evaluation of drought management in irrigated areas this paper focuses on the economic consequences of droughts for the irrigation sector we develop a dynamic recursive mathematical programming farm model that assumes imperfect mobility of capital and labour as well as rational expectations about future water availability the model is calibrated to 12 representative farms belonging to three irrigation communities of the guadalquivir basin south spain and used to simulate the 1991 1997 period which included 3 years of intense drought results indicate that the drought imposed significant costs on farmers but show also that water managers partly exacerbated these costs by allocating excessive amounts of water to irrigators in the abundant years the model is also used to evaluate the benefits of a perfect water supply forecast and to simulate the economic gains of a voluntary water banking scheme results show that the benefits resulting from the perfect forecast of water supply 1 year ahead would represent a relative gain of 5 however a voluntary banking system would allow farmers to increase their benefits by 32 82 depending on the supply system

hospital transaction prices and managed care discounting for selected medical technologies it is generally assumed that managed care has been successful at capturing discounts from medical providers but the implications have been a matter of debate critics argue that managed care organizations attain savings by reducing intensity of services while others have argued that savings are real and are a consequence of discounts per unit of care rather than reduced intensity because medical services tend to be bundled together into episodes of care separating out prices and quantities can be difficult given available data past studies focused on an average price for the aggregate hospital calculated from total revenue divided by the number of inpatient days or cases e g glenn a melnick et al 1992 emmett b keeler and melnick 1999 david dranove and richard ludwick 1999 caution that these methods provide approximations of actual prices and are subject to measurement error due to unobservable differences in service mix examining treatment episode for acute myocardial infarctions heart attacks david cutler et al 2000 infer that discounts attained by managedcare plans are only partly due to reductions in intensity here we employ data that enable us to observe transaction prices i e actual payments borne by the payer and received by the hospital for major procedures on an unbundled basis our analysis differs from previous studies in several important dimensions among these is the focus on pricing differences between various insurers and employers rather than differences within a single large insurer as a consequence we derive an empirical specification based on the bargaining framework due to john m brooks et al 1997 rather than their insurerbased model moreover to identify pure unit discounts we focus on the narrowly defined procedure like cutler et al we focus on coronary heart disease a leading cause of death we examine a major procedure used to treat this disease one that is costly and relatively common in bypass surgery more fully coronary arterial bypass graft or cabg healthy segments of artery are surgically inserted around the diseased arteries in 2002 about 344 000 cabg s were performed in the united states with expenditures exceeding 21 billion other economists have focused on these procedures to examine market phenomena such as the hospital s entry decision michael chernew et al 2002 or information diffusion dranove et al 2003 yet the pricing decision was not treated fully

conditions for economies of scope in the presence of fixed costs this article establishes necessary and sufficient conditions for economies of scope to exist while taking into account the presence or absence of both local cost complementarity and product specific fixed costs in some circumstances the test developed here could show that economies of scope to not exist despite local cost complementarity or alternatively despite the existence of fixed costs conversely the test could show that fixed costs are sufficient to generate economies of scope despite local cost anticomplementarity

on the economic interpretation and measurement of optimal capacity utilization with anticipatory expectations this study builds on recent research giving the notion of capacity utilization clearer economic foundations in this research optimal output ye is defined as the minimum point on the firm s short run average total cost curve and capacity utilization is then computed as cu y y where y is actual output here i extend these concepts to include adjustment costs due to changes in the stock of capital and nonstatic expectations of future output demand and input prices the more general notion of cu is shown to depend on the shadow values of the firm s quasi fixed inputs and is decomposed to isolate the effects of anticipatory expectations an empirical comparison is then made between traditional indices and alternative economic cu measures using annual u s manufacturing data 1954 1980 the calculated indices exhibit plausible patterns which can be interpreted as the effects of nonstatic expectations and adjustment costs

the growth of interorganizational systems in the presence of network externalities we develop a model of network growth in the presence of network externalities for the case where a buyer initiates an interorganizational system with its suppliers in our two stage model suppliers joining the network in the first stage can gain economic benefit from increased market share or higher price for the primary product suppliers encounter negative externalities since the economic benefit accruing to participating suppliers is less for increasingly larger networks in the first stage the buyer may experience initial supplier adoption of the network followed by a stalling problem due to negative externalities in order to overcome this stalling problem the buyer may find it optimal to subsidize some suppliers costs to join the network in the second stage we characterize the buyer s optimal second stage subsidy policy and show the conditions under which the buyer will find it optimal to offer a subsidy if the suppliers have some positive ex ante expectation of a second stage subsidy the growth of the network will be retarded in the first stage resulting in suboptimal profits for the buyer

