economies of scale in multi product firms an empirical analysis this paper presents new evidence on scale economies in multiproduct firms previous studies are limited in view of r ecent advances in the theory of the multiproduct firm the water util ity is chosen here as a multiproduct firm providing multiple services to various classes of customers with spatial variation a translog m ultiproduct cost function is estimated based on duality between tran sformation and cost functions the paper analyzes overall as well as product specific scale economies it also discusses ray average cos t curves and derives the m locus which provides useful information on scope economies and the cost minimizing number of firms copyright 1987 by the review of economic studies limited

semi targeted all pay auctions a partial exclusion principle abstract this paper studies the effects of a specific affirmative action policy in complete information all pay auctions when players differ in ability the contest organizer splits the overall prize of the competition into a targeted and an untargeted prize the targeted prize is exclusively for disadvantaged low ability agents and excludes advantaged agents partially from the overall prize we consider a setting with one high ability and two low ability contestants and fully characterize equilibrium assuming that the contest organizer aims to maximize expected total effort we show that i almost any targeted prize is preferable to a standard all pay auction without targeted prize ii the exclusion principle baye et al 1993 can be implemented by a wide range of sufficiently large targeted prizes and iii partial exclusion by means of an appropriately chosen targeted prize benefits the organizer more than complete exclusion we also discuss the robustness of our results in settings with more than three agents

tullock contests may be revenue superior to auctions in a symmetric setting we consider a symmetric two player common value setting where each player gets a private signal about the object value we show that for some parameter values the equilibrium revenue can be higher in a tullock contest than in the standard auctions

contest design and optimal endogenous entry this paper derives the effort maximizing contest rule and the optimal endogenous entry in a context where potential participants bear fixed entry costs the organizer is allowed to design the contest under a fixed budget with two strategic instruments he sets the value of the prize purse and arranges a monetary transfer entry subsidy or fee for each participating contestant in other words the budget can either be used to subsidize participation or an entry fee can be charged to fund the prize purse the results show that the optimally designed contest attracts exactly two participating contestants in its unique subgame perfect equilibrium when there is a positive fixed entry cost and extracts all the surplus from participating contestants the study also shows that the direction and amount of the monetary transfer depend on the magnitude of the entry cost the contest organizer subsidizes entry when contestants bear substantial entry costs but charges an entry fee to fund the prize purse whenever the entry cost is sufficiently low

rent seeking and rent dissipation a neutrality result abstract we consider rent seeking contests between at least two agents who might value the prize differently we capture a wide range of institutional aspects of contests by analyzing a class of contest success functions fulfilling several properties the main properties are anonymity and a condition on the elasticity of a rent seeker s win probability with respect to her effort we show the existence of a mixed strategy equilibrium and establish equilibrium payoffs in this equilibrium complete rent dissipation holds our results imply a partial robustness result for the all pay auction

estimation of substitution possibilities between water and other production inputs the traditional approach to measuring the demand for water by industries relies upon fixed water use coefficients water supply planners base decisions about system expansion partly upon fixed coefficients applied to projected levels of industrial growth among the restrictive assumptions implied by this approach is that producers are generally unresponsive to the relative price of water compared with other factors earlier studies focused on industry by industry assessments of present and potential water use technologies and the possibilities for substituting other productive inputs for water most of these studies are economic engineering in form thompson and young and russell are analyses of the steam electric generating industry and the petroleum refining and petrochemical industry respectively because they used linear programming techniques their results must be interpreted cautiously the flexible functional forms which have become

lottery versus all pay auction contests a revenue dominance theorem abstract we allow a contest organizer to bias a contest in a discriminatory way i e she can favor specific contestants by designing the contest rule in order to maximize total equilibrium effort resp revenue the two predominant contest regimes are considered all pay auctions and lottery contests for all pay auctions the optimal bias is derived in closed form it implies extreme competitive pressure among active contestants and low endogenous participation rates moreover the exclusion principle advanced by baye et al 1993 becomes obsolete in this case in contrast the optimally biased lottery induces a higher number of actively participating contestants due to softer competition our main result regarding total revenue comparison under the optimal biases reveals that the all pay auction revenue dominates the lottery contest for all levels of heterogeneity among contestants the incentive effect due to a strongly discriminating contest rule all pay auction dominates the participation effect due to a weakly discriminating contest rule lottery

