment device goes back at least to schelling 1960 and has been put into use in many areas of economics 1 however the observability of contracts appears to be a precondition for them to play a commitment role and for this reason almost all applications of strategic delegation theory are couched in terms of observable contracts the formalization of this intuition is given by katz 1991 who showed that if contracts are unobservable then the nash equilibrium outcomes of a game with and without delegation coincide in particular delegation through unobservable contracts does not change the predicted outcome of games with a unique nash equilibrium these observations in turn call the empirical relevance of the applied delegation studies into serious question since in most real world transactions the signed contracts are unobservable to the outside parties however there are important strategic environments that fall outside the confines of katz s analysis first katz s model does not include the scenarios in which the outcome of the decision of delegating or not delegating is observable to the outside party in contrast in some models it is natural that the outside party observes the outcome of this decision simply because s he

executive compensation strategic competition and relative performance evaluation theory and evidence we examine compensation contracts for managers in imperfectly competitive product markets we show that strategic interactions among firms can explain the lack of relative performance based incentives in which compensation decreases with rival firm performance the need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance firms in more competitive industries place greater weight on rival firm performance relative to own firm performance we find empirical evidence of a positive sensitivity of compensation to rival firm performance that is increasing in the degree of competition in the industry

optimal collusion with internal contracting abstract in this paper two firms play an infinitely repeated bertrand game and each firm has an agent who produces the firm s output and holds private information about production costs the colluding firms fix prices and allocate market shares based on their agents information we develop a model of collusion in which firms use the presence of agents as a strategic opportunity to restrict their incentives to distort private information we show that such firm behavior may expand the scope of optimal collusion whether market allocation schemes are asymmetric or symmetric

when not all conflict is bad manufacturing marketing conflict and strategic incentive design researchers and managers broadly agree that coordination and harmony between manufacturing and marketing improve firm performance by eliminating suboptimal practices within the firm in this paper we present a contrasting view of the manufacturing marketing interface we model a duopoly in which the firms compete on price and quality dimensions the manufacturing and marketing managers within each firm are presented with conflicting incentives focused on cost minimization and revenue maximization respectively these managers bargain with each other before arriving at compromise decisions regarding price and quality while frequently encountered in practice this conflicting objectives puzzle is surprising because one expects that centralized coordination by the owners of the firm towards profit maximization would lead to higher profits in this paper we resolve the conflicting objectives puzzle and demonstrate that surprisingly the firm s resulting profits in this setting of conflict can be higher than those obtained when the decisions of the managers are perfectly coordinated we also analyze the equilibrium in incentive plans when the owners can choose between compromise and perfect coordination our results offer a new interpretation of manufacturing marketing conflict as a strategic tool that can enhance firm profits

competing vertical structures precommitment and renegotiation we consider a model where two agents privately informed about their own characteristics play a normal form game on behalf of two uninformed principals we analyze the existence of precommitment effects through public announcements of contracts in a model where agency contracts designed ex ante can always be secretly renegotiated at the ex ante and interim stages we show that the existence of precommitment effects depends both on the strategic complementarity of the agents actions and on the direct effect of the opponents actions on each principal s welfare in our model the possibility of renegotiation is crucial for the existence of precommitment effects the results are introduced through an example of cournot and bertrand competition between firms viewed as vertical structures

do state trading exporters distort trade abstract in this paper we analyse the trade distorting effects of state trading enterprises stes which exist in some exporting countries because of these potential effects several countries have raised the issue of state enterprises in the doha round negotiations in the wto the belief is that stes in certain developed countries have trade effects which are equivalent to an export subsidy stes also exist in developing countries though since the aim of government policy may differ from the developed country case the trade distortion may be equivalent to an export tax we present a theoretical model that is sufficiently general to allow us to consider the case of exporting stes in developed and developing economies the model is calibrated with data on two examples of stes one typical of an ste in a developed country the other typical of an ste in a developing economy in each case we allow for differences in the nature of the ste s pay off function the overall conclusion is that stes do distort trade and the trade distortion effect is potentially significant

subsidy and tuition policies in public higher education i introduction the much discussed and widely debated recent conditions in public higher education include expanding enrollments flat if not declining public appropriations per resident student and rapid increases in tuition rates 1 to many observers tuition policy in public higher education appears be explained as an attempt to set tuition at whatever level is necessary to compensate for shortfalls between public appropriations and instructional expenditures ehrenberg 2006 asserts that public higher education has been buffeted by a perfect storm in which state appropriations to public higher education institutions have failed to keep pace with per student expenditures in private higher education because of economic recession the priorities placed on alternative uses of state tax revenues such as elementary and secondary education medicaid welfare and criminal justice and efforts to reduce income and sales tax rates a considerable empirical literature examines the relationship between tuition in public higher education and state appropriations koshal and koshal 2000 identify a negative relationship between tuition and state appropriation a study of college costs and prices which is conducted by cunningham et al 2001 identifies an inverse association between tuition rates and annual budget appropriations but finds little evidence of a link between tuition and expenditures on instruction lowry 2001 treats state appropriations as exogenous in a resident tuition equation and discovers a significant negative relationship between state funding and tuition rizzo 2005 finds that increases in tuition are linked to declines in future levels of state funding which hints at a dynamic association rizzo and ehrenberg 2004 in one of the more extensive examination of the topic treat real state appropriations per student as an exogenous variable in their resident tuition equation and find that schools that receive higher state appropriations per student charge lower tuition though the elasticity is far from unity acknowledging the economic and demographic conditions of public higher education and the empirical literature linking appropriations and tuition raises a number of questions what activities are legislatures supporting when they allocate public funds to higher education what are the implied responsibilities for subsidizing residents versus nonresidents how are resident and nonresident tuition rates determined and what are the relationships among tuition rates resident and nonresident enrollments and state appropriations to higher education in particular there appears to be the need to develop a better understanding of the decision processes that determine both the public subsidy and the setting of tuition rates a goal of this article is to develop a conceptual framework for that process there is a widely held notion that residents should pay a lower tuition than nonresidents and as a result of a resident subsidy they do so in nearly all public universities one rationale for favorable treatment is that residents and their parents pay state taxes another claim which receives some support by groen 2004 is that residents are likely to remain in the state after graduation and thus contribute future tax revenues although the public subsidy to higher education is justified for these and many other economic development reasons some argue that the higher education subsidy is simply a payoff to special interest groups who influence legislatures and governors friedman 1968 and goldin and katz 1998 provide a general discussion of the objectives of subsidized higher education for whatever reasons resident students continue to receive a substantial publicfinanced subsidy while nonresidents pay close to full cost there are two basic arrangements for determining tuition rates in higher education 1 institutions determine tuition rates under the direction of an independent governing board and 2 state legislatures who are governed by statues and budget policies make tuition decisions