an information good market with symmetrical externalities in 3 the author investigated how an information good is supplied from its owner to users through trades in a case where all the traders are located at geographically separated points and thus a transmission of the good implies certain costs and moreover its external effects are negligibly small in general however information goods possess negative external effects as seen from the following suppose a firm possessing a new technology gains a profit by monopolistically utilizing it once this technology is known to and used by other firms the firm can no longer enjoy its monopolistic position and might incur a significant loss of profit the aim of this paper is to analyze how a concealable information good with external effects is diffused from its monopolistic owner to demanders through trades generally information goods have their own peculiar properties among them we suppose in this paper the following typical ones the first one is a possibility of free replication namely each trader can replicate the good as many times as he wants without any cost immediately after he obtains it each replica is supposed to be exactly the same as the original good the second one is an indivisibility which implies that each trader gains a benefit just from one unit of the good the third one is an irreversibility in trading the good in the case of trading ordinary goods it would be possible for a buyer to return the good to a seller by cancelling the trade for information goods however this would not be possible since a buyer may replicate it immediately after he purchases because of free replication namely a seller must refuse a buyer s proposal to return it since a buyer might already have its replica the fourth one is a negative external effect mentioned above namely a benefit brought by the good is affected by how the good is possessed among other traders and if some trader newly gets it then the benefit for each possessor is decreased throughout this paper we further assume that costs for transmitting the good are negligibly small a new process for producing chemical products a new computer program and so on are information goods which we have in mind for further description of information goods refer to 1 2 and 5 here we remark that in the case of trading such an information good it might occur from free replication that once each demander owns the good he will

electronic b2b marketplaces with different ownership structures this paper analyzes electronic marketplaces with different ownership structures biased marketplaces and neutral marketplaces biased marketplaces can be either buyer owned or supplier owned whereas neutral marketplaces are owned by independent third parties we develop a single period model with fulfilled expectations equilibrium the buyers experience positive network effects that are a function of the number of suppliers and the suppliers receive similar positive network effects depending on the number of buyers we develop a general model with atomistic buyers and suppliers we find that biased marketplaces set prices to induce greater participation demand from both buyers and suppliers compared to a neutral marketplace this counterintuitive result can be understood in the context of the positive cross network effects experienced by buyers and suppliers and the added benefit to the owner of a biased marketplace from participating in the marketplace biased marketplaces also provide greater social welfare compared to neutral marketplaces

allocatable fixed inputs and jointness in agricultural production implications for economic modeling allocatable fixed inputs such as land are a potentially important source of jointness in agriculture as with other causes of jointness they necessitate multiple product systems for modeling product supply and input demand in other important ways however their analytical implications are very different from other causes of jointness model specification differs demand functions for the quantities of each input used in the production of individual commodities can be derived if a primal approach is used but such allocation equations cannot in general be identified from a dual specification available allocation data are not even useful in such dual estimations

supply demand and technology in a multiproduct industry texas field crops the purpose of this paper is to examine the structure of agricultural production for six texas field crops cotton grain sorghum wheat corn rice and hay which account for nearly 95 of recent field crop value specific objectives are to a test the structure of technology to determine i if output and input utilization choices for individual products are independent of production decisions about other outputs and ii if products and or inputs can be consistently aggregated b estimate a coherent set of interrelated supply functions for the six commodities and input demand functions for fertilizer and hired labor because the empirical focus of this paper is specific to one state the results will be of limited value for interpreting specific production relationships elsewhere however the problem is of common interest in production agriculture and the techniques used demonstrate an important application of dual modeling

the changing effects of competition on non profit and for profit hospital pricing behavior abstract has the nature of hospital competition changed from a medical arms race in which hospitals compete for patients by offering their doctors high quality services to a price war for the patients of payors this paper uses time series cross sectional methods on california hospital discharge data from 1986 1994 to show the association of hospital prices with measures of market concentration changed steadily over this period with prices now higher in less competitive areas even for non profit hospitals regression results are used to simulate the price impact of hypothetical hospital mergers

