efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

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

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

estimation of an asymmetric stochastic volatility model for asset returns a stochastic volatility model may be estimated by a quasi maximum likelihood procedure by transforming to a linear state space form the method is extended to handle correlation between the two disturbances in the model and applied to data on stock returns

property tax and fiscal discipline in oecd countries this paper investigates the effects of property taxation on fiscal discipline for a sample of oecd countries over the period 1973 2011 we find that aggregate property taxation in total tax revenues is not statistically correlated with the primary surplus to gdp ratio in contrast a greater reliance on property taxes pertaining to sub national governments contributes to fiscal discipline suggesting that fiscal decentralization should favor responsive tax base instruments

dynamic conditional score models a review of their applications abstractin this paper applications of dynamic conditional score dcs models are reviewed and those models are discussed in relation to classical time series models from the literature dcs models

bargaining with two sided incomplete information an infinite horizon model with alternating offers this paper examines an infinite horizon bargaining model incorporating five features two sided incomplete information with potentially information revealing strategies an infinite horizon uncertainty concerning the potential gains from trade an illumination of interesting qualitative bargaining issues and plausible free from arbitrarily specified out of equilibrium conjectures equilibria these features motivated in the paper have powerful implications a nash equilibrium exists and is generically both unique and sequential comparative static implications of variations in the game s specifications are developed we find that natural indications of bargaining strength emerge from the model and establish the intuitive result that an increase in a player s relative bargaining strength makes that player more likely to capture the gains from bargaining

designing price contracts for boundedly rational customers does the number of blocks matter when designing price contracts one of the major questions confronting managers is how many blocks there should be in the contract we investigate this question in the setting of a manufacturer retailer dyad facing a linear deterministic consumer demand theoretical marketing models predict that the manufacturer s profits rise dramatically when the number of blocks in the contract is increased from one to two because both channel efficiency and its share of channel profits increase however increasing the number of blocks to three yields no incremental profits we test these predictions experimentally and find that increasing the number of blocks from one to two raises channel efficiency but not the manufacturer s share of profits surprisingly having three blocks in the contract increases channel efficiency even further and also gives the manufacturer a slightly higher share of profits we show that these results can be explained by a quantal response equilibrium model in which the manufacturer accounts for noisy best response due to nonpecuniary payoff components in the retailer s utility we also show that the retailer is sensitive to the counterfactual profits it could have earned if it were charged a lower marginal price for earlier blocks in the multiple block contract

a comparison of milestone based and buyout options contracts for coordinating r d partnerships we analyze optimal contractual arrangements in a bilateral research and development r d partnership between a risk averse provider that conducts early stage research followed by a regulatory verification stage and a risk neutral client that performs late stage development activities including production distribution and marketing the problem is formulated as a sequential investment game with the client as the principal where the investments are observable but not verifiable the model captures the inherent incentive alignment problems of double sided moral hazard risk aversion and holdup we compare the efficacy of milestone based options contracts and buyout options contracts from the client s perspective and identify conditions under which they attain the first best outcome for the client we find that milestone based options contracts always attain the first best outcome for the client when the provider has some bargaining power in renegotiation and identify their applicability to different r

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

costs and benefits of inducing intrabrand competition the role of limited liability when is inducing intrabrand competition via nonexclusive distribution an optimal strategy to address this issue a static model is developed to examine two settings the manufacturer uses exclusive distributors in the first setting and nonexclusive distributors in the second the analysis indicates that the choice of distribution rests critically on whether the manufacturer can effectively extract surplus from the distributors due to a variety of institutional reasons the distributors liability is often limited in performing on behalf of the manufacturer such limited liability restricts how much of the distributors surplus can be extracted when the distributors surplus cannot be fully extracted the manufacturer may prefer nonexclusive distribution even when distributors can free ride on each other s efforts

the stochastic volatility in mean model empirical evidence from international stock markets in this paper we present an exact maximum likelihood treatment for the estimation of a stochastic volatility in mean svm model based on monte carlo simulation methods the svm model incorporates the unobserved volatility as an explanatory variable in the mean equation the same extension is developed elsewhere for autoregressive conditional heteroscedastic arch models known as the arch in mean arch m model the estimation of arch models is relatively easy compared with that of the stochastic volatility sv model however efficient monte carlo simulation methods for sv models have been developed to overcome some of these problems the details of modifications required for estimating the volatility in mean effect are presented in this paper together with a monte carlo study to investigate the finite sample properties of the svm estimators taking these developments of estimation methods into account we regard sv and svm models as practical alternatives to their arch counterparts and therefore it is of interest to study and compare the two classes of volatility models we present an empirical study of the intertemporal relationship between stock index returns and their volatility for the united kingdom the united states and japan this phenomenon has been discussed in the financial economic literature but has proved hard to find empirically we provide evidence of a negative but weak relationship between returns and contemporaneous volatility which is indirect evidence of a positive relation between the expected components of the return and the volatility process copyright 2002 john wiley sons ltd