on stationarity and cointegration of international health expenditure and gdp this paper examines stationarity and cointegration of health expenditure and gdp for a sample of 21 oecd countries using data for the period 1960 1997 by applying a test battery that allows robust inference to be made on the stationarity and cointegration issue trend stationarity and no cointegration are tested using new country by country and panel tests not previously applied in this setting new results for country by country and panel tests of non stationarity and cointegration are presented our unit root and trend stationarity results indicate that both health expenditure and gdp are non stationary the no cointegration and cointegration results indicate that health expenditure and gdp are cointegrated

endogenous timing in contests with delegation i introduction contests with delegation where each player hires a delegate to expend effort or resources on the player s behalf to win a prize are common 1 an example is litigation between a plaintiff and a defendant in which each litigant hires an attorney who expends his effort to win the lawsuit on behalf of his client another example is a rent seeking contest in which each firm hires a lobbyist who expends his effort to acquire a monopoly or a procurement contract from the government on behalf of his client yet another example is a patent contest in which each firm hires a group of independent researchers or university professors who conduct research to obtain a patent on behalf of their employer delegation is attractive to players because they each can use superior ability by hiring a delegate with more ability than herself and achieve strategic commitments through delegation in such contests with delegation we believe delegates decide endogenously when to expend their effort after signing delegation contracts indeed pursuing their self interest the delegates may well endogenize the order of their moves and communicate it with each other before they expend their effort we believe also that players take it into account when designing their contracts for the delegates that the delegates will endogenize the order of their moves it is these ideas that motivate this paper accordingly the purpose of this paper is to systematically study contests with delegation in which delegates decide endogenously when to expend their effort after signing delegation contracts and before they expend their effort we study two player contests with delegation focusing on not only the equilibrium delegation contracts between players and their delegates but also the equilibrium orders of the delegates moves specifically we set up and analyze the following three stage game in the first stage two players each hire a delegate and they simultaneously announce their contracts written with their delegates each player s contract specifies how much her delegate will be paid if he wins the contest and how much if he loses it in the second stage each delegate decides when to expend his effort and the delegates announce their decisions simultaneously in the third stage the delegates expend their effort according to their decisions in the second stage to win the prize on behalf of their employers we show that in equilibrium the delegate hired by the higher valuation player chooses his effort level after observing his counterpart s and his expected payoff is greater than that of his counterpart this advantage of the delegate of the higher valuation player can be explained by the fact that his employer the higher valuation player offers better contingent compensation as it will be defined in section ii to him than the lower valuation player does to her delegate we compare the outcomes of the endogenous timing framework the three stage game presented above with those of the simultaneous move framework the game which is the same as the three stage game with the exception that the delegates choose their effort levels simultaneously and this order of their moves is given exogenously an interesting result is that each player offers her delegate a better contract in the endogenous timing framework than in the simultaneous move framework another interesting result is that unless the valuation for the prize of the higher valuation player is significantly greater than that of the lower valuation player then each delegate s expected payoff is greater in the endogenous timing framework than in the simultaneous move framework whereas each player s expected payoff is less in the endogenous timing framework than in the simultaneous move framework in summary pursuing their self interest the delegates decide endogenously when to expend their effort given contracts between the players and the delegates

coexistence of strategic vertical separation and integration abstract this paper gives conditions under which vertical separation is chosen by some upstream firms while vertical integration is chosen by others in the equilibrium of a symmetric model a vertically separating firm trades off fixed contracting costs against the strategic benefit of writing a two part tariff exclusive dealing contract with its retailer coexistence emerges when more than two vertical cournot oligopolists supply close substitutes when vertical integration and separation coexist welfare could be improved by reducing the number of vertically separating firms the scope for coexistence diminishes when assumptions on contract observability and commitment are relaxed

estimating product market competition methodology and application abstract in oligopolies firms behave strategically and commit to actions that elicit favorable responses from rivals firm actions consequently are a function of the nature of these strategic interactions in this paper we develop a methodology for the empirical estimation of strategic interactions in product markets we then apply our measure of strategic interactions to ceo compensation we use quarterly data on profits and sales from compustat to estimate the slope of firm s reaction function when the slope is negative and marginal profits decrease with an increase in the rival s actions the firm is classified as a strategic substitute when the slope is positive and marginal profits increase with an increase in the rival s actions the firm is classified as a strategic complement as predicted by theory we find significant evidence that strategic substitutes decrease the pay for performance incentives of their ceos on the other hand strategic complements significantly increase ceo pay for performance incentives the empirical measure developed can be used to test a wide variety of strategic models

negotiation of profit sharing contracts in industry we examine the properties of profit sharing in a game theoretic oligopoly model of industry profit sharing contracts are viewed as a means of strategic commitment not as an internal incentive system in our model firms choose a contract subject to the employees participation constraint in a first stage and compete on the output market in a second stage we show that the choice of a profit sharing contract by each firm is a non cooperative equilibrium in the case of cournot competition the game under study has the structure of the prisoners dilemma the case of price competition on the output market leads to somewhat different conclusions

entry and managerial incentives abstract this paper presents a two period full information model of entry where owners of incumbent and entrant firms endogenously select the incentive schemes for their managers it is shown that when output decisions are delegated to managers the incumbent s owner chooses to base incentive schemes only partly on profit but if output decisions are reached via nash bargaining between managers the incumbent s owner will base the reward on profit alone the entrant never bases the incentive scheme solely on profit if there is a sufficiently high fixed cost of entry then the incumbent can deter entry by providing management with appropriate incentive schemes