patent competition rent dissipation and the persistence of monopoly the role of research budgets abstract the paper investigates how patent rights can contribute to the persistence of monopoly patent competition is modelled as a dollar auction game between two firms incumbent and entrant any bid expenditure on r d in the game constitutes sunk cost whose total amount is constrained by fixed research budgets the explicit solution subgame perfect equilibrium determines who wins the patent and how the winning expenditures depend on order of play and budgets of firms the entrant can win if he moves first and has the higher budget rent may or may not be dissipated by the competition

joint estimation of technology adoption and land allocation with implications for the design of conservation policy one challenge to estimating the parameters of a technology adoption model is that technology is selected jointly with land allocation the article estimates a nested logit model of technology and crop choices that accounts for unobserved correlation among decisions estimation is conducted with a data set of adoptions in contrast to the more common approach of using cross section observations of existing technologies estimation results support the choice of a nesting structure as opposed to a more standard multinomial logit model adoption of precision irrigation technology is shown to be more sensitive to financial incentives affecting input price and technology cost than suggested by previous studies

estimation of multicrop production functions this paper considers whether separability or nonjointness is the better approach for attaining tractability for multicrop production function estimation characteristics of agricultural production associated with allocated inputs physical constraints and output determination imply sufficient nonjointness for estimation whereas separability is less plausible the paper also addresses estimation of production functions with allocated inputs where allocations are not observed and demonstrates a proposed approach by way of example

information transparency of business to business electronic markets a game theoretic analysis the abundance of transaction data available on the internet tends to make information more transparent in electronic marketplaces in such a transparent environment it becomes easier for suppliers to obtain information that may allow them to infer their rivals costs is this good news or bad news in this study we focus on theinformational effects of business to business b2b exchanges and explore firms incentives to join a b2b exchange that provides an online platform for information transmission we then study the equilibria by developing a game theoretic model under asymmetric information we examine whether the incentives to join a b2b exchange would be different under different competition modes quantity and price different information structures and by varying the nature of the products substitutes and complements our results challenge the information transparency hypothesis i e open sharing of information in electronic markets is beneficial to all participating firms in contrast to the popular belief we show that information transparency could be a double edged sword the individual rationality of participation in the online exchange reflects the tradeoff between information transparency and data confidentiality this may have important implications for the microstructure design e g data access rules of b2b electronic marketplaces

hospital insurer bargaining an empirical investigation of appendectomy pricing employers increased sensitivity to health care costs has forced insurers to seek ways to lower costs through effective bargaining with providers what factors determine the prices negotiated between hospitals and insurers the hospital insurer interaction is captured in the context of a bargaining model in which the gains from bargaining are explicitly defined appendectomy was chosen because it is a well defined procedure with little clinical variation our results show that certain hospital institutional arrangements e g hospital affiliations hmo penetration and greater hospital concentration improve hospitals bargaining position furthermore hospitals bargaining effectiveness has diminished over time and varies across states

the hospital physician interaction in u s hospitals evolving payment schemes and their incentives abstract unlike the case in several european countries where physicians are salaried employees of the hospital in the u s physicians are independent agents who are granted admitting privileges by their affiliated hospitals hospitals and physicians bill separately for their components of inpatient care and patients or insurers compensate them separately this has raised questions about the degree of efficiency and cooperation between the agents in the first part of this paper we review previous models that examined this interaction under cost based and prospective reimbursement in the second part we consider an experimental mechanism price bundling in which payers allow a single payment for an episode of care leaving the physician and the hospital to negotiate over how the fee should be split modelling this as a nash bargaining game we cast doubt on the notion that price bundling can ensure cooperation and efficiency from the perspective of the players and suggest other incentives that may have led hospitals to participate in the experiment

estimating substitution and expansion effects comment in recent years there has been a proliferation of estimated supply and demand elasticities for the agricultural sector the combination of duality theory flexible functional forms and powerful computing resources have made it easy to estimate complete supply and demand systems with relatively few restrictions on the elasticities as a profession we must sort through these numerous estimates many of which are contradictory and identify the sensible ones a recent article by lopez in this journal illustrates this methodology this comment uses the lopez results to demonstrate how hitherto underutilized theoretical insights can be usefully employed in evaluating published elasticities the first issue involves the expected signs of off diagonal elasticities for uncompensated supplies and demands the analysis of which dates back to hicks work in 1939 he predicted that in the absence of significant fixities we should expect goods to be gross complements in production this concept has been further developed and refined the assumptions necessary to generate this normal case are reviewed in the second section then the relationship between gross and compensated elasticities is examined in both of these sections empirical results from the lopez article are found to contradict predicted outcomes based on economic theory and an attempt is made to analyze these discrepancies

