but who will monitor the monitor suppose that providing incentives for a group of individuals in a strategic context requires a monitor to detect their deviations what about the monitor s deviations to address this question i propose a contract that makes the monitor responsible for monitoring and thereby provides incentives even when the monitor s observations are not only private but costly too i also characterize exactly when such a contract can provide monitors with the right incentives to perform in doing so i emphasize virtual enforcement and suggest its implications for the theory of repeated games jel c78 d23 d82 d86

substitution in the electric power industry an interregional comparison in the eastern us abstract the electric power industry is restructuring as regulations move from states to regional and national levels estimates of regional fuel and input substitution are essential for practitioners and policy makers this paper estimates substitution under static and dynamic scenarios examining changes in technology and total factor productivity from 2001 to 2008 two stage estimation reveals regional characteristics and underlying elements in fuel and factor choice processes substitution varies widely depending on the region coal technology capital investment and r d activities

the effectiveness of leniency programs when firms choose the degree of collusion abstract an antitrust authority grants leniency pre and post investigation it chooses the probability of an investigation firms pick the degree of collusion the more they collude the higher are profits but so is the probability of detection firms thus trade off higher profits against higher expected fines if firms are sufficiently patient leniency is ineffective it may even increase collusion increasing the probability of an investigation at low levels does not increase deterrence increasing the probability of an investigation at high levels reduces collusion yet never completely with bare pre investigation leniency deterrence is better than without leniency if firms are sufficiently impatient granting leniency pre and post is better than merely pre investigation

the cyclical behavior of the department of justice s antitrust enforcement activity abstract we study the cyclical behavior of antitrust enforcement as measured by the number of cases initiated by the us department of justice the key result is that antitrust case activity is countercyclical this finding is robust across alternate indicators of economic activity which include stock prices corporate profits and business cycles and across different types of cases the finding of countercyclical case activity does not appear to lend support to interest group theories that predict greater regulatory protection towards producers during economic contractions one interpretation of our result would be that antitrust violations tend to increase during economic downturns leading to an increase in the number of cases initiated the broad implication being that the antitrust division primarily acts as an antitrust law enforcement agency our results show that politics as measured by the party of the president and the republican versus democrat composition of the house and senate does not have a clear impact on case activity finally the number of cases initiated are significantly affected by the extent of funding

international antitrust enforcement and multimarket contact this article analyzes cartel formation and international antitrust enforcement when multinational firms operate in several jurisdictions with local antitrust authorities we are concerned with how the sustainability of collusion in one local market is affected by the existence of collusion in other markets when they are linked by a negative demand relationship the interdependence of cartel stability across markets leads to potential externalities in antitrust enforcement across jurisdictions local antitrust enforcement equilibrium enforcement may exhibit a nonmonotonicity in the degree of market integration we compare it with globally optimal antitrust enforcement policy and discuss the role of international antitrust coordination

environmental regulations and productivity growth the case of fossil fueled electric power generation this paper measures and analyzes the effect of sulfur dioxide emission restrictions on the rate of productivity growth in the electric power industry over the 1973 79 business cycle a firm specific measure of regulatory intensity is developed which depends on the severity of the emission standard the extent of enforcement and the unconstrained emission rate relevant to each utility the results indicate that emission regulations result in significantly higher generating costs primarily from the increased use of low sulfur fuels the average rate of productivity growth was reduced by 0 59 percentage points per year for constrained utilities

impact of food inflation on poverty in the philippines abstract we simulate the impact of food inflation between june 2006 and june 2008 on poverty across different areas and between agricultural and non agricultural households we explicitly treat the spatial heterogeneity in food inflation and the differences in consumption and production patterns across households by merging household expenditure survey and price datasets at the provincial level or lower although some of the poor agricultural households may have escaped poverty the poorest of the poor whether they are in an agricultural household or not are severely and adversely affected by the food inflation

modeling the birth and death of cartels with an application to evaluating competition policy one of the primary challenges to measuring the impact of antitrust policy on collusion is that the cartel population is unobservable we observe only the population of discovered cartels to address this challenge a model of cartel creation and dissolution is developed to endogenously derive the populations of cartels and discovered cartels it is then shown how one can infer the impact of antitrust policy on the population of cartels by measuring its impact on the population of discovered cartels in particular the change in the distribution on the duration of discovered cartels could be informative in assessing whether a new antitrust policy is reducing the latent rate of cartels