managerial incentives and the price effects of mergers most analysis of market power assumes that managers are perfect agents for shareholders this paper relaxes that assumption when managers of a multi product firm exert unobservable effort to improve product quality there is a trade off between providing adequate effort incentives and ensuring sufficient price coordination between the product divisions this makes some intra firm price competition optimal explaining why many multi product firms allow for competition between divisions when there are effort spillovers the optimal amount of price competition can be as great as when the products are under separate ownership even with some profit sharing intra firm price competition can reduce quality adjusted price which has important implications for antitrust policy

energy price shocks and productivity growth in us and uk manufacturing because sustained changes in the trend of productivity growth are so very important for people s long run economic welfare the dramatic productivity growth slowdown of the 1970 s and early 1980 s has been the focus of much analysis and discussion for some observers it was much more than coincidence that the oil price shocks of 1973 74 accompanied the sharp slowdowns in traditionally measured productivity growth not only in the united states and the united kingdom but throughout the industrialised world however establishing quantifying and explaining sig nificant linkages between energy price shocks and productivity growth has proved to be most difficult traditional and time honoured relationships involving productivity growth have all seemed incapable of explaining this slowdown for example edward denison author of several widely cited productivity studies has concluded that energy had essentially no role in explaining the productivity growth slowdown and that moreover what happened is to be blunt a mystery 1979 p 4

slotting allowances as a facilitating practice by food processors in wholesale grocery markets profitability and welfare effects slotting allowances which are lump sum transfers paid by food manufacturers to grocery retailers in return for various retail concessions are becoming increasingly common in wholesale grocery markets this article extends the literature on slotting allowances by considering two features that previously have been ignored the role of food processors in determining these pricing arrangements and the effect of slotting allowances on the size and distribution of economic surplus slotting allowances motivated by food processors increase procurement quantities and farm prices and this raises farm surplus increases total producer surplus and improves consumer welfare in the food system

vertical structure and strategic environmental trade policy abstract the idea that environmental trade policy can be used to achieve competitive advantage in international markets has important implications for the way we conceive free trade this paper considers strategic environmental policy in a model that makes explicit the vertical structure that supports production of the traded good including intranational vertical relationships in the analysis of strategic environmental trade policy has substantial qualitative effects when vertical contracts are allowed the optimal policy to levy on a polluting input under both quantity and price competition in the international market is the pigouvian tax

corporate tax systems multinational enterprises and economic integration abstract multinational firms are known to shift profits and countries are known to compete over shifty profits two major principles for corporate taxation are separate accounting sa and formula apportionment fa these two principles have very different qualities when it comes to preventing profit shifting and preserving national tax autonomy most oecd countries use sa in this paper we show that a reduction in trade barriers lowers equilibrium corporate taxes under sa but leads to higher taxes under fa from a welfare point of view the choice of tax principle is shown to depend on the degree of economic integration

an empirical investigation of the relative performance evaluation hypothesis the principal agent framework has become a widely used paradigm in accounting and economics for analyzing issues in performance evaluation management control and the design of incentive systems while recent work in experimental economics has begun to examine empirically some of the underlying assumptions and implications of agency theory see baiman and lewis 1989 and kirby forthcoming few precise hypotheses have been tested using real world or naturally occurring data one exception has been the empirical investigation of the relative performance evaluation rpe hypothesis agency theory suggests that there are benefits associated with evaluating agents on the basis of their relative performances when the agents performances are affected by a common shock term e g see diamond and verrecchia 1982 and holmstrom 1979 1982 specifically a relative performance based contract can remove the common shock term from an agent s performance which enables a better evaluation of the agent s actions

share tenancy as strategic delegation abstract the paper develops a new explanation of sharecropping based on the idea of an incentive equilibrium it considers a set up in which a few landlords in a village confront the choice of cultivating their farms by adopting different tenurial arrangements ranging from owner operation through the fixed rental system to sharecropping these landlords are the only sources of employment in the village and compete in the wages they pay to their workers in such an environment sharecropping is explained as a form of strategic delegation where a landlord gets extra benefit by having a share tenant and giving him suitable incentives

strategic managerial incentives in a two period cournot duopoly abstract this paper examines the nature of optimal managerial incentives in the context of a duopoly marked by competition between the firm s managers in a dynamic production environment if the marginal cost of production falls moderately over time or remains unchanged there exists an equilibrium where one owner requires her manager to maximize profit whereas the rival owner requires her manager to maximize sales revenue the profit maximizing manager turns his firm into a stackelberg leader while the sales revenue maximizing manager turns his firm into a stackelberg follower further the profit maximizing manager may generate a larger firm profit relative to the sales revenue maximizing manager

strategic gains from discrimination abstract according to a classical argument an employer handicaps herself if basing hiring decisions on factors unrelated to productivity therefore discrimination is undermined by competition this paper in contrast argues that being discriminatory can be a commitment device that helps an employer and its rivals to partially segment the labor market which leads to lower wages and higher profits discrimination can thus be an endogenous response to competition indeed the relationship between discrimination and competition can be non monotone moreover the logic suggests that a ban on wage discrimination may instead lead to discrimination in hiring

oligopoly profit sharing contracts and the firm s systematic risk abstract this article examines the properties of wage and profit sharing contracts in a model of oligopoly with capital market equilibrium while profit sharing contracts dominate market wage contracts profit sharing also reduces the firm s cost of equity capital under fairly broad conditions of oligopoly by enforcing lower costs in exchange for a pre determined share of cash flows to workers this form of operational leverage both reinforces the classical effect of market power on systematic risk and the impact of profit sharing on the corporate finance of the firm as previously suggested by ichino 1994 european economic review 38 1411 1422

stock options and the strategic use of managerial incentives in cournot based oligopoly models there is an incentive for firms to pursue overly aggressive behavior resulting in prices and profits below those of the cournot equilibrium compensating managers in proportion to a combination of profits and sales provides one mechanism through which aggressive behavior emerges however when the profit component of managerial compensation comes in the form of stock options the aggressive behavior is restrained or even eliminated in equilibrium this result relies only on the nonlinearity of the stock option generalizations to other forms of compensation are discussed copyright 1993 by american economic association