an econometric estimation of industrial water demand in france this study investigates the structure of industrial water demand byestimating the derived demand for water on a sample of industrialestablishments located in the south west of france productiontechnologies are represented by short term variable cost functions andapproximated by a translog form industrial water use is modeled ashaving three components the quantity of water bought to a waterutility the quantity of autonomous water and the quantity of watertreated prior to use we include in this framework water effluents which are considered as a by product of the production process emittedby firms each of the three water components is treated as a separateinput and all are estimated as a system of simultaneous equations themodel is estimated on a sample of 51 industrial plants in the girondedistrict observed from 1994 to 1996 using seemingly unrelated regression sur and feasible generalized least squares fgls results ofestimations show that industrial firms are sensitive to water priceinputs network water elasticity is estimated at 0 29 it variesfrom 0 10 to 0 79 according to the type of industryconsidered autonomous water price elasticity is not significant elasticity for treated water is evaluated at 1 42 at themean sample and varies from 0 90 to 2 21 according to theindustry considered

bargaining power fear of disagreement and wage settlements theory and evidence from u s industry the paper develops and estimates a theoretical model of wage determination and union nonunion wage differentials in order to overcome the institutional ctiticisms of the formal bargaining literature the paper generalizes the nash zeuthen harsanyi model by linking the solution to the institutional concepts of bargaining power and fear or cost of disagreement and by making the outcome depend not only on endogenous but also on exogenous factors an operational specification of bargaining power and fear of disagreement allows the model to be estimated with data covering twelve companies and trade unions during the period from mid 1950 s to the late 1970 s while giving limited support to the nashzeuthen harsanyi solution the empirical analysis indicates that the bargaining outcome usually deviates from the nash zeuthen harsanyi point and in accordance with the institutionalist claim that it varies significantly with exogenous factors contrary to the traditional labor economics view the results do not support the general conclusion that the bargaining solution lies on the marginal revenue product curve of labor instead the relevant coefficients suggest that for many firms and unions the outcome might be better characterized by the efficient contract vertical contract curve

long run profit functions for multiproduct firms a long run specification of the multiproduct profit function is developed from the restricted profit function the multiproduct restricted profit function and the envelope condition are used to estimate the optimal long run levels of the quasi fixed factor formulas for long run marshallian elasticities of substitution and transformation economies of scope product specific and overall economies of scale and economic measures of capacity utilization are developed for the translog functional form the methodology is illustrated by a case study of the new england otter trawl industry

a nonparametric analysis of agricultural technology u s agricultural technology and technical change are analyzed nonparametrically under cost minimization and profit maximization based on annual data for 1948 83 various separability hypotheses concerning the aggregate production function for u s agriculture are investigated the proposed nonparametric approach also provides some insights into the nature of technical change

the effects of market structure and bargaining position on hospital prices ppos and hmos have gained widespread acceptance due in part to the belief that excess capacity and competitive market conditions can be leveraged to negotiate lower prices with health care providers we investigated prices obtained in different types of markets by the largest ppo in california our findings indicate that greater hospital competition leads to lower prices furthermore as the importance of a hospital to the ppo in an area increases the price rises substantially our testing of alternative methods for defining hospital geographic markets reveals that the common practice of using counties to define the market leads to an underestimate of the price increasing effects of a merger

evaluation of price policy in the presence of water theft mathematical programming models of representative farms are commonly used to evaluate policies such as input subsidies and output price supports on canals in india upstream farmers routinely use more irrigation water than allotted in such circumstances the programming model should encompass farmers locational heterogeneity here a representative watercourse with thirty farms is calibrated to the eight crops fifteen irrigation turns yield responses to water and seepage in maharashtra not only does water theft increase the social cost of price policies but the policies increased inducement to theft by upstream farmers leaves those downstream with less water and lower incomes