strategic decentralization in channels the purpose of this paper is to understand the effect of strategic interaction on a manufacturer s channel structure decision in the model i analyze if there were no strategic interaction then the manufacturer would prefer vertical integration to decentralization with strategic interaction however decentralization can be a nash equilibrium strategy as mcguire and staein mcguire timothy richard staelin 1983a an industry equilibrium analysis of downstream vertical integration marketing sci 2spring 161 192 showed so the question arises what is it about strategic interaction that makes decentralization a nash equilibrium strategy the answer i give is that strategic interaction makes it possible for a manufacturer s retail demand curve to rise when he decentralizes i show that this raising of the demand curve on decentralization can happen only if one of the following mutually exclusive conditions is satisfied 1 the manufacturers products are demand substitutes at the retail level and strategic complements at the manufacturer or retailer levels 2 the manufacturer s products are demand complements at the retail level and strategic substitutes at the manufacturer or retailer levels strategic complementarity at the retailer manufacturer level means that if one retailer manufacturer raises his price then the other retailer manufacturer would raise his price as well strategic substitutability is just the opposite these results show that what is important for decentralization to occur is not how demand substitutable the two manufacturers products are as one might have thought from earlier works in the literature but rather the nature of coupling between demand dependence and strategic dependence

can tax policy help explain state level macroeconomic growth abstract this paper empirically tests the role of tax distortions in explaining state level economic growth through the estimation of disaggregated personal income general sales and property tax rates the results show that these disaggregated tax rates generate predictions more consistent with growth theory

coordinating channels under price and nonprice competition this paper analyzes how manufacturers should coordinate distribution channels when retailers compete in price as well as important nonprice factors such as the provision of product information free repair faster check out or after sales service differentiation among retailers in price and nonprice service factors is a central feature of markets ranging from automobiles and appliances to gasoline and is especially observed in the coexistence of high service retailers and lower price discount retailers therefore how a manufacturer should manage retail differentiation is an important channel management question yet the approach in the existing literature has been to examine channel coordination under the standard symmetric contracting assumption that offering a uniform contract to all the retailers in a market will be sufficient for coordination i bring this assumption into question and ask when is it optimal for the manufacturer to use the channel contract to deliberately induce retail differentiation even if the retailers were ex ante identical in their cost and other characteristics the paper identifies the type of channel contracts that can endogenously induce symmetry as opposed to differentiation among retailers next the paper highlights a type of channel conflict that arises from the very nature of retail price service competition a manufacturer might find the retailers to be excessively biased towards price competition at the cost of service provision or vice versa the paper establishes when a manufacturer is likely to stimulate greater price as opposed to greater service competition among the retailers the framework that i develop to address these issues highlights the role of two basic types of consumer heterogeneity consumers are heterogeneous in their locations as in the spatial models of horizontal differentiation and in their willingness to pay for retail services as in the models of vertical differentiation the model also uses a natural relationship in retail markets between the travel time cost incurred by a consumer and her willingness to pay the more affluent consumers who have a higher willingness to pay for retail services also have a higher cost for their personal time given these market features the paper analyzes the problem faced by a manufacturer who sells to competing retailers the paper shows that the standard notion in the literature of offering similar contracts to all the retailers is sufficient only in markets with substantial locational differentiation relative to the differences in the willingness to pay effective channel management in these markets simply requires mechanisms that ensure that retailer interests are aligned so that they compete by offering a mix of price and service that is desirable from the manufacturer s point of view however in markets with small locational differentiation and substantial diversity in consumer willingness to pay the manufacturer s problem is not just to align retailer interests but to also use the channel contract to induce the correct level of retail differentiation this helps the manufacturer to better cater to the diversity in consumer willingness to pay and to prevent the cut throat competition that the retailers would otherwise have indulged in the manufacturer can achieve this through the use of menu based contracts menu based contracts induce differentiated retailer behavior despite the fact that the retailers are not forced into accepting different terms of trade this aspect can be useful in shielding manufacturers from litigation under the robinson patman act the paper also shows that for relatively high ticket items retailers tend to be excessively biased towards competing in the provision of retail services the correlation between consumer willingness to pay for service and travel costs implies that for high ticket products the competing retailers will focus on the more service sensitive customers at the cost of ignoring the price sensitive consumers in the market the manufacturer is therefore likely to encourage greater price competition among the retailers in contrast for low ticket items the manufacturer prefers to reduce price competition and encourage greater provision of services this provides an endogenous rationale for the use of price ceilings versus floors the basic model is also extended to consider the effect of upstream competition between manufacturers under upstream competition coordinating retail price and service decisions is not always optimal for an individual manufacturer this extension to manufacturer competition provides a basis for understanding the role of retail price service differentiation in the context of a channel duopoly it also shows that a mixed distribution channel a channel in which one manufacturer chooses to be coordinated while the other chooses to be noncoordinated can be an equilibrium in markets with weak brand loyalty

costs of control the source of economic rents for mcdonald s franchisees the main purpose of this article is to establish empirically using financial data that there are both ex ante and ex post rents left downstream at mcdonald s we find that the present value of the ex ante rents is around 300k 455k 1982 dollars ex post rents are of course even larger we argue that the ex post rents represent an incentive mechanism that complements the use of profit sharing rights at mcdonald s we also argue that ex ante rents arise here because franchisees wealth constraints prevent the up front extraction of the full present value of the ex post rents finally we note that mcdonald s desire for a particular type of individual to operate its franchises namely owner operators whose livelihoods are tied to the success of their outlets increases the likelihood that downstream operators face liquidity constraints this in turn contributes to the need for mcdonald s to leave ex ante rents downstream

let me talk to my manager haggling in a competitive environment although negotiating over prices with sellers is common in many markets such as automobiles furniture services consumer electronics etc it is not clear how a haggling price policy can help a firm gain a strategic advantage or whether it is even sustainable in a competitive market in this paper we explore the implications of haggling and fixed prices as pricing policies in a competitive market we develop a model in which two competing retailers choose between offering either a fixed price or haggling over prices with customers there are two consumer segments in our analysis one segment thehagglers has a lower opportunity cost of time and a lower haggling cost than the other segment thenonhagglers when both retailers follow the same pricing policy then a haggling policy is more profitable than a fixed price policy only when the proportion of nonhagglers is sufficiently high we find two kinds of prisoners dilemma under some conditions a more profitable haggling policy can be broken by a fixed price policy and under other conditions a fixed price policy can be broken by a haggling policy surprisingly we show that under some conditions an asymmetric outcome with one retailer haggling and the other offering a fixed price is also an equilibrium