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

strategic upfront marketing channel integration as an entry barrier abstract this paper investigates an organizational design problem concerning whether duopolistic firms competing in a product market should vertically integrate or separate their marketing channels in a dynamic noncooperative game setting previous operational research models have shown that the separation of the marketing channel with the adoption of a two part tariff contract is the dominant strategy compared with integration for each firm if the two firms face retail price competition and thereby constitutes the subgame perfect nash equilibrium spne contrary to this previous insight this paper demonstrates that if exogenous parameters that characterize fixed costs product substitutability and a demand function fall into a specific region marketing channel integration dominates the separation strategy when one of the two firms is the incumbent firm while the other is a potential entrant in other words the well known result in the price setting game can be reversed when we take entry threats into consideration specifically we show that upfront vertical integration of the marketing channel enables the incumbent to deter the entry of the potential competitor and to monopolize the market in the spne this result has operational implications for a firm confronting the threat of potential rivals entering the market in that the firm can use this apparently inferior strategy as a commitment device which creates a virtual entry barrier

the strategic value of partial vertical integration we investigate the strategic incentives for partial vertical integration namely partial ownership agreements between manufacturers and retailers when retailers privately know their costs and engage in price competition with differentiated goods the partial misalignment between the profit objectives within a partially integrated manufacturer retailer hierarchy implies a higher retail price than under full integration this information vertical effect translates into a competition horizontal effect the partially integrated hierarchy s commitment to a higher price induces the competitor to increase its price which strategically relaxes competition our analysis provides implications for vertical merger policy and theoretical support for the recently documented empirical evidence on partial vertical acquisitions

cost benefit analysis and the theory of public finance aheory of public finance remains unsatisfactory unless it comprises both the revenue and expenditure sides of the fiscal process the classical ricardomills edgeworth pigou tradition of a taxation only view neglected this axiom holding expenditures unproductive or disregarding them altogether the task was to arrange taxes so as to impose equal or least total sacrifice as a theory of taxation this approach collapsed with the old welfare economics and as a theory of public finance its exclusive concern with taxation bypassed the central problem of how to allocate resources for the provision of social goods subsequently various attempts were made to combine the revenue and expenditure sides in a more satisfactory system we shall note these briefly and then consider how cost benefit analysis fits into the picture

stock related compensation and product market competition this dissertation consists of four self contained essays primarily concerned with incorporating the objectives of real world top managers as revealed by the available empirical evidence in supergame theoretic analyses of long term competition between oligopolistic firms the first essay ownership control and collusion considers how the separation between ownership and control affects firms competitive attitudes when top managers have the preference for smooth profit streams revealed by the evidence on income smoothing and when managerial compensation has the low pay performance sensitivity found in many empirical studies in a similar fashion the second essay stock related compensation and product market competition deals with the effects of the apparently more aggressive managerial incentives linked to stock price e g stock options which have become increasingly common in the u s on long term oligopolistic competition in the third paper debt as a credible collusive device shareholders commitments to reduce conflicts with debtholders by choosing a top manager with a highly valuable reputation or with conservative incentives are considered these forms of commitment have been shown to reduce the agency cost of debt finance this paper characterizes their effects on the relation between firms capital structure and product market competition the fourth paper multimarket contact concavity and collusion addresses the relation between multimarket contact and firms ability to sustain collusive behavior in repeated oligopolies it explores how this relation is affected by the strict concavity of firms objective function induced by managerial objectives and by other features of reality discusses the effects of conglomeration and horizontal mergers and extends the results to non oligopolistic supergames

vertical separation with private contracts we consider a manufacturer s incentive to sell through an independent retailer rather than directly to final consumers when contracts with retailers cannot be observed by competitors if retailers conjecture that identical competing manufacturers always offer identical contracts symmetric beliefs manufacturers choose vertical separation in equilibrium even with private contracts vertically separated manufacturers reduce competition and increase profits by inducing less aggressive behaviour by retailers in the final market manufacturers profits may be higher with private than with public contracts our results hold both with price and with quantity competition and do not hinge on retailers beliefs being perfectly symmetric we also discuss various justifications for symmetric beliefs including incomplete information

economies of scale and market structure in international grain trade a large body of literature has examined international grain trade in imperfectly competitive models the article develops a two stage duopoly model that considers a private trader and a state trading enterprise ste competing on a foreign market the key difference between the private trader and the ste is their international organization while the ste makes use of external agents to export the private firm may choose to internalize international transactions the game is solved for different modes of competition and under both assumptions of homogeneous and differentiated products in order to assess how these assumptions affect the outcome of the game the results of the game are examined by using numerical examples the analysis shows that external shocks on export markets may result in a change of market structure and consequently of market shares these effects depend on the initial market structure furthermore the degree of product differentiation and the assumed mode of competition significantly affect the relative values of transaction and fixed costs at which the market structure changes

the economics of performing shakespeare reply the comment by edwin west addresses my 1984 benefit cost analysis and more specifically its conclusion that the subsidy received by the royal shakespeare company rsc is justified west maintains that a broader inquiry may reverse that judgment and he raises three main points for discussion deadweight loss pseudo demands and benefit distribution i shall consider these matters seriatim first however it should be recalled that the original analysis took a narrow stance deliberately and that footnote 14 conveyed the message because of difficulty in determining how much patronage went to aldwych and stratford activities alone rsc patronage obtained from all sources public and private was treated as if it applied only to those two centers but besides performing there the rsc over the financial years 1968 69 to 1977 78 worked the warehouse the other place theatregoround and other domestic tours overseas proscenia and television inter alia therefore assigning total patronage exclusively to the centers imparted a bias that favored the case against the subsidy nevertheless the investigation did omit deadweight loss prompted by west s remarks on the subject i resurrected the data to try to obtain a rough but reasonable estimate of aldwych and stratford patronage in the exercise patronage was distributed conceptually across all rsc activities on the premise that each activity shared the total in the same proportion that it shared total expenses no attempt was made to separate private gifts from public ones table 1 which presents the pertinent details indicates that nominal patronage going exclusively to the centers averaged 513 778 about 85 percent of the total with the mean of the retail price index amounting to 801 this figure becomes 641 421 in real terms benefit the increase in real consumers surplus at the centers still registers 900 204 enabling the benefit cost ratio to rise from 1 18 to 1 40 2 these calculations ignore an important side effect of the subsidy namely the additional tax collections coming from both increased ticket sales and increased labor income as the earlier table 3 indicated a profit maximizing aldwych sells 16 528 tickets at a real price of 3 78 including the value added tax vat a vat rate of 8 percent not inappropriate for the period in focus therefore means a pretax real price of 3 50 and a real va t levy of 0 28 per ticket for a total of 4 628 under actual subsidized conditions the aldwych sells 234 045 tickets at a real tax inclusive price of 1 77 and pays a real vat of 30 426 an increase of 25 798 over the profit maximizer similarly actual stratford generates 9 153 more in real vat than does a profit maximizing stratford bringing the combined vat increase to 34 951 3 table 3 likewise showed that patronage expands employment by 461 448 man hours at

