a model of forum shopping owners of intellectual property or mere sponsors of an idea e g authors security issuers sponsors of standards resort to more or less independent certifiers to persuade potential users buyers or adopters of the worth of their property or idea we analyze the sponsor s choices ofcertifier and design social preferences regarding these choices and the impacts thereon of multiple categories of users of a downstream presence of the sponsor and of certifier market power finally we study strategic forum shopping by sponsors of competing ideas

a parsimonious model for forecasting gross box office revenues of motion pictures the primary objective of this paper is to develop a parsimonious model for forecasting the gross box office revenues of new motion pictures based on early box office data the paper also seeks to provide insights into the impact of distribution policies on the adoption of new products the model is intended to assist motion picture exhibitor chains retailers in managing their exhibition capacity and in negotiating exhibition license agreements with distributors studios by allowing them to project the box office potential of the movies they plan to or currently exhibit based on early box office results it is also of interest to practitioners in other software industries e g music books cd roms where the distribution intensity is highly variable over the product life cycle and is an important determinant of new product adoption patterns the model and its extensions are of interest to academic researchers interested in modeling distribution effects in new product adoption as well as forecasters looking for ways to leverage historical data on related products to forecast the sales of new products we draw upon a queuing theory framework to conceptualize stochastically the consumer s movie adoption process in two steps the time to decide to see the new movie and the time to act on the adoption decision the parameter for the time to decide process captures the intensity of information intensity flowing from various information sources while the parameter for the time to act process is related to the delay created by limited distribution intensity and other factors our conceptualization extends existing new product forecasting models which assume that consumers act instantaneously on the motivating information they receive about the new product the resulting model is parsimonious yet it accommodates a wide range of adoption patterns in addition the stochastic formulation allows us to quantify the uncertainty surrounding the expected adoption pattern in the empirical testing we focus on the most parsimonious version of the modeling framework boxmod i a model that assumes stationarity with respect to the two shape parameters that characterize the adoption process the model produces fairly accurate early forecasts using at most the first three weeks of data for calibration and the predictive performance of the model compares favorably with benchmark models we propose extensions of the basic model that account for more realistic non stationary distribution intensity patterns including a wide release pattern that relies on intensive distribution and promotion and a platform release pattern that involves a gradual buildup of distribution intensity finally we present an adaptive weighing scheme that combines initial parameter estimates obtained from a meta analysis procedure with estimates obtained from early data to produce forecasts of box office revenues for a new movie when little or no box office data are available an important finding from the empirical testing is that motion picture box office revenue patterns display remarkable empirical regularity we find that there are only three classes of adoption patterns and these can all be represented within the basic model by using a two parameter exponential or erlang 2 probability distribution or a three parameter generalized gamma distribution we also find that cumulative box office revenues can be predicted with reasonable accuracy often within 10 of the actual using as little as two or three data points however our attempts to predict revenue patterns without any sales data meet with limited success while the scale parameter can be estimated reasonably well from a historical database of parameter values we find that it is considerably more difficult to predict the shape parameters using historical data the parsimony we seek in developing the model comes at the cost of several limiting assumptions we assume that the time to decide subprocess and the time to act subprocess are independent which may not be the case if decisions on continued exhibition by retailers are endogenously related to box office revenues over the life cycle in the basic model formulation we also assume that the time to act process can be represented by an exponential distribution which may not always be the case while we provide some empirical evidence to support these assumptions further research could relax these and other assumptions to enrich the basic model although this would entail some loss in parsimony

some evidence on the alchian and allen theorem the third law of demand this paper examines empirically the alchian and allen proposition that shipping charges induce consumers to opt for higher quality goods we show in a household productions framework why this holds whether goods or buyers travel using a large sample of individual consumption data for football games we find that buyers who travel the farthest purchase the best tickets in the end we believe that the alchian and allen theorem is so broad and pervasive that it qualifies as the third law of demand