a simultaneous model of consumer brand choice and negotiated price in this paper we develop a simultaneous model of consumer brand choice and negotiated price in the highly relevant marketing context of automobile transactions consumer brand choice is modeled as a multinomial probabilistic outcome and the individual consumer level transaction price is modeled to be consistent with the nash bargaining solution our simultaneous model introduces a natural way to account for price endogeneity in a microlevel choice setting when the price paid is individual specific and correlated with the idiosyncratic preference of a buyer it also accounts for the potential selectivity bias in studying the negotiated price by integrating consumer brand choice modeling we apply the proposed model to a data set of 4 795 consumer automobile purchases the empirical results show that the proposed approach not only better fits the data of consumer choice and negotiated price but it also provides additional insights into buyers and sellers behaviors in comparison with models that study only consumer choice or the negotiated price but not both simultaneously

negotiations and exclusivity contracts for advertising exclusive advertising on a given media outlet is usually profitable for an advertiser because consumers are less aware of competing products however for such arrangements to exist media must benefit as well we examine conditions under which such exclusive advertising contracts benefit both advertisers and media outlets referred to as stations by illustrating that exclusive equilibria arise in a theoretical model of the media advertisers and consumers who participate in both the product and media markets in the model stations sell advertising space to advertisers and broadcast advertising messages to consumers conditions leading to higher equilibrium levels of advertising can be unprofitable for advertisers because high levels of advertising make consumers better informed and thus lead to fiercer product price competition as a result media stations may be less profitable as well because their payoff is determined as a fraction of the advertiser surplus generated in the product market stations mitigate this effect by offering advertisers exclusive advertising contracts with such contracts consumers are less informed about competing products yielding higher producer surplus it is profitable for stations to offer exclusivity when commercial advertising is an important means for advertisers to inform consumers about their products

bertrand supertraps we study oligopoly price competition between multiproduct firms firms whose products interact in the profit function specifically we focus on the impact of intrafirm product interactions on the level of equilibrium profits this impact may be decomposed in two different ways a a direct effect keeping the competitors actions fixed plus a strategic effect i e through the competitors actions or alternatively b a competitive advantage effect change in firmi only plus an imitation effect change in all other firms we derive conditions such that a the strategic effect more than outweighs the direct effect and conditions such that b the imitation effect more than outweighs the competitive advantage effect bertrand supertraps for example an increase in the degree of economies of scope would increase profits if prices were fixed or if the change were limited to firmi s cost function however if all firms increase the degree of economies of scope then all firms receive lower profits a variety of other applications is considered including learning curves core competencies demand synergies systems competition compatibility bundling network effects switching costs durable goods long term contracts

manufacturer retailer channel interactions and implications for channel power an empirical investigation of pricing in a local market the issue of power in the marketing channels for consumer products has received considerable attention in both academic and practitioner journals as well as in the popular press our objective in this paper is to provide an empirical method to measure the power of channel members and to understand the reasons demand factors cost factors nature of channel interactions for this power we confine our analysis to pricing power in channels we use methods from the game theory literature in marketing on channel interactions to obtain the theoretical framework for our empirical model this literature provides us a definition of power one that is based on the proportion or percentage of channel profits that accrue to each of the channel members there can be a variety of possible channel interactions between manufacturers and retailers in channels the theoretical literature has examined some of these games for example choi 1991 examines how channel profits for manufacturers and retailer vary if channel interactions are either vertical nash or if they are stackelberg leaderfollower with either the manufacturer or the retailer being the price leader each of these three channel interaction games has different implications for profits made by manufacturers and retailers and consequently for the relative power of the channel members in contrast to the previous literature that has focused largely on the above three channel interaction games our model extends the game theoretic literature by allowing for a continuum of possible channel interactions between manufacturers and a retailer furthermore for a given product market we empirically estimate from the data where the channel interactions lie in this continuum more critically we obtain measures of how channel profits are divided between manufacturers and the retailer in the product market where a higher share of channel profit is associated with higher channel power we then examine how channel power is related to demand conditions facing various brands and cost parameters of various manufacturers in going from game theory based theoretical models of channel interactions to empirical estimation we use the new empirical industrial organization framework bresnahan 1988 as part of this structural modeling framework we build retail level demand functions for the various brands manufacturer and private label in a given product category given these demand functions we obtain optimal pricing rules for manufacturers and the retailer in determining their optimal prices manufacturers and the retailer account for how all the players in the channel choose their optimal prices that is we account for dependencies in decision making across channel members these dependencies are characterized by a set of conduct parameters which are estimated from market data the conduct parameters enable us to identify the nature of channel interactions between manufacturers and the retailer along the continuum mentioned previously in addition to the demand and conduct parameters manufacturers marginal costs are also estimated in the model these marginal cost estimates along with the manufacturer prices and retail prices available in our dataset enable us to compute the division of channel profits among the channel members hence we are able to obtain insights into who has pricing power in the channel in the empirical application of the model we analyze a local market for two product categories refrigerated juice and tuna in both categories there are three major brands the difference between them is that the private label has an insignificant market share in the tuna category our main empirical results show that the usual games examined in the marketing literature do not hold for the given data we also nd that the retailer s market power is very significant in both these product categories and that the estimated demand and cost parameters are consistent with the estimated pattern of conduct between the manufacturers and the retailer given the evidence from the trade press of intense manufacturer competition in these categories as well as the commodity nature of these products the result of retailer power appears intuitive