benefits of a slanted view a discussion of disclosure bias abstract fischer and verrecchia j account econom 2004 forthcoming studies a model of imperfect competition in which firms disclosures are affected by biased information processing they find that optimism can add punch to a firm s actions when facing an optimist a rival is forced to soften its competitive posture thereby rendering such biases viable although the setting provides a cogent explanation for disclosure bias its reliance on imperfect information processing introduces some questions one concern is the ease with which polar results can be obtained when the rules of the game are sufficiently relaxed the discussion provides examples illustrating this and related issues

delegating pricing decisions an outstanding problem in marketing is why some firms in a competitive market delegate pricing decisions to agents and other firms do not this paper analyzes the impact of competition on the delegation decision and in turn the impact of delegation on prices and incentives the theory builds on the simplest framework of competition in two dimensions prices and sales agents effort specifically we are interested in answering the following questions 1 does competition affect the price delegation decision and if yes why 2 how do prices vary under price delegation and no price delegation scenarios 3 do the incentives to the sales representatives vary under the delegation and no delegation scenarios to address these issues we build a game theoretic model that consists of two firms selling through their sales representatives these representatives are company employees sales are a function of prices and selling efforts the risk neutral firms decide whether or not to delegate the pricing decision to risk averse sales representatives the wages to the sales representatives consist of salary plus a commission on gross margins the commission on gross margins can be adjusted either through communicated marginal cost of production which we call virtual marginal cost or directly the firm and the sales representative are assumed to have the same information about the market that is there is no information asymmetry with competition in two dimensions the strategic nature of decision variableprice depends on the relative intensity of competition with unobservable contracts and risk averse sales representatives firms delegate the pricing decision when price competition is intense part of the uncertainty in demand is absorbed by the firm by keeping virtual marginal cost greater than the marginal cost of production the competing firm infers this through the risk aversion of the sales representatives under price delegation the sales representatives wages are higher and they set a price that is higher than what the firms would have set themselves this leads to softening of price competition that is to the advantage of both firms when the effort competition is dominant however the firms prefer to make the pricing decision themselves because this reduces the intensity of effort competition among agents a single instrument commission structure in which the firms adjust the virtual marginal cost is compared to a two instrument commission structure in which the firms can adjust the commission rate as well the virtual marginal cost under no price delegation the two incentive schemes are the same however under price delegation the risk premium with the two instrument scheme is lower however the prices and efforts are higher with the single instrument scheme when price competition is intense the increase in risk premium with the single instrument scheme is more than compensated for by the increase in profits this is the benefit of softening price competition through higher prices

strategic union delegation and strike activity we develop a model of wage determination with private information in which the union has the option to delegate the wage bargaining to either surplus maximizing delegates or to wage maximizing delegates such as senior union members we show that the wage outcome in case of surplus maximizing delegates is not necessarily smaller than the wage outcome in case of wage maximizing delegates even when the wage bargaining with private information is close to one with complete information however if it is commonly known that the union is stronger than the firm and the demand is sufficiently elastic then delegating to wage maximizing delegates definitely increases the wage at equilibrium the maximum delay in reaching an agreement is greater whenever the union chooses wage maximizing delegates instead of surplus maximizing delegates and remains finite even when the period length shrinks to zero

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

stackelberg equilibria in managerial delegation games abstract managerial compensation packages do not only influence managers behavior but also have an impact on competing firms in a managerial delegation game investigating the latter aspect it is shown that the inherent prisoner s dilemma situation can be resolved without changing the normally studied setup or timing in the first stage owners choose an incentive function for their managers in the second stage they choose the weights assigned to that function besides profits and in the third stage managers play a cournot game solving this continuous optimization problem with the implicit function theorem shows that choosing an incentive from the set of multiplicative incentives i e any generalized affine transformation of the product of both firms quantities which includes e g relative profit ensures that the stackelberg outcome is among the set of equilibrium outcomes furthermore it is the unique outcome if the rival owner opts for one of the well known incentives like sales revenue or market share the general approach used allows demonstrating that with no other linear incentive a stackelberg outcome results and that incentives like profit to cost ratio should be avoided selecting a multiplicative incentive is a dominant strategy of the game

overconfidence compensation contracts and capital budgeting a risk averse manager s overconfidence makes him less conservative as a result it is cheaper for firms to motivate him to pursue valuable risky projects when compensation endogenously adjusts to reflect outside opportunities moderate levels of overconfidence lead firms to offer the manager flatter compensation contracts that make him better off overconfident managers are also more attractive to firms than their rational counterparts because overconfidence commits them to exert effort to learn about projects still too much overconfidence is detrimental to the manager since it leads him to accept highly convex compensation contracts that expose him to excessive risk

retail contracting theory and practice we summarize a number of regularities that arise in the empirical literature on contractual relationships between manufacturers and their exclusive resellers we do this using studies of traditional and business format franchise relationships as well as studies of salesforce integration decisions some of the patterns that we uncover are consistent with a standard incentive cum insurance theory of organization while others are not we brie y review some theoretical extensions that seem promising in terms of reconciling seeming con icts between theory and practice i introduction manufacturers of retail products must decide whether to sell their products to consumers themselves vertical integration or to sell via independent retailers vertical separation when manufacturers do not perform the sales function internally but want exclusive retailers they usually choose some form of franchising 1 many theories attempt to explain the choice of retail organizational form moreover a considerable body of empirical evidence concerning this choice is accumulating we attempt to evaluate this econometric evidence and relate it to the theories to accomplish this task we assess studies of franchising arrangements as well as studies of sales force organization in industrial settings the paper is organized as follows in the next section we highlight a number of regularities that arise in the empirical literature on retail contracting in particular we nd that i risk is positively related to the use of high powered incentives vertical separation ii the importance of the agent s eiort in production is positively related to the use of high powered incentives

endogenous market structures and contract theory delegation principal agent contracts screening franchising and tying abstract i study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry traditional results change substantially when the market structure is endogenous rather than exogenous they concern 1 contracts of managerial delegation to non profit maximizers 2 incentive principal agent contracts in the presence of moral hazard on cost reducing activities 3 screening contracts in case of asymmetric information on the productivity of the managers 4 vertical contracts of franchising in case of hold up problems and 5 tying contracts by monopolists competing also in secondary markets firms use always these contracts to strengthen price competition and manage to obtain positive profits in spite of free entry