price effects on compound commodities we examine the effect of simultaneous price changes on the total demand for a group of goods which we call a compound commodity specifically we consider unit and proportional cost components e g taxes transportation costs imposed on compound commodities if the unit cost is positive then the proportional cost raises the relative price of the more expensive good and thus induces substitution towards the less expensive good within this group then the substitution effect of the proportional cost for a compound commodity is non negative if and only if the compound commodity and the other goods are on average not strongly substitutable

open access and academic journal quality ing from complicated signaling behavior by informed authors lerner and tirole show that adding upstream private information does not alter their basic analysis their proposition 4 454 aea papers and proceedings may 2005

evolving standards for academic publishing a q r theory this paper develops models of quality standards to examine two trends academic journals increasingly require extensive revisions of submissions and articles are becoming longer and changing in other ways papers are modeled as varying along two quality dimensions q reflects the importance of the main ideas and r other aspects of quality observed trends are regarded as increases in r quality a static equilibrium model illustrates comparative statics explanations a dynamic model in which referees with a biased view of their own work learn social norms for weighting q and r is shown to produce a long gradual evolution of social norms

herd behavior the penguin effect and the suppression of informational diffusion an analysis of informational externalities and payoff interdependency this article analyzes a technology adoption process in which the effect of informational spillover interacts with network externalities the interplay of informational externalities and payoff interdependency induces risk averse and clustering behavior in the technology adoption process the analysis differs from the herd behavior literature in focusing on how the herd behavior of subsequent users influences the initial adoption decision moreover herd behavior in this article stems from each agent s desire to inhibit the revelation of new information that can be used in a way detrimental to her rather than from each agent s effort to free ride on information contained in the decisions made by predecessors

rating the raters are reputation concerns powerful enough to discipline rating agencies abstract credit rating agencies cras are accused of bearing a strong responsibility for contributing to the subprime crisis by having been deliberately too lax in the ratings of some structured products in response to this accusation cras argue that such an attitude would be too dangerous for them since their reputation is at stake the objective of this article is to examine the validity of this argument within a formal model are reputation concerns sufficient to discipline rating agencies we show that the reputation argument only works when a sufficiency large fraction of the cra income comes from other sources than rating complex products by contrast when rating complex products becomes a major source of income for the cra we show that it is always too lax with a positive probability and inflates ratings with probability one when its reputation is good enough we provide some empirical support for this prediction by showing that ceteris paribus the proportion of subprime residential mortgage backed securities rmbs that were rated aaa by the three main cras indeed increased over the last eight years we analyze the policy implications of our findings and advocate for a new business model of cras that we call the platform pays model

adoption and diffusion of an innovation of uncertain profitability the argument has frequently been made that the pattern of diffusion associated with most new innovations will typically have certain characteristics a diffusion curve for an innovation is usually defined as the proportion of its potential users who have already adopted as a function of time measured from the first adoption many empirical studies by both economists and other social scientists have shown that diffusion curves nearly always have two distinct characteristics i they are s shaped the proportion adopted is an increasing function of time which is initially convex but eventually becomes concave and ii they tend to be right hand skewed the inflection point occurs at a time corresponding to a proportion adopted which is less than one half so that the function is concave over the greatest amount of time in fact this skewing is occasionally severe enough to make the diffusion curve appear concave everywhere the focus of most empirical studies of innovation diffusion has centered on identification of either the major determinants of the speed of diffusion or the characteristics of firms which determine how long they delay adoption the seminal contributions are griliches 6 study of hybrid corn and mansfield s 121 study of 12 industrial innovations these studies and most of the similar ones following conclude that diffusion is faster for innovations with higher profitability and that large firms tend to be the earliest adopters some studies e g mansfield 121 herregat 71 have attempted to ascertain

a conditional demand approach to the alchian allen effect abstract we explore the alchian allen effect that is the effect of an absolutely equal increase in the price of two goods on their demand ratio for conditional viz short run and unconditional viz long run demand functions we show that the alchian allen effect for unconditional demand equals its conditional counterpart where the consumption level of a third good is held constant if the two goods feature identical substitution elasticities with the third good remarkably this result holds true for both hicksian and marshallian demand functions