contests with small noise and the robustness of the all pay auction this paper considers all pay contests in which the relationship between bids and allocations reflects a small amount of noise prior work had focused on one particular equilibrium however there may be other equilibria to address this issue we introduce a new and intuitive measure for the proximity to the all pay auction this allows in particular to provide simple conditions under which actually any equilibrium of the contest is both payoff equivalent and revenue equivalent to the unique equilibrium of the corresponding all pay auction the results are shown to have powerful implications for monopoly licensing political lobbying electoral competition optimally biased contests the empirical analysis of rent seeking and dynamic contests

asymmetric contests with conditional investments rent seeking scenarios competitions for promotions and research and development r d races are examples of competitions in which participants expend resources regardless of whether they win or lose although similar in their all pay feature such competitions often differ in important dimensions these include the type of technologies employed in competition the type of asymmetries among competitors the degree to which expenditures are sunk and the number of prizes consider lobbying settings in which firms expend resources in order to influence a policymaker if expenditures take the form of monetary outlays and all firms have the same cost of capital then it is reasonable to think of firms marginal cost of influence as linear but if a firm has a reputational advantage and high costs of capital its lobbying technology may be more reasonably thought of as having convex costs relatively low marginal costs up to a moderate level of influence due to the reputational advantage and relatively high marginal costs at higher levels of influence due to the high costs of capital similarly the lobbying technology of a firm that is relatively unknown and has low costs of capital may be characterized by concave costs lobbying restrictions geographic location or preferential treatment by the policymaker further impact firms lobbying technologies inducing additional nonlinearities and asymmetries among firms in some lobbying settings firms also commit to expenditures conditional on a favorable outcome for example a firm may commit to building factories and creating new jobs if it is granted one of a limited number of manufacturing licenses thus the specification of firms lobbying technologies the type of asymmetries among firms the combination of unconditional and conditional investments and the number of eventual winners may change according to the lobbying setting studied the same is true for other competitions with an all pay feature in a competition for promotions workers often differ in their abilities experience and social skills more than one prize

parametric efficiency tests economies of scale and input demand in u s electric power generation duality theory has been applied increasingly in recent years to study the structure of production a major advantage of using duality theory is that systems of input demand equations can be derived by simple differentiation facilitating the use of flexible functional forms also use of duality theory makes it possible to choose a representation of the technology which has desirable properties for estimation such as exogeneity of the regressors however the use of a dual representation of production structure is appropriate only if the corresponding maintained hypothesis concerning economic behavior e g cost minimization or profit maximization is valid the perceived advantages of the dual approach to studying production structure have led to some applications in which the maintained hypothesis concerning economic behavior is unlikely to be appropriate for example neoclassical cost functions have been used to study the characteristics of production in regulated industries despite an extensive theoretical literature indicating that a profit maximizing regulated firm would not minimize costs subject to market prices 2 in this paper we propose a generalized cost function that retains the principal advantages of the neoclassical cost function but does not require that cost minimization subject to market prices be imposed as a maintained hypothesis in our model firms are assumed to base their production decisions on unobservable shadow prices which reflect the effects of regulation on the effective prices of inputs parametric tests for cost minimization are obtained by expressing shadow prices as functions of market prices the generalized cost function is estimated with data for regulated electric utilities the parametric restrictions corresponding to cost minimizing behavior subject to market prices are rejected implying that the use of a neoclassical cost function is not appropriate in this application 3