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

a bargaining theory of distribution channels abstract a critical factor in channel relationships between manufacturers and retailers is the relative bargaining power of both parties in this article the authors develop a framework to examine bargaining between channel members and demonstrate that the bargaining process actually affects the degree of coordination and that two part tariffs will not be part of the market contract even in a simple one manufacturer one retailer channel to establish the institutional and theoretical bases for these results the authors relax the conventional assumption that the product being exchanged is completely specifiable in a contract they show that the institution of bargaining has force and it affects channel coordination when the complexity of nonspecifiability of the product exchange is present the authors find that greater retailer power promotes channel coordination thus there are conditions in which the presence of a powerful retailer might actually be beneficial to all channel members the authors rec

household asset allocation offspring education and the sandwich generation abstract this paper finds households with children and elderly dependents the sandwich generation significantly reduce both college savings and stockholding having any elderly dependents decreases the probability of both stockholding and college savings by twice as much as poor personal health hence these results have critical implications as they demonstrate the importance and magnitude of links between the pension system college financial aid and wealth accumulation elderly dependents limiting parental funds for offspring education can decrease offspring long term earnings potential via decreased human capital accumulation furthermore decreased stock holdings can decrease long term wealth accumulation and thus intergenerational wealth transfers

information sharing in union firm relationships large firms often negotiate wage rates with labor unions when they do an ex ante agreement to share information should make it more likely that they will reach an agreement and capture the gains from trade however if the firm refuses to share information the union may shade down its wage demand to increase the probability of acceptance this reduction in the wage can increase the joint surplus of the agents and increase social welfare as a result there are some circumstances in which bargaining with incomplete information can be better for the agents and society than bargaining with complete information many firms and their input suppliers form long term relationships in which they periodically negotiate their terms of trade as has long been recognized the presence of private information can cause negotiations to break down on occasion resulting in an inefficient disruption of production for example the united auto workers with superior knowledge of its strike fund and or its member s outside options may call for a strike against general motors if the firm is unwilling to meet its wage demands and the firm s unwillingness to concede may be due to its superior knowledge of demand productivity and or its stock of inventories theoretically such disruptions could be avoided if the agents would simply agree to reveal their private information before the negotiations begin 2 whether or not this will occur is unclear however since some agents may be unwilling to enter into such an agreement if it sufficiently weakened their bargaining position the literatures on noncooperative bargaining and mechanism design have already dealt with many of the issues that arise in this environment in the bargaining literature it is generally assumed that the agents already possess the private information and then the implications of different bargaining processes are examined see ausubel et al 2002 for a survey in the mechanism design literature one of the questions addressed is whether the agents can find a way to commit to ex

technical note local bargaining and supply chain instability we analyze the behavior of a competitive n tier supply chain system where agents bargain with each other locally we study the influence of transaction costs on the convergence of the system to a stationary outcome in particular we consider a dynamic bargaining game among a finite set of agents and its replications and use a limit stationary equilibrium to examine the system s behavior as the population s size goes to infinity the convergence of the system to a limit stationary equilibrium would capture the common belief that as the market gets large it converges to a competitive and stable outcome however we prove that depending on the underlying transaction costs the system might not converge to such an equilibrium interestingly our result shows that a small increase in the transaction cost at one end of the chain can be greatly amplified and shifts the system away from the steady state when a limit stationary equilibrium exists we show that it is unique we use such an equilibrium outcome

a larger slice or a larger pie an empirical investigation of bargaining power in the distribution channel this research aims to provide insights into the determinants of channel profitability and the relative power in the channel by considering consumer demand and the interactions between manufacturers and retailers in an equilibrium model we use the nash bargaining solution to determine wholesale prices and thus how margins are split in the channel equilibrium margins are a function of demand primitives and of retailer and manufacturer bargaining power bargaining power is itself a function of exogenous retail and manufacturer characteristics the parties bargaining positions are determined endogenously from the estimated substitution patterns on the demand side the more they have to lose in a negotiation relative to an outside option the weaker the bargaining position we use the proposed bargaining model to investigate the role of the three main factors that have been blamed for the power shift from manufacturers to retailers in recent years firm size increases store brand introductions and service level differentiation in our empirical analysis of the german market for coffee we find that bargaining power varies among the different manufacturer retailer pairs this result suggests that bargaining power is not an inherent characteristic of a firm but rather depends on the negotiation partner we are able to confirm empirically previous theoretical findings that there can be cases where the slice of the pie that goes to one of the channel members may decrease but the overall pie increases and compensates for the smaller share of profits

multilateral bargaining and downstream competition we examine multilateral bargaining in vertical supply relationships that involve an upstream manufacturer who sells through two competing retailers in these relationships the negotiations are interdependent and bargaining externality may arise across the retailers in addition the timing by which the manufacturer negotiates with the retailers becomes important in simultaneous bargaining the retailers negotiate without knowing if an agreement has been reached in the other retail channel whereas in sequential bargaining the retailer in the second negotiation is able to observe whether an agreement was reached in the first negotiation we show that simultaneous bargaining is optimal for the manufacturer when the retail prices and profitability are similar and sequential bargaining is preferred when the dispersion in the retail prices is sufficiently large as a result of ex post renegotiations the manufacturer may strategically stock out the less profitable retailer who charged a relatively low retail price and exclusively supply only the retailer who charged a relatively high retail price and maintained high channel profitability moreover ex post multilateral bargaining can buffer downstream competition and thus lead to positive retail profits even in markets that are close to perfect competition