rules of thumb for social learning this paper studies agents who consider the experiences of their neighbors in deciding which of two technologies to use we analyze two learning environments one in which the same technology is optimal for all players and another in which each technology is better for some of them in both environments players use exogenously specified rules of thumb that ignore historical data but may incorporate a tendency to use the more popular technology in some cases these naive rules can lead to fairly efficient decisions in the long run but adjustment can be slow when a superior technology is first introduced

does movie violence increase violent crime laboratory experiments in psychology find that media violence increases aggression in the short run we analyze whether media violence affects violent crime in the field we exploit variation in the violence of blockbuster movies from 1995 to 2004 and study the effect on same day assaults we find that violent crime decreases on days with larger theater audiences for violent movies the effect is partly due to voluntary incapacitation between 6 p m and 12 a m a one million increase in the audience for violent movies reduces violent crime by 1 1 to 1 3 after exposure to the movie between 12 a m and 6 a m violent crime is reduced by an even larger percent this finding is explained by the self selection of violent individuals into violent movie attendance leading to a substitution away from more volatile activities in particular movie attendance appears to reduce alcohol consumption the results emphasize that media exposure affects behavior not only via content but also because it changes time spent in alternative activities the substitution away from more dangerous activities in the field can explain the differences with the laboratory findings our estimates suggest that in the short run violent movies deter almost 1 000 assaults on an average weekend although our design does not allow us to estimate long run effects we find no evidence of medium run effects up to three weeks after initial exposure

fear of rejection tiered certification and transparency product quality certifiers may not reveal the identity of unsuccessful applicants sellers for three reasons first they respond to the desire of individual sellers to avoid the stigma from rejection second nontransparency helps a certifier to increase his market power by raising the stigma from lower tier certification third transparency does not help screen among heterogeneous sellers strategic complementarities arise as sellers move down the certification pecking order and lead to the stigmatization of the lower tiers mandating transparency benefits the sellers but has an ambiguous impact on buyers who actually become less informed about product quality

on giffen like goods abstract this paper provides as a counter example to the alchian allen theorem a theory of giffen like goods a per unit charge to two similar goods raises the relative price of the lower quality good and yet increases the relative demand of the good

social learning and peer effects in consumption evidence from movie sales using box office data for all movies released between 1982 and 2000 i quantify how much the consumption decisions of individuals depend on information they receive from their peers when quality is ex ante uncertain in the presence of social learning we should see different box office sales dynamics depending on whether opening weekend demand is higher or lower than expected i use a unique feature of the movie industry to identify ex ante demand expectations the number of screens dedicated to a movie in its opening weekend reflects the sales expectations held by profit maximizing theatre owners several pieces of evidence are consistent with social learning first sales of movies with positive surprise and negative surprise in opening weekend demand diverge over time if a movie has better than expected appeal and therefore experiences larger than expected sales in week 1 consumers in week 2 update upward their expectations of quality further increasing week 2 sales second this divergence is small for movies for which consumers have strong priors and large for movies for which consumers have weak priors third the effect of a surprise is stronger for audiences with large social networks finally consumers do not respond to surprises in first week sales that are orthogonal to movie quality like weather shocks overall social learning appears to be an important determinant of sales in the movie industry accounting for 32 of sales for the typical movie with positive surprise this implies the existence of a large social multiplier such that the elasticity of aggregate demand to movie quality is larger than the elasticity of individual demand