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

the commitment value of contracts under dynamic renegotiation we examine why different renegotiation processes can lead to opposite results regarding the commitment value of third party contracts in the presence of asymmetric information our main result is that a contract loses all strategic value if renegotiation is allowed during the production stage rather than only before production begins this result casts serious doubt on the relevance of previous findings which emphasize how contracts can have commitment value even in the presence of renegotiation our analysis can also be used to understand the differences between many of the results in the renegotiation literature

equilibrium contingent compensation in contests with delegation we consider two player contests in which each player hires a delegate who expends his effort to win a prize on the player s behalf endogenizing delegation contracts we focus on the equilibrium contracts between the players and their delegates we first show that each player s equilibrium contract is a no win no pay contract then we examine the delegates equilibrium compensation spreads effort levels probabilities of winning expected payoffs and the players equilibrium expected payoffs we show that economic rents for the delegates may exist

the sensitivity of strategic and corrective r d policy in oligopolistic industries abstract we evaluate the case for r d subsidies in export sectors when the outcome of r d is uncertain and the product market is oligopolistic when r d reduces expected costs in the particular sense of first order stochastic dominance a national strategic basis for r d subsidies exists whether firms choose prices or quantities this must be balanced against a corrective incentive to tax r d whenever the number of domestic firms exceeds one however when r d increases the riskiness of the cost distribution as well the results may switch there emerges a strategic incentive to tax and a corrective incentive to subsidize r d

a modified cournot model of the natural gas market in the european union mixed motives delegation in a politicized environment with gazprom gaining prominence as the major supplier of natural gas in the european union the european gas market becomes more politicized we assume that gazprom s interest as a state monopolist is not only to maximize profit but also to seek market power presumably because this contributes to the geopolitical power of russia at large we introduce a modeling tool so called strategic delegation games to analyze the implications of gazprom s operation in the eu by way of illustration we model the case where gazprom competes against two profit maximizing rivals algerian sonatrach and norwegian statoil we prove that if gazprom serves any of a comprehensive type of nonprofit objectives the outcome is beneficial for the eu s consumers as gazprom s behavior shifts volumes up and brings prices down

total board remuneration and company performance using a hitherto neglected source of data this paper combines executive emoluments with executive options to construct a broader measure of executive pay than has been possible in earlier british studies the result of including the long term share option component of pay along with the more commonly utilized short term component of emoluments is to reveal executive pay as being significantly more sensitive to company performance than has previously been thought to be the case the paper questions the current policy stance of british institutional investors and of the greenbury committee with respect to executive share options copyright 1996 by royal economic society

vertical coordination antitrust law and international trade this paper demonstrates that vertically aligned private or public organizations are capable of generating strategic trade advantage similar to that acquired through direct government export subsidization the model considers two forms of vertical coordination that lead to advantageous trade positions in international markets upstream vertical restraint and downstream equity sharing such practices are commonly employed both by state trading agencies and by private firms in nations with lenient antitrust laws the finding has important implications under new world trade organization wto rules intended to reduce government intervention in international transactions recent reforms in the wto favor nations that sanction highly refined vertical linkages between firms while nations with stringent antitrust legislation have an incentive to negotiate for greater harmonization of international laws

strategic trade and delegated competition abstract strategic trade theory has been criticized on the grounds that its predictions are overly sensitive to modeling assumptions applying recent results in duopoly theory this paper considers three stage games in which governments choose subsidies firms owners choose incentive schemes for their managers and then the managers compete in the product market we show that if firms owners have sufficient control over their managers behavior then the optimal strategic trade policy does not depend on the mode of product market competition i e whether firms compete by setting prices or quantities

monitoring of workers and product market competition the role of works councils i introduction technological advancement allows firms to closely monitor their workers actions more than ever before for instance firms can acquire worker monitoring software to monitor activities on computers or cell phones such software enables firms to assess whether workers play games on their computers or surf the internet instead of working productively and even to track workers exact locations similarly firms scan emails or use video surveillance to monitor their workers behavior unsurprisingly the growing use of monitoring technologies has led to a debate on how closely firms should be allowed to monitor their workers actions and on whether government intervention is needed to protect workers privacy at first sight it appears that this debate centers around two different kinds of arguments economic arguments e g higher worker productivity in favor of extensive worker monitoring against ethical issues according to which workers privacy must be protected schmitz 2005 however demonstrates that this is not necessarily true in a contract theoretical model he finds that firms employ monitoring technologies not to increase efficiency but rather to reduce rents that must be paid to the workers in the case of imperfect monitoring he concludes that monitoring technologies may lead to inefficiencies and thus calls for laws protecting workers privacy whereas worker protection in the united states is rather weak in this respect it is typically stronger within the european union in germany for instance works councils are important institutions that provide workers with power on the firm level particularly with respect to working conditions within the system of co determination works councils have legally guaranteed influence on management decisions concerning working conditions within a firm for instance the law prescribes that worker representatives must consent to any introduction of technologies that monitor the workers effort and output 1 given these rights of works councils it may be puzzling that firm owners do not more strongly oppose this limitation of their control rights in this paper we offer an explanation to resolve this puzzle by analyzing the interaction between internal organization and market conduct we argue that works councils and their right to block monitoring of workers can act as a commitment device of firms to mitigate product market competition as relaxed competition increases profits and because workers receive an information rent from their co determination rights workers and firms have aligned interests in establishing works councils at the expense of consumers we derive these results in a simple model of two competing firms where each firm faces a moral hazard problem with its workforce that could be solved by installing a monitoring technology without monitoring inducing high effort by workers is more costly as a result effort levels will be lower and so will be output this may serve a similar purpose as quantity reduction in a cartel and it may thereby increase firm profits 2 however similar to quantity reduction in a cartel also with respect to monitoring there is a danger that a single firm deviates and installs the monitoring technology consequently the deviator can produce higher output more cheaply and free rides on the lower output of its competitor thus firms would like to ex ante commit not to use a monitoring technology usually no such commitment is possible however works councils may serve this unintended purpose because they must give their consent to monitoring technologies this provides them with a property right on the information rent arising in case of nonmonitoring to receive their consent the firm must offer the workers compensation for the foregone rent this additional cost of monitoring makes deviation from a nonmonitoring situation less attractive implying that works councils may serve as the desired commitment device