are oil shocks permanent or temporary panel data evidence from crude oil and ngl production in 60 countries this paper examines the unit root properties of crude oil production for 60 countries employing a range of panel data unit root tests for the period 1971 to 2003 the study first employs a number of panel data tests that do not accommodate structural breaks and then proceeds to apply the lagrange multiplier lm panel unit root test with one structural break the results of the panel data tests without a structural break are inconclusive with at best mixed support for joint stationarity the findings from the lm panel unit root test with a structural break however are conclusive suggesting that for a world panel and smaller regional based panels crude oil and ngl production are jointly stationary

what is the effect of bid rigging on prices abstract this paper develops and applies a method for estimating the price effects of bid rigging and price fixing conspiracies a fairly typical bid rigging scheme is found to have raised prices by over 20 for over 4 years

can the electricity market be characterised by asymmetric behaviour in this paper we test for asymmetric behaviour of industrial and residential electricity demand for the g7 countries using the entropy based test for symmetry suggested by racine j and maasoumi e 2007 a versatile and robust metric entropy test of time reversibility and other hypotheses journal of econometrics 138 2 547 567 racine j and maasoumi e 2008 a robust entropy based test of asymmetry for discrete and continuous processes econometric reviews 28 246 261 the triples test of randles r flinger m policello g and wolfe d 1980 an asymptotically distribution free test for symmetry versus asymmetry journal of the american statistical association 75 168 172 and the bai j and ng s 2001 a consistent test for conditional symmetry in time series models journal of econometrics 103 225 258 test for conditional symmetry using data that spans over three decades we find overwhelming evidence of conditional symmetry of residential and industrial electricity consumption this finding implies that the use of econometric tests based on linear data generating processes is credible

economic integration and the sustainability of multimarket collusion abstract we examine the impact of and links between two types of economic integration on the stability of multimarket collusion when firms interact in quantities in segmented markets 1 multilateral trade liberalization captured by a reduction of trade costs across all markets and 2 preferential trade liberalization captured by an expansion in the size of individual markets while holding the level of external trade costs tariffs constant in general collusive stability is non monotonically related to economic integration in the case of multilateral liberalization the effect depends on the initial level of trade costs and the extent of liberalization however on the average the complete elimination of trade costs is pro competitive when these costs are sufficiently high initially in the case of regional integration the effect of liberalization is pro competitive when external trade barriers are sufficiently high but anti competitive when these barriers are sufficiently low

electric utilities fuel use and responsiveness to fuel prices this research tests the impact of changes in fuel price to explain fuel use by electric utilities we employ a three stage least squares model that explains changes in fuel use as a function of changes in three fuel prices this model is repeated across sub samples of data aggregated at the plant level and operating holding company level we expect that plants and holding companies reduce fuel use when fuel prices rise several fuel substitution effects within and across plants and holding companies are demonstrated as well as several frictions at the plant level higher prices of natural gas lead to less natural gas consumption less coal consumption and more fuel oil consumption at the operating holding company level results demonstrate the inelasticity of coal use and the increases of natural gas in response to higher coal prices subsamples demonstrate heterogeneity of results across different plants results emphasize that technological market and regulatory frictions may hinder the performance of energy policies

global cartels leniency programs and international antitrust cooperation in this paper we analyze cartel formation and self reporting incentives when firms operate in several geographical markets and face antitrust enforcement in different jurisdictions we are concerned with the effectiveness of leniency programs and the benefits of international antitrust cooperation between agencies when international antitrust prosecution is uncoordinated multi market contact allows firms to reduce the amount of self reporting in equilibrium and sustain cartels more effectively we then discuss the effects of information sharing among antitrust authorities as a function of how much and which type of information is exchanged we show that extensive information sharing might have an adverse effect on self reporting by cartel members

optimal corporate leniency programs this study characterizes the corporate leniency policy that minimizes the frequency with which collusion occurs though it can be optimal to provide only partial leniency plausible sufficient conditions are provided whereby the antitrust authority should waive all penalties for the first firm to come forward it is also shown that restrictions should be placed on when amnesty is awarded though it can be optimal to award amnesty even when the antitrust authority is very likely to win the case without insider testimony

on the stability of multimarket collusion in price setting supergames abstract in this paper we examine how trade liberalization affects collusive stability in the context of multimarket interactions the model we consider is a segmented markets duopoly with differentiated goods in which price setting firms pool their incentive constraints across markets to sustain their most collusive outcome we find that when goods are very close substitutes and trade costs are sufficiently high a marginal reduction in trade costs facilitates collusion exactly the opposite is true if for any given degree of product substitutability trade costs are sufficiently low we also study the dependence of multimarket collusion on product differentiation