shipping the good apples out a new perspective i introduction the alchian and allen substitution theorem posits that a per unit tax or shipping fee applied to similar goods will increase the relative consumption of the higher quality good originally formulated in alchian and allen s 1964 textbook university economics the theorem is often called the shipping the good apples out theorem because of the empirical observation that supermarkets in apple importing areas such as indiana have a higher proportion of high quality apples relative to low quality apples than supermarkets in apple growing areas such as washington state a washington resident on holiday in indiana might well conclude that the good apples are getting shipped out the theoretical basis for the alchian and allen result was questioned by gould and segall 1969 who demonstrate that the result holds unequivocally only in a two good world borcherding and silberberg 1978 defend the alchian and allen result in an n good world but only when the two taxed goods are close substitutes this special case appears to be all that can be salvaged in terms of theory for further discussion see umbeck 1980 the purpose of this article is to reinterpret the alchian and allen result in an n good world this reinterpretation shows that their result holds more broadly than suggested by borcherding and silberberg and indeed more broadly than though not as robustly as originally claimed by alchian and allen ii background consider a world with n goods x sub 1 x sub 2 x sub n the first two of which can be thought of as respectively the high quality and standard quality versions of some product e g good apples and bad apples by assumption then p sub 1 p sub 2 0 following borcherding and silberberg i phrase the alchian and allen thesis as differential x sub 1 x sub 2 differential t 0 where x sub 1 p sub 1 p sub 2 u and x sub 2 p sub 1 p sub 2 u are hicksian income compensated demand functions and t is a per unit charge applied to both goods 1 the chain rule gives us differential x sub i differential t differential x sub i differential p sub 1 differential x sub i differential p sub 2 and combining this with the quotient rule i get mathematical expression not reproducible in ascii substituting in the compensated elasticities epsilon sub ij p sub j x sub i differential x sub i differential p sub j i arrive at differential x sub 1 x sub 2 differential t x sub 1 x sub 2 epsilon sub 11 p sub 1 epsilon sub 12 p sub 2 epsilon sub 21 p sub 1 epsilon sub 22 p sub 2 the first term here is always positive so i will focus attention on the second term 1 epsilon sub 11 p sub 1 epsilon sub 12 p sub 2 epsilon sub 21 p sub 1 epsilon sub 22 p sub 2 the alchian and allen claim is that 1 is positive iii a two good world with only two goods hicks s 1946 310 11 third law mathematical expression not reproducible in ascii reduces to epsilon sub ij epsilon sub ii and one can substitute for epsilon sub 11 and epsilon sub 21 in 1 to get 2 epsilon sub 12 epsilon sub 22 1 p sub 2 1 p sub 1 the first term here is positive because the two goods in a two good world must be substitutes epsilon sub 12 0 and own price elasticities are negative epsilon sub 22 p sub 2 0 i therefore get the alchian and allen result differential x sub 1 x sub 2 differential t 0 the intuitively compelling story is that consumers are substituting out of bad apples and into good apples

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

good grapes and bad lobsters applying the alchian and allen theorem i the theorem the alchian and allen theorem states that adding a common charge to the price of two substitute goods increases the relative consumption of the higher quality good real income held constant the classic example of this theorem is from alchian and allen s 1964 75 textbook university economics suppose that grapes are grown in california and that it costs 5 cents a pound to ship grapes to new york whether the grapes are choice or standard suppose further that in california the choice grapes sell for 10 cents a pound and the standard for 5 cents a pound if grapes are shipped to new york the shipping costs will raise the costs of choice grapes to 15 cents and of standard grapes to 10 cents in new york the costs of choice grapes are lower relative to standard grapes 1 5 to 1 than in california 2 to 1 new yorkers faced with a lower price of choice grapes relative to standard will consume relatively more choice grapes than californians will alchian and allen s theorem is solely about relative price effects and does not rely upon income effects or selection effects it assumes that those most willing to pay the fixed charge do not have systematically different preferences and incomes as those not paying the charge furthermore the theorem does not hold for corner solutions where the high and low quality goods are consumed by different classes of consumers or equivalently each consumer purchases only one unit of the good in question we must then consider the different rates at which consumers of high and low quality goods decrease consumption when price changes purchasers of high quality items need not reap more consumer surplus than purchasers of low quality items 1 ii per unit costs versus fixed and sunk costs the alchian and allen theorem applies only when the costs are applied to each good on a per unit basis charging a single fee or fixed tax to allow consumption of the good to take place does not create a substitution effect the fixed fee once paid is treated as a sunk cost and consumers face the same relative prices they faced initially an increase in the cost of a grape shipping permit for instance will not have any direct effects on the quality of grapes many of the examples of the alchian allen theorem that have been given in the literature do not specify true per unit taxes umbeck 1980 for example argues that an increase in the installation charge for phones will increase phone usage but in this case the relevant charges are fixed the installation or monthly service charge will increase current phone usage only if individuals are planning to go without a phone in future periods in contrast individuals who will continue phone service into the foreseeable future cannot minimize their monthly charges or their installation charges by increasing their phone usage now any change in behavior would be due to an income effect which is unpredictable a trickier problem is raised by borcherding and silberberg 1978 133 who claim that it does not matter if the goods are shipped to the consumers or the consumers are shipped to the goods going to maine or the country involves a transport cost to people not from maine or the country what the alchian allen theorem predicts therefore is that tourists in maine will consume on average higher quality lobsters than the natives and similarly for city versus rural dweller s purchases of produce at roadside stands if people who make a special trip to maine in fact choose to eat truly delectable instead of inferior quality lobsters sold there this confirms alchian and allen s thesis emphasis added when the tourists are transported the alchian allen theorem applies only if 1 the tourists are planning both high quality and low quality trips in the future and 2 high quality lobster is strongly and positively related to a high quality vacation in maine