profit sharing with workers facilitates collusion among firms we show how profit sharing by firms with workers facilitates collusion among firms in a dynamic oligopoly environment with uncertain demand we first show that firm profits can always be increased by tying wages to market conditions the optimal agreement takes the form of an option and features partial sharing because increased sharing raises the expected price wage differential but reduces price wage variability we then show that given any cartel there exist market conditions such that simply giving some expected profit to workers raises expected firm profits via the transfer s impact on the incentive to cheat on the cartel

herding in delegated portfolio management when is comparative performance information desirable abstract we address the issue of investors asset allocation decisions when portfolio management is delegated to an agent contrary to predictions from traditional financial theory it is shown that investors may not induce their manager to allocate funds to the asset with the highest return instead they may herd in their asset allocation decision and induce trade in a particular asset because another manager is trading in it and despite the presence of a more profitable alternative doing so allows investors to write an efficiency improving relative performance contract on the other hand herding leads investors to design wage contracts strategically resulting in more aggressive and thus less profitable trade in equilibrium we show that herding occurs when the cost of information is high information precision is low and when managers are sufficiently risk averse moreover when investors can decide whether or not to disclose information about their manager s performance they will not do so

how to compete cournot versus bertrand in a vertical structure with an integrated input supplier we study whether a quantity or a price contract is chosen at equilibrium by one integrated firm and its retail competitor in a differentiated duopoly using a similar vertical structure arya et al 2008 show that bertrand competition is more profitable than cournot competition which contrasts with conventional wisdom in this article we first demonstrate that such a result is robust to the endogenous determination of the type of contract second by introducing managerial incentives in the model we find that delegation to managers may lead each firm to choose a quantity contract and as long as products are sufficiently differentiated entails conflicting choices causing nonexistence of equilibrium in pure strategies significantly high product substitutability reconciles firms objectives under delegation leading unique or multiple equilibria with symmetric types of contracts to arise

managerial incentives and collusive behavior abstract i characterize the effects of empirically observed managerial incentives on long run oligopolistic competition when managers have a preference for smooth time paths of profits as revealed by the empirical literature on income smoothing manager led firms can sustain collusive agreements at lower discount factors capped bonus plans and incumbency rents with termination threats make collusion supportable at any discount factor independent of contracts duration when managers have these preferences incentives and demand fluctuates price wars during booms need not occur the most collusive price may then be pro cyclical

on intrabrand and interbrand competition the strategic role of fees and royalties abstract we examine oligopolistic markets with both intrabrand and interbrand competition we characterize equilibrium contracts involving a royalty or wholesale price and a fee when each upstream firm contracts with multiple downstream firms royalties control competition between own downstream firms at the expense of making them passive against rivals when the number of downstream firms is endogenous each upstream firm chooses to have only one downstream firm this result is in sharp contrast to previous literature where competitors benefit by having a larger number of independent downstream firms under only fixed fee payments we discuss why allowing upstream firms to charge per unit payments in addition to fixed fees dramatically alters their strategic incentives

state trading enterprises in a differentiated product environment the case of global malting barley markets this study tested if the exclusive procuring and pricing policies of two state trading enterprises stes in international malting barley markets could be used in a strategic trade context the research provided four key findings first the global malting barley market operated in a quantity setting oligopolistic structure during the study years second both stes and other exporting countries were in cournot competition and thus made available strategic trade possibilities third initial commodity payments were too high to generate a rent shifting outcome fourth product differentiation was confirmed which may have dampened the desire ability of stes to pursue a rent shifting objective

incentive schemes as strategic variables an application to a mixed duopoly abstract in the context of asymmetry of information between firms owners and their managers we investigate the use of incentive contracts as strategic variables in a duopoly with a public and a private firm by giving the public manager an incentive scheme based on a linear combination of profit and sales revenue we show that welfare can be improved furthermore we show that the government should not privatize the public company

should multiproduct firms provide divisional or corporate incentives abstract this paper points out some of the implications of the internal organization of a multiproduct firm for its market conduct in particular we study the strategic use of organizational forms based on corporate incentives versus forms based on divisional incentives the equilibrium internal organization is determined in a model with full information it is shown that firms provide corporate incentives when goods are substitutes and divisional incentives when goods are complements and the result holds both in the case of quantity setting and price setting

the oil price shocks and the unit root hypothesis the uk experience critics of the standard dickey fuller and augmented dickey fuller tests for unit roots argue that when there have been significant structural breaks during the sample period these tests are often biased toward acceptance allowing for a one time change in the slope of the trend function often leads to rejection of the unit root hypothesis which implies that business cycles are temporary fluctuations around a stable but possibly shifting trend path the validity of the unit root hypothesis in connection with the two oil crises in the seventies is re examined using quarterly time series data for a set of uk macroeconomic series the empirical evidence presented supports the view that only those shocks associated with the oil price crises had a persistent effect on the uk economy