a tip of the iceberg the probability of catching cartels summary reliable estimates of crime detection probabilities could help in designing better sanctions and improve our understanding of the efficiency of law enforcement for cartels we only have limited knowledge on the rate at which these illegal practices are discovered in comparison to previous works this paper offers a more parsimonious and simple to use method to estimate time dependent cartel discovery rates while allowing for heterogeneity across firms it draws on capture recapture methods that are frequently used in ecology to make inferences on various wildlife population characteristics an application of this method provides evidence that less than a fifth of cartelising firms are discovered copyright 2013 john wiley sons ltd

leniency programs for multimarket firms the effect of amnesty plus on cartel formation we examine the effect of amnesty plus on dynamic cartel formation in a multimarket setting the amnesty plus program has been adopted as part of the us corporate leniency policy in 1999 and is now vigorously advertised as one of the most compelling tools in generating successful cartel investigations amnesty plus is aimed at attracting amnesty applications by encouraging firms convicted in one market to report their collusive agreements in other markets we show that amnesty plus has two opposite effects on firms ability and incentives to collude which are both increasing in the fine reduction granted first amnesty plus can reduce the deterrence of cartel activities by making it easier for firms to sustain multimarket collusion through strategies involving self reporting after a first cartel detection second it can reduce the expected duration of cartels or delay their formation by increasing firms incentives to self report after a first cartel detection

fuel switching and climate and energy policies in the european power generation sector a generalized leontief model abstract the purpose of this paper is to analyze a the role and the nature of price induced switching behavior between fossil fuels i e coal oil and natural gas in the western european power sector as well as b the fuel choice impacts of a number of public policies implemented in this sector during the last 20 years the analysis is conducted within a generalized leontief cost function framework and employs pooled data across eight countries over the time period 1978 2004 we present short run own and cross price elasticities of fossil fuel demand and assess the impacts of a set of government policies implemented over this time period the empirical results show evidence of notable short run interfuel substitution between oil and gas and particularly in countries where fossil fuels are used extensively for both base and peak load purposes these findings support the notion that ex post fossil fuel substitution takes place in dual and multi fired plants by switching load between different single fuel fired plants as well as through the conversion of power plants to be able to burn alternate fuels the results also illustrate that different public policies i e removal of coal subsidies electricity market liberalization etc have had profound impacts on fossil fuel choices and have in particular favored power generation gas use at the expense of coal finally the paper makes use of the empirical results to simulate the fuel switching impacts of different carbon prices within the european emissions trading scheme eu ets

a pooled dynamic analysis of interfuel substitution in industrial energy demand by the g 7 countries a dynamic version of considine s 1990 linear logit model is used to obtain theoretically consistent estimates of long run price elasticities from pooled intercountry data on industrial energy consumption this model also provides a rare direct estimate of the important rate of dynamic adjustment revealing a median lag of ten years the long run demands for oil and coal are the most elastic and the strongest channels for interfuel substitution are between oil and natural gas with no significant evidence of complementarity between fuels

firing the furnace an econometric analysis of utilities fuel choice abstract this paper attempts to estimate how the fuel mix of german electricity producers does react to fuel price changes the empirical analysis is based on panel data 1968 1998 of major utilities two different aspects of fuel choice are distinguished at the one hand the construction of usually fuel specific capacities for electric power generation i e investment decisions that determine the fuel mix in the long run at the other fuel use conditional on existing generation capacities i e short run inter fuel substitution according to the results from panel unit root tests both the econometric models which describe these two aspects are specified in changes rather than levels the partly discrete nature of investment decisions is taken into account by constructing a discrete model of capacity adjustment our estimation results suggest that the fuel mix of electric utilities is price inelastic either if long term investment or short term inter fuel substitution is considered finally the empirical results are used to predict the potential impacts of co 2 emissions trading on fuel choice in the german electric power industry