ambiguous changes in product quality economic goods are frequently sold according to a price per unit quantity where the quantity characteristic does not measure all the economically important characteristics of the good milk is sold by the quart automobiles rented by the mile physicians services bought by the visit and tennis lessons by the hour in all cases heterogeneous units are available in the market and the price per unit quantity depends upon the amount of the unpriced characteristic contained in each unit the per quart price of milk depends upon the butterfat content the mileage costs of automobile rentals on the cars make and the price per unit time for personal services on the providers skill and training the common distinction made between these variants of the same good is that they differ in quality where quality refers to the amounts of the unpriced attributes contained in each unit of the priced attribute thus milk is packaged according to the attribute milk liquid and the quality of milk refers to the ratio of butterfat per unit of liquid 2 this paper considers some of the unique aspects of the economics of supply and demand under this situation where products contain at least two desired attributes only one of which is quantified and measured prior to purchase product quality is here defined by the ratio of the second quality attribute per unit of the measured quantity attribute 3 this simple specification of quality allows a direct link between standard economic models of related products and the economics of variable product quality previous analyses which treat quality simply as a shift parameter in the demand function are shown to obscure the actual subtleties of supply and demand with variable endogenous quality 4 the paper proceeds by first examining the efficient quality and quantity and the competitive equilibrium the market equilibrium under monopoly is then contrasted in the second section the general theme of the

attribution bias in consumer choice when judging the value of a good people may be overly influenced by the state in which they previously consumed it for example someone who tries out a new restaurant while very hungry may subsequently rate it as high quality even if the food is mediocre we produce a simple framework for this form of attribution bias that embeds a standard model of decision making as a special case we test for attribution bias across two consumer decisions first we conduct an experiment in which we randomly manipulate the thirst of participants prior to consuming a new drink second using data from thousands of amusement park visitors we explore how pleasant weather during their most recent trip affects their stated and actual likelihood of returning in both of these domains we find evidence that people misattribute the influence of a temporary state to a stable quality of the consumption good we provide evidence against several alternative accounts for our findings and discuss the broader implications of attribution bias in economic decision making