do rent seeking groups announce their sharing rules i introduction rent seeking can be seen all around us firms or coalitions of firms expend resources to influence government officials who have authority to award monopoly rights self interested pressure groups lobby for government subsidies foreign producers exert effort to avoid imposing tariffs or quotas on their products interest groups or lobbyists contribute to the election of politicians who promise to advance favorable legislation research and development rd then the groups announce their decisions simultaneously before choosing their sharing rules we examine the groups decisions on releasing sharing rule information their sharing rules and the effort levels and payoffs of the individual players in equilibrium we formally consider the following three stage game in the first stage each group decides and announces whether it will release to the rival group the information about its sharing rule which will be determined in the second stage in the second stage the players in each group jointly choose their sharing rule and then each group releases the information about its sharing rule if it decided to do so in the first stage in the third stage all the players in both groups choose their effort levels simultaneously and independently at the end of this third stage the winning player is chosen and the winner shares the prize with the other players in his group according to the sharing rule on which they agreed in the second stage solving the game we find the following first the case where both groups release their sharing rule information never occurs in equilibrium second the case where neither group releases its sharing rule information occurs only if the players are evenly matched third when the players are unevenly matched one group releases its sharing rule information and the other does not

divisionalization and strategic managerial incentives in oligopoly under uncertainty abstract this paper argues that divisionalization and incentive contracting are complementary rent shifting tools in the presence of demand uncertainty the role for divisionalization arises if managers know the state of demand prior to making output decisions and if incentive contracts are linear and non state contingent in this context incentive contracts achieve expected stackelberg outcomes but have no impact on the firm s responsiveness to demand shocks divisionalization on the other hand has the strategically beneficial effect of making the firm more responsive to demand shocks

antitrust settlements and trial outcomes risk aversion plays an important role in explaining why antitrust cases settle instead of going to trial using a jointly estimated model of settlement and trial outcome the authors find that a one percent increase in the probability that the plaintiff wins at trial raises the probability of a settlement by 0 13 percent they also find that reputation effects are not a significant factor for defendants so the risk aversion of the defendants does not play a dominant role in determining whether the parties settle plaintiffs are more likely to win in certain jurisdictions which encourages venue shopping by plaintiffs copyright 1996 by mit press

inefficiency as a strategic device in group contests against dominant opponents i introduction many strategic situations in economics and politics can be understood as contests rd nitzan and ueda 2009 a private good nitzan 1991a 1991b nitzan and ueda 2009 or a mixed good esteban and ray 2001 nitzan and ueda 2011 to a large extent the intensity of free riding or conversely the motivation for individuals to exert effort in a contest is shaped by the intra group incentive scheme or governance structure in standard contests incentives are inseparably linked to the sharing rule i e to the usually exogenous procedure by which the rents acquired in the contest are distributed within the group 1 in a number of economic applications however incentives to exert effort appear to be separate or are even willfully separated from the sharing rule phenomena such as team spirit akerlof and kranton 2005 identification with the group sherif 1966 bornstein and ben yossef 1994 peer pressure kandel and lazear 1992 or social norms to contribute to the social good elster 1989 are examples for this separation alternatively groups could apply selective incentive schemes based on relative performance lazear and rosen 1981 or marginally align individual and group incentives nitzan and ueda 2009 in all these scenarios individuals behave cooperatively i e in the interest of the entire group even if the final distribution of rents follows a standard sharing rule mechanisms to induce cooperation often are costly sanchez pages and straub 2010 may only work under restrictive conditions che and gale 2003 require strategic coordination among individuals hardin 1995 or cannot be ensured to be obeyed unanimously oliver 1980 this might explain why they do not emerge universally or automatically the point we make in this article is even stronger even if there existed perfect and costless solutions to within group free riding problems which will henceforth be called intra group efficient incentive schemes igeis they might not always be adopted why would a group for which an igeis is freely available not wish to utilize it but rather adopt an apparently inefficient governance structure by definition an igeis internalizes all within group externalities and seems to be a safe way to increase one s payoffs however this reasoning ignores repercussions that arise in strategic environments like contests suppose for example that the competing groups have sufficiently unequal strengths say due to unequal sizes or different comparative advantages then the weaker group may refrain from implementing a costless igeis to avoid the contest from heating up adoption of an igeis makes a group more efficient and consequently more aggressive in the contest on one hand higher efforts constitute a cost on the other they affect the share of the rent that this group can hope to acquire or the likelihood of succeeding in the contest 2 an igeis clearly enhances a group s prospects if the other group did not change its behavior however if members of the opponent group reply with a sufficiently strong increase in their contest efforts this diminishes and may potentially more than offset the gains from one s own increased efforts whether this happens depends on the direction of the strategic interaction between groups the detrimental firing back effect can only become relevant if the other group s efforts are sufficiently strong strategic complements to one s own efforts

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

supplier preferences and dumping an analysis of japanese corporate groups while the nature and intensity of issues confronting the international economy change over time the trade and investment tensions between the u s and japan have continued unabated for many years in part they find their origin in japan s overall and bilateral trade surpluses although these are generally recognized as macroeconomic phenomena apart from the trade imbalances bilateral disputes arise also from the perceived inability of american exporters and investors to penetrate the japanese market there is empirical evidence indicating that the japanese firms have a distinct preference to buy their needed machinery and other inputs from other japanese firms 5 6 7 it is the closed nature of japan s market that triggered the bilateral negotiations known as structural impediments initiative one reason for the difficulty faced by outsiders trying to sell in japan is the way in which japanese companies are organized keiretsu is a form of interlocking relationships among japanese firms and industry groups 2 that allegedly enjoys advantages such as risk sharing and stable inter firm relations which encourage efficient investment in relation specific assets and oligopolistic market power 1 it has been suggested as a possible reason for low sales by non japanese firms to japanese firms operating inside and outside of japan there is certainly a strong tendency for member companies of a keiretsu to source from within their own corporate group this paper explores an economic rationale for this behavior by examining the implications of cross ownership and implicit contracts long term reciprocity and shows that supplier preferences unambiguously increase the incidence of dumping in this fashion the paper provides a link between two sets of stylized facts supplier preferences by japanese firms and the numerous dumping complaints brought in the us against large japanese companies supplier preferences

delegation and firms ability to collude abstract in a model of repeated cournot competition under complete information we show that delegation has no effect on cartel stability if managers collude while it may hinder cartel stability when owners collude in setting the incentive schemes if owners can choose whether to delegate or keep control of their respective firms and both groups of individuals collude or play non cooperatively in their respective variables according to the level of intertemporal discount factor then if managers are not able to collude in output levels owners delegation decision is non monotone in the discount factor