vertical integration raising rivals costs and upstream collusion abstract this paper analyzes the impact vertical integration has on upstream collusion when the price of the input is linear as a first step the paper derives the collusive equilibrium that requires the lowest discount factor in the infinitely repeated game when one firm is vertically integrated it turns out this is the joint profit maximum of the colluding firms the discount factor needed to sustain this equilibrium is then shown to be unambiguously lower than the one needed for collusion in the separated industry while the previous literature has found it difficult to reconcile raising rivals costs strategies following a vertical merger with equilibrium behavior in the static game they are subgame perfect in the repeated game studied here

estimation methods for stochastic volatility models a survey abstract although stochastic volatility sv models have an intuitive appeal their empirical application has been limited mainly due to difficulties involved in their estimation the main problem is that the likelihood function is hard to evaluate however recently several new estimation methods have been introduced and the literature on sv models has grown substantially in this article we review this literature we describe the main estimators of the parameters and the underlying volatilities focusing on their advantages and limitations both from the theoretical and empirical point of view we complete the survey with an application of the most important procedures to the s p 500 stock price index

service cancellation and competitive refund policy although previous research demonstrates the profitability of partial refund policies in a monopoly setting there is a certain lack of ubiquity in practice about these refunds in competitive service markets this raises the question of how a partial refund policy may work and whether it is even sustainable in a competitive environment this study investigates how competition may influence the profitability and the equilibrium choice of refund policies it is shown that partial refunds may endogenously change the nature of strategic interaction between service providers from local monopolies into a competition regime which moderates the gains from exploiting the efficiency enhancing effect of partial refunds a whole range of pure strategy equilibria can be obtained as a result of the interplay between the efficiency improving and the competition intensifying effects when the capacity is small large such that the efficiency improving the competition intensifying effect is dominant both firms in equilibrium follow identical partial zero refund policies moreover interestingly the symmetric firms may end up in an asymmetric equilibrium in which one firm follows a partial refund policy and the other adopts a zero refund policy

firm strategies in the mid tail of platform based retailing while millions of products are sold on its retail platform amazon com itself stocks and sells only a very small fraction of them most of these products are sold by third party sellers who pay amazon a fee for each unit sold empirical evidence clearly suggests that amazon tends to sell high demand products and leave long tail products for independent sellers to offer we investigate how a platform owner such as amazon facing ex ante demand uncertainty may strategically learn from these sellers early sales which of the mid tail products are worthwhile for its direct selling and which are best left for others to sell the platform owner s cherry picking of the successful products however gives an independent seller the incentive to mask any high demand by lowering his sales with a reduced service level unobserved by the platform owner we analyze this strategic interaction between a platform owner and an independent seller using a game theoretic model with two types of sellers one with high demand and one with low demand we show that it may not always be optimal for the platform owner to identify the seller s demand interestingly the platform owner may be worse off by retaining its option to sell the independent seller s product whereas both types of sellers may benefit from the platform owner s threat of entry the platform owner s entry option may reduce consumer surplus in the early period although it increases consumer surplus in the later period we also investigate how consumer reviews influence the market outcome

conditionally heteroskedastic factor models with skewness and leverage effects conditional heteroskedasticity skewness and leverage effects are well known features of financial returns the literature on factor models has often made assumptions that preclude the three effects to occur simultaneously in this paper i propose a conditionally heteroskedastic factor model that takes into account the presence of both the conditional skewness and leverage effects this model is specified in terms of conditional moment restrictions and unconditional moment conditions are proposed allowing inference by the generalized method of moments gmm the model is also shown to be closed under temporal aggregation an application to daily excess returns on sectorial indices from the u k stock market provides a strong evidence for dynamic conditional skewness and leverage with a sharp efficiency gain resulting from accounting for both effects the estimated volatility persistence from the proposed model is lower than that estimated from models that rule out such effects i also find that the longer the returns horizon the fewer conditionally heteroskedastic factors may be required for suitable modeling and the less strong is the evidence for dynamic leverage some of these results are in line with the main findings of harvey and siddique 1999 and jondeau and rockinger 2003 namely that accounting for conditional skewness impacts the persistence in the conditional variance of the return process

finance inequality nexus the long and the short of it financial development affects income inequality differently in the short and in the long term investigating oecd countries from 1870 2011 we find in the short run an improvement in financial development tends to reduce inequality while in the long run more finance contributes to more inequality the short run effect concurs with theories advocating financial development increases the availability of financial services primarily for the poor however this effect becomes nil within a few years results thus imply that policies aimed at reducing inequality through improving access of the poor to finance need to be carefully designed to ensure longevity of impact