silverscreener a modeling approach to movie screens management managing the allocation of shelf space for new products is a problem of significant importance for retailers the problem is particularly complex for exhibitors the retailers in the motion picture supply chain because they face dynamic challenges given the short life cycles of movies the changing level of demand over time the scarcity of shelf space and the complex revenue sharing contract between the exhibitor and the distributor in the face of this complexity the aim of current research is to provide a structure for analyzing management problems of exhibitors in the movie industry using a mathematical programming approach and a fast but readily accessible algorithm we propose a decision support model silverscreener whose aim is to help exhibitors make effective and timely decisions regarding theater screens management the major objective is to help select and schedule movies for a multiple screens theater over a fixed planning horizon in such a way that the exhibitor s cumulative profit is maximized by treating the multiple screens as parallel machines and the movies as jobs we provide an analogy of the current problem to the parallel machine scheduling problem we formulate the resulting problem as an integer program we depart from the typical parallel machine scheduling problems by introducing the time indexed formulation that is particularly useful for solving the current problem an important distinction between the current problem and typical machine scheduling problems is that the present approach allows for the choice of which movies to play typically in machine scheduling all jobs have to be scheduled we provide various analyses of normative versus actual decision making based on publicly available data the developed model is readily implementable and appears to lead to improved profitability in different comparative cases through sensitivity analysis we demonstrate that the above results are robust to variations in various parameters of the problem the main findings and insights from the normative policy suggest the following 1 based on silverscreener s recommendations the exhibitor can achieve substantially higher cumulative profit 2 the improvement over actual decisions in terms of profitability appears to result from a combination of better selection and scheduling of the movies 3 the general structure of the exhibitor s normative decision is choose fewer right movies and run them longer we propose a two tier integrated application of the model to show how the model can be applied to realistic decisionmaking the first tier involves development of a movie selection plan to help the manager plan an entire season and bid for movies before the start of that season an ex ante revenue prediction scheme is developed based intuitively on a matching of the forthcoming movies with similar movies played in this theater previously if the forthcoming season s scheduling plan can be visualized as a two dimensional week by screen matrix then that matrix contains only empty cells before the first tier after a bid plan is developed the exhibitor can fill some of those empty cells the remaining empty cells represent slots which can be decided during the season by either extending movies the exhibitor booked before the season or by scheduling other movies which may become available later in the season this motivates the second tier adaptive scheduling approach of the integrated approach the second tier helps the exhibitor in weekly decision making during the season this application involves rolling and updating data from one time window to another the approaches followed in the two tiers of the integrated application are quite general in that they can incorporate a sophisticated demand prediction model managerial judgments or a combination of both we also propose an alternative behavioral decision rule heuristic which exemplifies relationship dilemmas in the movie industry this heuristic shows that the exhibitors need to be selective in their choice of movies and may suffer a substantial loss in profitability if they place too much emphasis on accommodating distributors

something to talk about social spillovers in movie consumption we exploit the randomness of weather and the relationship between weather and moviegoing to quantify social spillovers in movie consumption instrumenting for early viewership with plausibly exogenous weather shocks captured in lasso chosen instruments we find that shocks to opening weekend viewership are doubled over the following five weekends our estimated momentum arises almost exclusively at the local level and we find no evidence that it varies with either ex post movie quality or the precision of ex ante information about movie quality suggesting that the observed momentum is driven in part by a preference for shared experience and not only by social learning

returns to women s education using optimal iv selection this paper investigates returns to women s education by applying an optimal iv selection approach post lasso iv estimation which improves the first stage predictive relationship between an endoge

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

crises and capital requirements in banking we analyze a general equilibrium model in which there is both adverse selection of and moral hazard by banks the regulator can screen banks prior to giving them a licence audit them ex post to learn the success probability of their projects and impose capital adequacy requirements capital requirements combat moral hazard when the regulator has a strong screening reputation and they otherwise substitute for screening ability crises of confidence can occur only in the latter case and contrary to conventional wisdom the appropriate policy response may be to tighten capital requirements to improve the quality of surviving banks

what s an oscar worth this article examines the impact of an academy award nomination and award for best picture best actor actress and best supporting actor actress on a film s i market share of theaters ii average revenue per screen and iii its probability of survival the model is estimated using weekly box office data for a matched sample of nominated and non nominated films the results indicate substantial financial benefits for a nomination and award for best picture and best actor actress the structure of rewards is consistent with that found in two stage single elimination tournaments

taxation and product quality new evidence from generic cigarettes in this journal barzel 1976 theorized that per unit taxes should increase the average quality of a product whereas ad valorem taxes may either lower product quality or leave it unaffected there are several different ways to present the logic behind this theory barzel stresses that per unit taxes do not tax all attributes of a commodity causing a substitution from the taxed attributes quantity into the others quality 1 another way is to draw an analogy to the alchian and allen 1964 theorem where the addition of a fixed fee causes a decrease in the relative price of the higher quality version of the product 2 because ad valorem taxes add the same percentage to the prices of both the highand low quality versions of the product they do not distort relative prices thus ad valorem taxes should