strategic leniency and cartel enforcement the cornerstone of cartel enforcement in the united states and elsewhere is a commitment to the lenient prosecution of early confessors a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency i develop a theoretical model of cartel behavior that provides empirical predictions and moment conditions and apply the model to the complete set of indictments and information reports issued over a 20 year span statistical tests are consistent with the notion that leniency enhances deterrence and detection capabilities the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime jel d43 l12 l13 k21 in 1993 the department of justice doj introduced a new leniency program with the intent of destabilizing existing cartels and deterring new cartels the program commits the doj to the lenient prosecution of early confessors in particular it guarantees complete amnesty from federal prosecution to the first confessor from each cartel provided that an investigation into the confes sor s cartel is not already underway it also offers discretionary penalty reductions to conspirators who confess when an investigation is already ongoing the new leniency program has become the cornerstone of cartel enforcement efforts in the united states e g scott d hammond 2004 and recently has inspired antitrust authorities in australia canada the european union japan south korea and elsewhere to introduce similar programs oecd 2002 2003 this paper tests the efficacy of the new leniency program the results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime a burgeoning game theoretical literature is ambiguous regarding the impacts of leniency a common finding is that leniency may destabilize cartels because conspirators can simultane

price fixing the probability of getting caught the authors estimate the probability that a price fixing conspiracy will be indicated by federal authorities to be at most between 0 13 and 0 17 in a given year the authors estimate is based on conspiracy durations calculated from data reported for a large sample of department of justice cases and a statistical birth and death process model describing the onset and duration of conspiracies copyright 1991 by mit press

the impact of the 2002 reform of the eu leniency program on cartel outcomes abstract the objective of this study is to empirically assess whether the 2002 reform of the eu leniency program which brought the eu leniency policy much closer to the us policy has increased the european commission s capability to destabilize cartels while making prosecution more efficient more specifically relying on a difference in difference approach we estimate the impact of the 2002 reform on cartel duration fines before and after applying leniency reductions and duration of investigation we find that the 2002 reform decreased cartel duration by about 87 percent but did not significantly affect the other outcome variables thus our findings seem to suggest that the 2002 reform has improved the cartel destabilizing effect of the eu leniency program without enhancing however its effectiveness in prosecuting cartels

the impact of leniency and whistle blowing programs on cartels antitrust authorities have set up leniency programs for cartel members that denounce their collusive agreements these programs help prosecute participants and can thereby deter collusion we compare the impact of reduced fines and positive rewards and argue that rewarding individuals including firm employees can deter collusion in a more effective way we discuss possible adverse effects of whistle blowing programs on firms behavior and particularly on turnover incentives to innovate and cooperation we also explore explanations for the puzzling fact that managers keep incriminating evidence and argue reward programs actually provide additional incentives for keeping such evidence

accomplice witnesses and organized crime theory and evidence from italy we develop an agency model of organized crime accounting for the main trade offs involved in the introduction of an accomplice witness program we characterize the optimal policy and identify its main determinants in a framework where public officials can be dishonest our predictions are tested by using data for italy before and after the introduction of the 1991 accomplice witness program as predicted by the model and the earlier antitrust literature the program appears to have strengthened deterrence and enhanced prosecution moreover consistent with a novel prediction of our theory the evidence suggests that the program efficacy is affected by the judicial system efficiency

fossil fuel flexibility in west european power generation and the impact of system load factors this paper analyzes short run interfuel substitution in west european power generation and the impact of system load factors on fossil fuel choice the problems are studied within a restricted translog cost share model the paper concludes that interfuel substitution in existing power plants is substantial especially that between oil and gas this is consistent with the notion that short run fuel substitution takes place in dual or multi fired plants by switching load between different single fired plants and by some conversions of power plants to be able to burn alternate fuels the empirical investigation also indicates that the system load factor is a notable determinant of fossil fuel choices in west europe and the paper ends with an assessment of the fuel consequences of some load management schemes in the region

self reporting investigation and evidentiary standards abstractself reporting schemes have become a substantial part of law enforcement this paper analyzes the optimal use of such schemes when the authority cannot commit to an ex post investigation effort i show that this leads to a negative relationship between self reporting incentives and investigation effort three main conclusions arise first violators self report with a probability of 1 if and only if full amnesty is offered second self reporting schemes are not efficient when the level of harm of the act is high finally authorities can increase the incentives to self report when they convict without hard evidence however a hard evidence standard provides more deterrence and is weakly welfare superior

price fixing policy abstract the prohibition against price fixing is competition law s most important and least controversial provision yet there is far less consensus than meets the eye on what constitutes price fixing and prevalent understandings cannot be reconciled with principles of oligopoly theory this article 1 presents a fundamental reconceptualization of our understanding of horizontal agreements 2 develops a systematic analysis of price fixing policy that focuses on its deterrence benefits and chilling costs and 3 compares this direct approach to commentators favored formulations that typically involve some sort of formalistic communications based prohibition by targeting a subset of means rather than the illicit ends conventional formulations tend to impose liability in cases with lower deterrence benefits and greater chilling costs than those reached under a direct approach and to incur greater administrative costs as well