manufacturer s return policies and retail competition manufacturers returns policies are a common feature in the distribution of many products the obvious rationale for returns policies is insurance practitioners not surprisingly have a different perspective and view returns as a cost of doing business in this paper we study the strategic effect of returns policies on retail competition and highlight its profitability implications for a manufacturer the setting for our research is the distribution of products with uncertain demand limited shelf lives and retail competition our objective is to provide a better understanding of when manufacturers should adopt returns policies the insights are obtained with a model based on the economics of strategy and decision making under uncertainty we show that when retailing is competitive and there is no uncertainty in demand a returns policy subtly induces retailers to compete more intensely the provision of a returns policy reduces retail prices without affecting wholesale prices thereby reducing retailer margins and improving manufacturer profitability the intuition is that with a returns policy cournot like levels of retail stocks cannot be sustained each retailer will order stocks so that it will not be constrained by stocks and so intensifying retail competition when however demand is uncertain and there is a single retailer a returns policy encourages the retailer to over stock and so decreases upstream manufacturer profits while the provision of a returns policy leads to lower retail margins the optimality of returns policy depends on the overall uncertainty and marginal cost a returns policy reduces the dispersion in retail prices between the high and low states of demand and the range of retail prices in the returns case is contained within the range of retail prices for the no returns case in the general setting when there are competing retailers and demand is uncertain there is a trade off for the manufacturer between the benefits more intense retail competition and the costs excessive stocking of a returns policy we find that a manufacturer should accept returns when the marginal production cost is sufficiently low and demand uncertainty is not too great to validate the results of our theory we conduct an empirical test with data from a major u s retailer the tests confirm our prediction that a returns policy intensifies retail competition and reduces retailer margins our theory and empirical test should interest practitioners and researchers in distribution especially those concerned with managing retail competition

social motives in bilateral bargaining games how power changes perceptions of fairness abstract power a fundamental characteristic of social interactions characterizes one s ability to influence others fairness inherently a type of social preference impacts distributive decision making how does power shape the perceptions of fairness in economic interactions while previous research finds that power holders tend to take more it remains unclear whether they are driven by selfish motives to exploit weaker counterparts or act upon the belief that powerful individuals deserve more with an innovative modified ultimatum game we analytically and experimentally study how power interplays with fairness consideration to affect bilateral bargaining we concentrate on behaviors by the responders to elicit their fairness preferences in response to shifts in power we find strong evidence that changes in power can modify what is perceived as a fair division in the modified ultimatum game and thus influence the distributive behaviors and outcomes however such an effect only arises when there is common knowledge about the power distribution between the two parties prior to their decision making in addition we find that while feedback on past decisions and outcomes can help players fine tune their choices to avoid money left on the table in bargaining learning from experience is not required for power to take effect

optimal reverse channel structure for consumer product returns consumers often return a product to a retailer because they learn after purchase that the product does not match as well with preferences as had been expected this is a costly issue for retailers and manufacturers in fact it is estimated that the u s electronics industry alone spent 13 8 billion dollars in 2007 to restock returned products lawton c 2008 the war on returns wall street journal may 8 d1 the bulk of these returns were nondefective items that simply were not what the consumer wanted to eliminate returns and to recoup the cost of handling returns many retailers are adopting the practice of charging restocking fees to consumers as a penalty for making returns this paper employs an analytical model of a bilateral monopoly to examine the impact of reverse channel structure on the equilibrium return policy and profit more specifically we examine how the return penalty is affected by whether returns are salvaged by the manufacturer or by the retailer interestingly we find that the return penalty may be more severe when returns are salvaged by a channel member who derives greater value from a returned unit also the manufacturer may earn greater profit by accepting returns even if the retailer has a more efficient outlet for salvaging units

contract design with a dominant retailer and a competitive fringe we show that under some conditions quantity discounts and two part tariffs are equivalent as mechanisms for channel coordination when an upstream firm sells its product in a downstream market that is characterized by a dominant retailer and a competitive fringe we consider a setting in which discriminatory offers are feasible and a setting in which the same menu of options must be offered to all retailers we find that the upstream firm s profit in both settings is independent of whether quantity discounts or two part tariffs are used the implication of this finding is that the firm s choice of contract design may turn on which one is easier to implement

u s state and local fiscal policy and economic activity do we know more now early reviews of the academic literature on the economic effects of state and local taxes and expenditures suggested that not enough was known upon which to base policy the reviews called for better data and improvements in empirical methodology this paper reviews studies conducted since the early literature reviews to assess our current state of knowledge the conclusion of the study is that we know more now but our knowledge is unlikely to ever be sufficient to provide universal policy guidance rather we suggest that more research is needed on specific state and local policies for specific circumstances consistent with the general principles that guide place based policy

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

a bargaining model with incomplete information about time preferences etude d un jeu de negociation strategique sequentiel avec information incomplete caracterisation d une classe d equilibres sequentiels appeles equilibres sequentiels de negociation et demonstration de l unicite de cet equilibre

information sharing in a long term supply chain relationship the role of customer review strategy in this paper we study the practice of forecast sharing and supply chain coordination with a game theoretical model we find that in a one shot version of the game forecasts are not shared truthf

quality disclosure formats in a distribution channel firms normally disclose quality information to consumers using two alternative formats either directly to consumers or indirectly through downstream retailers this study investigates optimal disclosure strategies formats in a channel setting with bilateral monopolies it shows that retail disclosure leads to more equilibrium information revelation this is because the manufacturer can through wholesale price cuts partially absorb the retailer s effective disclosure cost and thus increase the retailer s incentive for disclosure the conditions under which a particular disclosure format arises as the manufacturer s optimal choice are also examined even though direct disclosure is the ex post dominated option the manufacturer may benefit from committing ex ante to the direct disclosure format when the cost of disclosure is sufficiently high

on sequential commitment in the price dependent newsvendor model abstract we investigate the effect of sequential commitment in the decentralized newsvendor model with price dependent demand sequential commitment allows the self profit maximizing parties to commit to contract parameters e g wholesale price retail price buyback price and order quantity sequentially and alternately and we investigate its effect on the equilibrium profits of the channel and its members sequential commitment introduces more flexibility to contracting in the supply chain and our analysis can provide some insight to channel members who follow a bargaining process to determine the values of contract parameters we show that the introduction of sequential commitment to the price dependent pd newsvendor model with buybacks can significantly improve the manufacturer s and the channel expected profits but it can also decrease the retailer s expected profit finally we demonstrate that with sequential commitment under some conditions the choice of the first mover is endogenized and we identify the unique sequence of commitments by channel members that would arise in equilibrium