demand and supply dynamics for sequentially released products in international markets the case of motion pictures we develop an econometric model to study a setting in which a new product is launched first in its domestic market and only at a later stage in foreign markets and where the product s performance demand and availability supply are highly interdependent over time within and across markets integrating literature on international diffusion success breeds success trends and the theatrical motion picture industry the focus of the empirical analysis we develop a dynamic simultanenous equations model of the drivers and interrelationship of the behavior of consumers audiences and retailers exhibitors our findings emphasize the importance of considering the endogeneity and simultaneity of audience and exhibitor behavior and challenge conventional wisdom on the determinants of box office performance which is predominantly based on modeling frameworks that fail to account for the interdependence of performance and availability specifically we find that variables such as movie attributes and advertising expenditures which are usually assumed to influence audiences directly mostly influence revenuesindirectly namely through their impact on exhibitors screen allocations in addition consistent with the idea that the buzz for a movie is perishable we find that the longer is the time lag between releases the weaker is the relationship between domestic and foreign market performance an effect mostly driven by foreign exhibitors screen allocations

venture capitalist certification in initial public offerings this paper provides support for the certification role of venture capitalists in initial public offerings consistent with the certification hypothesis a comparison of venture capital backed ipos with a control sample of nonventure capital backed ipos from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads in effect the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm in addition we document that venture capitalists retain a significant portion of their holdings in the firm after the ipo the ability of third party specialists to certify the value of securities issued by relatively unknown firms in capital markets that are characterized by asymmetric information between corporate insiders and public investors has attracted much academic interest in recent years several authors including james 1990 blackwell marr and spivey 1990 and barry muscarella peavy and vetsuypens 1991 have developed and tested models based at least in part on the formal certification hypothesis presented in booth and smith 1986 a related body of work represented by deangelo 1981 beatty and ritter 1986 titman and trueman 1986 johnson and miller 1988 carter 1990 simon 1990 and carter and manaster 1990 has examined how investment bankers and auditors help resolve the asymmetric information inherent in the initial public offering ipo process in this paper we examine whether the presence of venture capitalists as investors in a firm going public can certify that the offering price of the issue reflects all available and relevant inside information we hypothesize that venture capitalists can perform this function that it will be an economically

on the third law of demand i introduction the alchian and allen 1967 63 64 theorem sometimes elevated to the status of a third law of demand as in bertonazzi et al 1993 is a clever application of the fundamental principle of economizing behavior as usually stated the theorem suggests that by reducing the price of higher quality relative to lower quality versions of the same good a fixed transportation charge will trigger a predictable shift in the mix of quality grades purchased by consumers in distant markets as compared to the mix purchased locally producers will respond rationally to this difference in behavior relatively more high quality goods will be included in outbound shipments leaving more low quality goods to be sold nearer the point of origin hence other things being the same the theorem predicts that it will be harder to find good apples in the state of washington a prime apple growing region than in say new york city where bad apples are comparatively more expensive the first law of demand still holds of co urse in that fewer apples of both types will be consumed in new york than in seattle ceteris paribus similarly given that the cost of a babysitter will be the same no matter where the parents of young children decide to spend the evening out they are more likely than an otherwise identical childless couple to choose an upscale restaurant over an inexpensive eatery and to go to the theater rather than to the movies moreover if both couples plan to see a play or a concert the couple with children will opt for better seats the foregoing examples indicate that the alchian and allen theorem is rich in empirical implications in what follows however we show that placed in the context of a market model its range of applications is narrower than has been acknowledged in the literature heretofore more specifically our analysis demonstrates that a fixed charge unambiguously reduces the price of a higher quality good relative to a lower quality version of the same good only when that good is sold by a perfectly competitive constant cost industry under increasing cost conditions or imperfectly competitive industry structures by contrast it is possible for relative prices either to be unaffected by the addition of a fixed charge or indeed for the lower quality good to become relatively cheaper in distant markets depending on the elasticity characteristics of relevant market demand and supply functions our analysis is in no way intended as an attack on alchian and allen or their fine textbook which has taught more than one generation of economists to be better price theorists we do not quarrel in the least with the pedagogical value of their theorem which has been immense our purpose is to identify some plausible scenarios under which the third law of demand may fail to hold the present article is thus in the spirit of yang and stitt 1995 who show that the ramsey 1927 rule for optimal commodity taxation is changed in important ways when the assumption of constant production costs is relaxed it is organized as follows in the next section the fundamentals of the alchian and allen theorem are described in more detail and its predictions are situated within the existing literature section iii explores the theorem s operations under alternative cost conditions and industry structures factors complicating the analysis of the effects of a fixed charge on the relative prices of high and low quality goods are also addressed in this section finally section iv contains some concluding remarks ii shipping the good apples out to borrow an example from a classic statement of the alchian and allen theorem 1 suppose that good washington apples sell for 10 cents each in seattle and bad apples each cost a nickel there because the price of a good apple is twice that of a bad apple seattle s consumers must sacrifice the opportunity of buying two bad apples to obtain a good one