determining firm level it investments to facilitate value chain activities should spillovers accruing to value chain members be incorporated abstract in recent years the relationship between intermediaries in a value chain has undergone significant changes in which information technology it has played a critical role of importance is the formation of alliances between channel members and the effect of it investments on these evolving relationships a critical aspect of a firm s it investment is that it not only provides gains for the investing firm but also creates positive spillovers for value chain members these spillovers are attributable to the fact that firm level it investments result in the automation and or reengineering of internal processes downstream in this paper we address the issue as to how a firm should determine its investment in an it system which is primarily designed to facilitate value chain activities under the assumptions of perfect information in terms of potential gains for value chain members from this it investment and the fact that each member may need to be guaranteed some minimum gain i e a reservation utility to adopt the it we model the it investment decision under two alternative strategies the first strategy referred to as the myopic strategy is where the firm simply makes the it investment decision by maximizing its own gains and ignoring those of the value chain under an alternative strategy referred to as the global strategy the firm decides to make the it investment decision by simultaneously maximizing not only its own gains but also the gains accruing to the entire value chain in this case the firm could make a sub optimum decision regarding the it investment from its own perspective however under the latter strategy the firm could also structure a simultaneous one time charge for each value chain member which could compensate for this sub optimum decision after modeling both these strategies we then proceed to characterize conditions under which each strategy is the preferred choice for the firm through an illustration of our framework we show that the global strategy dominates the myopic strategy in a number of situations

electronic data interchange competitive externalities and strategic implementation policies electronic data interchange edi is an emerging type of standardized inter organizational information system we analyze the impact of edi on the upstream suppliers competitive position in a simple two level hierarchical market structure where the buyer faces a linear demand curve and the competing heterogeneous suppliers have an upward sloping marginal cost function we show that a suppliers adoption of edi can generate positive externalities for the buyer and negative or competitive externalities for other suppliers as a result the buyer provides a price premium to those suppliers who adopt edi and increases their sales volume and market share moreover when the benefits that the buyer can derive from implementing edi are substantial and the suppliers edi adoption costs are high it may be in the buyer s best interest to subsidize the suppliers so as to encourage them to adopt edi instead of mandating them to do so regardless of whether the buyer employs a mandatory or a subsidizing policy the buyer and the end consumers may be the only ones who gain from this new technology consequently a partial adoption by the supplier base may be optimal for the buyer when the suppliers adoption costs are sufficiently high we also show that while edi reduces the transaction costs of the buyer the upstream market tends to become more concentrated as a result of increased cost differentials these results provide one economic explanation of the fact that many companies have actually reduced their supplier base after implementing edi despite a significant reduction in their market transaction costs

multicrop production decisions in western irrigated agriculture the role of water price applying a model of the multioutput firm econometric results are reported for irrigated production in four multistate regions of the american west cross sectional microdata from the farm and ranch irrigation survey and limited dependent variable methods are used to estimate crop choice supply land allocation and water demand functions for field crops farm level water demand is decomposed into the sum of crop level water demands and crop level demands are further separated into an extensive margin land allocations and intensive margin short run water use response to water price measured as groundwater pumping cost occurs primarily at the extensive margin

the story of the moment risk averse cypriot farmers respond to drought management this article illustrates the importance of estimating risk preferences when evaluating water policy using agricultural production data from the kiti region of cyprus we estimate farmers risk preferences a la antle journal of business and economic statistics 1 192 201 1983 american journal of agricultural economics 69 509 22 1987 and show sensitivity to higher order moments of profit such as skewness we show that farmers in the kiti region are risk averse with risk premiums in the region of 20 of expected profit we use these estimates to analyse the impact of a water quota from the perspective of three policy makers who differ only in their understanding of farmers risk preferences we show in the case of kiti that policy makers who model risk preferences incorrectly that is either a assume risk neutrality or b ignore down side risk wrongly predict the magnitude and direction of input responses and therefore the magnitude of welfare changes this highlights the importance of accomm

water conservation policy analysis an interregional multi output primal dual optimization approach an interregional multi output normalized restricted equilibrium model of field crop agriculture is estimated within the context of a multistage programming based system estimation procedure implicit total economic cost functions endogenize behavioral opportunity adjustment costs of fixed and allocatable land and water resources crop specific marshallian water demand elasticities are estimated for restricted and unrestricted groundwater substitution environments and decomposed by water source elasticities are inelastic but water price policy reform can be an effective water conservation policy tool when groundwater use is unrestricted when groundwater use is restricted effective conservation policy requires more dramatic water price policy reform