legalizing bribe giving i introduction corruption remains an endemic problem in the developing world and has become a central political issue in many countries empirical work has considerably advanced our understanding of how widespread corruption is and how it can cause harm 1 governments and agencies such as the world bank have sponsored numerous anticorruption programs however regarding how to best fight corruption in practice research has lagged behind policy 2 recently kaushik basu chief economist then of the indian government and now of the world bank proposed a specific approach in basu s 2011 pamphlet why for a class of bribes the act of giving a bribe should be treated as legal he describes a society where bribery is rampant a scourge that deserves to be banished and proposes for the case of harassment bribes that people pay to get services they are legally entitled to 3 the following policy legalize bribe giving double the fine for bribe taking and make the bribe taker pay back the bribe if discovered when a citizen bribes a bureaucrat under traditional law the two become partners in crime they thus lack incentives to report the activity under basu s policy bp which he deems fairly radical incentives are provided for the bribe giver to report the bribe taker if this is foreseen the bureaucrat would not accept the bribe in the first place that is the key idea will it work a hot debate has raged in indian and international press the economist appeared sympathetic 4 however in some quarters the proposal stirred outrage and commentators discarded it mainly on moral grounds 5 more tempered thoughtful criticism has come from economists dreze 2011 in particular wrote a penetrating comment arguing that basu does not give adequate attention to some institutional and moral concerns which may change conclusions basu s intriguing presentation is informal as is the heated debate it inspired perhaps one should not expect the issues to be easily settled through such discourse the proposal is reminiscent of somewhat analogous tools used in other fields such as leniency policies in antitrust and whistleblower protection and reward schemes against fraud and organized crime scholars who studied those measures have suggested they may be effective if well designed and administered but counterproductive if details are not set right 6 deeper understanding of the pros and cons of subtle legal rules may require careful scrutiny within a formal model in section ii we develop a simple formal model to represent the scenarios basu and his commentators care about as explicit games by comparing equilibria we draw conclusions regarding the conditions under which bp is likely to be effective bp gets mixed context dependent grades and we highlight complementarities with other policies the proposal works best if coupled with measures that increase the costs for bureaucrats of denying citizens what they deserve and that reduce the costs for citizens of getting justice verifying whether a bribe was paid entails costs which may deter reporting hence bp works better against larger bribes inefficient or corrupt law enforcement increases these costs so bp will be more effective if it is part of a wider reform package that also fosters independence and accountability of the legal system in section iii we take into account also the legal and moral considerations brought up by dreze revealing other problems related to bp we propose a modified policy mbp that escapes many objections the idea is inspired by leniency rules in antitrust rather than legalize bribe giving only those who report having paid a bribe would be awarded legal immunity extortionary harassment bribes are distortive when they are not paid because a justified and presumably welfare enhancing licence is then not issued with other arguably often more serious forms of corruption distortions occur when bribes are paid not otherwise

quantifying the deterrent effect of anticartel enforcement this paper presents a rare attempt to quantify the deterrent effect of anti cartel policy it develops a conceptual framework which establishes the sort of information necessary for such quantification this is then illustrated and calibrated by drawing upon existing literatures and using evidence from legal cartels to approximate what would be observed absent policy measuring impact by the proportion of all potential harm that is deterred our best estimate is two thirds and even on conservative assumptions at least half of all harms or seven times the detected harm is deterred

self disclosure at international cartels we study revelation behavior at illegal international cartels our hypotheses suggest that a resource advantage induces executives of large multinational enterprises mnes to be more likely to reveal the cartel and to cooperate with the antitrust agency during the prosecution stage moreover we expect the cultural background to influence the firm s inclination to reveal incriminating evidence empirical tests based on data about cartel breakdowns under the eu leniency program show that large mnes are indeed more likely to reveal the cartel however they largely fail to explain variation in legal actions along cultural dimensions

cartel overcharges survey and meta analysis abstract the article presents a novel meta regression analysis of the size of cartel overcharges from a sample of more than 800 observations collected from a wide variety of published sources the analysis of a subsample of 395 cartel episodes finds that duration legal environment and organizational characteristics of cartels explain variation in overcharge rates to a greater extent than the type of publication or the method of calculation overcharges tend to be significantly higher for durable international cartels secular decline is observed as antitrust enforcement regimes have stiffened