the generalized alchian allen theorem a slutsky equation for relative demand we generalize the alchian allen theorem so as to account for income and endowment effects and provide two versions of a generalized alchian allen theorem one for a unit cost component and one for a proportional cost component both versions provide a decomposition of an uncompensated change in the demand ratio of two goods into a substitution effect and an income endowment effect and may thus be regarded as extensions of the familiar slutsky equation for relative demand finally we apply our results to the choice of real estates and to parental time allocation decisions the latter providing implications for child care policies uel dll h21 j22 r21 i introduction the alchian allen theorem see alchian and allen 1964 74 75 suggests that an increase in the prices of two goods by the same amount leads to a decrease in the relative price of the more expensive good and hence to a relative increase in the compensated demand for that good as this pure substitution effect applies to any pair of goods with a common but abstract unit cost component the alchian allen theorem has a broad range of applications for example the common unit cost component may be interpreted as a specific tax as a fixed transportation cost as a flat transaction cost or as the wage forgone in favor of different leisure time activities accordingly the alchian allen theorem has been discussed in various fields of both theoretical and empirical economics 1 above all borcherding and silberberg 1978 formulated the alchian allen theorem for compensated demand in the standard consumer model with three goods then hummels and skiba 2004 extended the analysis of borcherding and silberberg by introducing an ad valorem tariff on the two goods under consideration and showed that the effect of a change in the ad valorem tariff is basically opposite to the effect of a change in the unit cost in this paper we generalize the two formulas for substitution effects one for demand changes resulting from the unit cost components and one resulting from the proportional cost components 2 within the alchian allen framework so as to incorporate income and endowment effects we believe that this generalization constitutes an important result as these effects are arguably significant for a broad variety of goods in this way we arrive at two versions of the generalized alchian allen theorem gaat which essentially provides a decomposition of an uncompensated change in the demand ratio of two goods into a substitution effect compensated effect and an income endowment effect because of the apparent similarity of our decomposition of the change in the demand ratio with the renowned slutsky equation the two versions of the gaat we provide here may be regarded as the proper versions of the slutsky equation for relative demand the alchian allen result i e an increase in the demand for the more expensive good relative to the demand for the less expensive good resulting from an increase of a common unit cost component of both goods has been examined empirically for example bertonazzi maloney and mccormick 1993 interpreted the alchian allen theorem within a household production framework 3 and found that football fans traveling farther tend to purchase higher quality tickets hummels and skiba 2004 presented the hypothesis that an increase in unit transport costs increases the share of the higher quality goods and therefore the share weighted average of prices and confirmed this using international trade data moreover some researchers have indirectly provided findings that are consistent with the alchian allen result sobel and garrett 1997 found that an increase in specific taxes is estimated to increase the market share of premium brand cigarettes and nesbit 2007 found that an increase in specific taxes is estimated to increase the market share of premium grade gasoline