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

comment managing channel profits comment in a recent paper in this journal jeuland and shugan jeuland a s shugan 1983 managing channel profits marketing sci 2 summer 239 272 proposed a quantity discount schedule as a way of coordinating a channel as they put it on p 253 of their paper a quantity discount schedule which would fix the retailer s and hence the manufacturer s profits to some fixed linear function of total channel profits would lead the channel to maximize profits the purpose of this note is to show that a quantity discount schedule is not necessary for channel coordination

market risk and the concept of fundamental volatility measuring volatility across asset and derivative markets and testing for the impact of derivatives markets on financial markets this paper proposes an unobserved fundamental component of volatility as a measure of risk this concept of fundamental volatility may be more meaningful than the usual measures of volatility for market regulators fundamental volatility can be obtained using a stochastic volatility model which allows us to filter out the signal in the volatility information we decompose four ftse100 stock index related volatilities into transitory noise and unobserved fundamental volatility our analysis is applied to the question as to whether derivative markets destabilise asset markets we find that introducing european options reduces fundamental volatility while transitory noise in the underlying and futures markets does not show significant changes we conclude that for the ftse100 index introducing a new options market has stabilised both the underlying market and existing derivative markets

a stochastic volatility model with markov switching this article presents a new way of modeling time varying volatility we generalize the usual stochastic volatility models to encompass regime switching properties the unobserved state variables are governed by a first order markov process bayesian estimators are constructed by gibbs sampling high medium and low volatility states are identified for the standard and poor s 500 weekly return data persistence in volatility is explained by the persistence in the low and the medium volatility states the high volatility regime is able to capture the 1987 crash and overlap considerably with four u s economic recession periods

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

tax policy and state economic growth the long run and short run of it this paper uses a pooled mean group pmg estimator to evaluate the effects of tax policy on state level growth we find that property and sales tax rates have negative effects on long run income growth while income tax rates have no impact

entry and product variety with competing supply chains we study a model where an endogenous number of competing manufacturers located around a circle contract with exclusive retailers who are privately informed about their costs the number of brands in the market determined by the manufacturers zero profit condition depends on the presence of asymmetric information and on the types of contracts between manufacturers and retailers with two part tariffs wholesale prices fully reflect retailers costs with linear contracts wholesale prices are constant and independent of retailers costs the number of brands is lower resp higher with asymmetric information than with complete information when contracts are linear resp with two part tariffs moreover although the number of brands is always higher with linear contracts than with two part tariffs joint profits of manufacturers and retailers are higher with linear prices we also discuss manufacturers incentives to choose different contract forms and analyze the effects of endogenous entry on welfare

markov switching and stochastic volatility diffusion models of short term interest rates this article empirically compares the markov switching and stochastic volatility diffusion models of the short rate the evidence supports the markov switching diffusion model estimates of the elasticity of volatility parameter for single regime models unanimously indicate an explosive volatility process whereas the markov switching models estimates are reasonable itis found that either markov switching or stochastic volatility but not both is needed to adequately fit the data a robust conclusion is that volatility depends on the level of the short rate finally the markov switching model is the best for forecasting a technical contribution of this article is a presentation of quasi maximum likelihood estimation techniques for the markov switching stochastic volatility model

research note the effects of costs and competition on slotting allowances we consider the optimal two part tariff contract between a manufacturer and a retailer we show that retail competition in the presence of either fixed costs or bargaining power may lead to slotting allowances in an optimal contract even with a monopoly manufacturer and no information asymmetry on the other hand slotting allowances do not arise with a monopoly retailer and no information asymmetry whether the manufacturer is a monopoly or not we also show that more intense retail competition higher retail bargaining power larger retailer fixed costs lower marginal costs of retailing as well as larger relative retailer size whether coming from a location or operating advantage have a positive impact on the incidence and the magnitude of slotting allowances the opposing effects of the fixed and marginal operating costs on slotting allowances as well as the impact of competition and bargaining power on profits underscore the importance of careful definitions of these variables in empirical research

price and volatility co jumps abstract the nature of the dependence between discontinuities in prices and contemporaneous discontinuities in volatility co jumps has been reported by many as being elusive in terms of sign magnitude and statistical significance using a novel identification strategy in continuous time relying on trade level information for spot variance estimation as well as infinitesimal cross moments we document that a sizeable proportion of discontinuous changes in prices are associated with strongly anti correlated contemporaneous discontinuous changes in volatility assuming a possibly nonmonotonic pricing kernel we illustrate the equilibrium implications of price and volatility co jumps for return and variance risk premia

sharing the wealth when should firms treat customers as partners marketers often stress the importance of treating customers as partners a fundamental premise of this perspective is that all parties can be weakly better off if they work together to increase joint surplus and reach pareto efficient agreements for marketing managers this implies organizing marketing activities in a manner that maximizes total surplus this logic is theoretically sound when agreements between partners are limitless and costless in most consumer marketing contexts business to consumer this is typically not true the question i ask is should one still expect firms to partner with consumers and reach pareto efficient agreements in this paper i use the example of a firm s choice of product configuration to demonstrate two effects first i show that a firm may configure a product in a manner that reduces total surplus but increases firm profits second one might conjecture that increased competition would eliminate this effect but i show that in a duopoly firm profits may be increasing in the cost of product completion this second result suggests that firms may prefer to remain inefficient and or stifie innovations both results violate a fundamental premise of partnering that firms and consumers should work together to increase total surplus and reach pareto efficient agreements the model illustrates that pareto efficient agreements are less likely to occur if negotiation with individual partners is infeasible or costly such as in business to consumer contexts consumer marketers in one to many marketing environments should be wary of treating customers as partners because pareto efficient agreements may not be optimal for their firm

the effect of state and local taxes on economic growth a time series cross section approach results based on pooled time series and cross section data are presented which indicate that state and local tax increases significantly retard economic growth when the revenue is used to fund transfer payments however when the revenue is used instead to finance improved public services such as education highways and public health and safety the favorable impact on location and production decisions provided by the enhanced services may more than counterbalance the disincentive effects of the associated taxes these findings underscore the importance of considering the incentives provided by a state s expenditures as well as by its taxes i n the past several years a number of states have implemented limitations on taxes or expenditures while others have raised tax rates in response to the revenue shortfalls of the early 1980s although much of the ongoing debate over state fiscal structures revolves around expressed preferences over tax expenditure combinations per se the question of how state and local taxes may affect economic growth is often central to the discussion nonetheless the empirical evidence remains sparse previous studies can be divided into two broad categories assessments of the magnitudes of tax costs and statistical analyses of the relationship between tax rates and growth cost studies have tended to minimize the role of taxes in business location decisions either because state and local taxes are a relatively small component of total costs for most businesses or because interstate tax differences are small relative to other cost differences between states although these results suggest that the role played by taxes is a minor one describing how large the tax disparities may be is not the same as ascertaining their economic effect of the statistical studies many including bloom 1955 thompson and mattila 1959 and carlton 1979 1983 find no relationship between taxes and growth however kleine 1977 grieson 1980 and generally grieson et al 1977 report negative correlations romans and subrahmanyam 1979 find growth to be negatively related to the fraction of revenues devoted to transfer payments and a variable which they claim measures personal tax progressivity but positively related to business taxes with the exception of carlton who estimates models of the birth and size of firms within metropolitan areas and the grieson et al 1977 and grieson 1980 studies which consider taxes in new york city and philadelphia these authors use data from a single cross section of states more recently newman 1983 and plaut and pluta 1983 both use cross sectional data from two time periods the former finding negative effects of corporate tax rates and the latter yielding mixed results in this study we utilize a time series from 1965 through 1979 of cross sections of 48 states exploiting the richness of this data set we are able to allow for otherwise unexplained differences between states which could be expected to bias results based on a single cross section moreover this much larger sample provides the statistical power necessary to disentangle the separate effects of different categories of taxes public expenditures and transfer payments a distinguishing feature of this paper is that we explicitly recognize the government budget constraint linking these fiscal variables and the deficit or surplus in addition we have taken account of the effects of labor force characteristics by including variables for wage rates unionization and population density our results indicate that tax increases significantly retard economic growth when the revenue is used to fund transfer payments as a result programs of income redistribution are more effectively undertaken at the federal than at the state and local level on the other hand when the revenue is received for publication april 30 1984 revision accepted for publication january 22 1985 university of california davis i am indebted to the institute of governmental affairs at the university of california davis for financial support to adrienne kandel for invaluable research assistance and to two referees for their helpful comments 1 see williams 1967 morgan and brownlee 1974 vasquez and deseve 1977 and the advisory commission on intergovernmental relations 1981 see also due 1961 for a survey of the early literature including a discussion of the findings and limitations of survey results on this topic 574 1 copyright 1985 this content downloaded from 157 55 39 35 on mon 29 aug 2016 04 45 38 utc all use subject to http about jstor org terms state and local taxes and economic growth 575 used instead to finance enhanced public services such as highways education and public health and safety the favorable impact on location and production decisions provided by the improved services may more than counterbalance the disincentive effects of the concomitant taxes these findings underscore the importance of considering the incentives provided by a state s expenditures as well as by its taxes we begin by sketching a model which provides the basis for the analysis and discussing appropriate estimation techniques then in section ii we describe the data used and our hypotheses the econometric results are presented in section iii followed by brief concluding remarks in the final

another look at tax policy and state economic growth the long run and short run of it i use a spatial durbin model to estimate the effects of taxes on state economic growth results indicate that taxes have negative short run and long run own state and spatial spillover effects on state growth

on delay in bargaining with one sided uncertainty recently attention has been given to a model of two person bargaining in which the parties alternate making offers and there is uncertainty about the valuation of one party the purpose of the analysis has been to identify delay to agreement with a screening process where agents with relatively lower valuations distinguish themselves by waiting longer to settle we point out a fundamental difficulty with this program by demonstrating that the assumptions used in the literature allow for delay only in so far as the time between offers is significant

a non linear filtering approach to stochastic volatility models with an application to daily stock returns this paper develops a new model for the analysis of stochastic volatility sv models since volatility is a latent variable in sv models it is difficult to evaluate the exact likelihood in this paper a non linear filter which yields the exact likelihood of sv models is employed solving a series of integrals in this filter by piecewise linear approximations with randomly chosen nodes produces the likelihood which is maximized to obtain estimates of the sv parameters a smoothing algorithm for volatility estimation is also constructed monte carlo experiments show that the method performs well with respect to both parameter estimates and volatility estimates we illustrate our model by analysing daily stock returns on the tokyo stock exchange since the method can be applied to more general models the sv model is extended so that several characteristics of daily stock returns are allowed and this more general model is also estimated copyright 1999 john wiley sons ltd