a proposal for social pricing of water supply in cote d ivoire we consider the design of a nonlinear social tariff for residential water in cote d ivoire which is a case of a monopolistic private operator supplying a population of heterogeneous consumers the proposed optimal tariff includes an initial social block with a low unit price and higher consumption blocks with a monopoly pricing rule this optimal nonlinear tariff is calibrated using econometric estimates of a panel data residential water demand equation welfare changes associated with moving from the actual tariff to approximations of the optimal pricing system are computed under different tariff scenarios we find that gains in consumer welfare would outweigh losses in producer surplus in a majority of ivorian local communities

favoritism in asymmetric contests head starts and handicaps abstract i examine a contest with identity dependent rules in which contestants are privately informed and ex ante heterogeneous a contestant may suffer from a handicap or benefit from a head start the former reduces the contestant s score by a fixed percentage the latter is an additive bonus although total effort increases if the weak contestant is favored with a head start the optimal use of handicaps is not as clear cut depending on the nature of the asymmetry it may or may not be optimal to handicap the strong contestant moreover it is generally optimal to combine the two instruments for instance when contestants are sufficiently heterogeneous the weak contestant should be given both a head start and a handicap it may also be possible to induce higher effort and at the same time make both contestants better off ex ante

political culture and discrimination in contests abstract many economic and political decisions are the outcome of strategic contests for a given prize the nature of such contests can be determined by a designer who is driven by political considerations with a specific political culture the main objective of this study is to analyze the effect of political culture and of valuation asymmetry on discrimination between the contestants the weights assigned to the public well being and the contestants efforts represent the political culture while discrimination is an endogenous variable that characterizes the mechanism allocating the prize we consider situations under which the optimal bias of the designer is in favor of the contestant with the larger or smaller prize valuation and examine the effect of changes in the political culture and in valuation asymmetry on the designer s preferred discrimination between the contestants focusing on the two most widely studied types of contest success functions deterministic all pay auctions and logit csfs we show that an all pay auction is always the preferred csf from the point of view of the contest designer this result provides a new political economic micro foundation to some of the most commonly used models in the contest literature

earnings by size a tale of two distributions part of the conventional wisdom on the subject of the size distribution of earnings is that earnings are approximately lognormal but with an upper tail which is better described by the pareto function 1 the primary purpose of this paper is to re examine these propositions using british new earnings survey data disaggregated by occupational groups we have several reasons for feeling that such a re examination is timely first most previous studies have considered the distribution among all employees while theoretical considerations suggest that disaggregated data might be more appropriate we elaborate this point in section 1 of the paper second the method of estimating the parameters of the pareto and lognormal functions has not always been given the attention it deserves in section 2 we address this issue and also refer briefly to the related one of goodness of fit the remainder of the paper presents parameter estimates for the pareto and lognormal functions using first aggregate data section 3 and then distributions within occupational groups section 4 section 5 compares these two sets of results and at the same time re assesses the conventional wisdom of the superiority of the pareto function in the upper tail section 6 summarizes our findings

optimal favoritism in all pay auctions and lottery contests abstract we analyze the revenue enhancing potential of favoring specific contestants in complete information all pay auctions and lottery contests with several heterogeneous contestants two instruments of favoritism are considered head starts that are added to the bids of specific contestants and multiplicative biases that give idiosyncratic weights to the bids in the all pay auction head starts are more effective than biases while optimally combining both instruments even yields first best revenue in the lottery contest head starts are less effective than biases and combining both instruments cannot further increase revenue as all pay auctions revenue dominate lottery contests under optimal biases we thus obtain an unambiguous revenue ranking of all six combinations of contest formats and instruments

demand and distributional effects of water pricing policies abstract worldwide water scarcity threatens delivery of water to urban centers water pricing is often recommended to reduce demand in this paper demand and distributional effects of water pricing policies are examined in a block pricing model that is applied to the metropolitan region of sao paulo water demand functions are estimated using marginal and average price models based on monthly data for the period 1997 2002 price elasticities of water demand range between 0 45 and 0 50 and income elasticities between 0 39 and 0 42 for the current combined regressive progressive block price system the poor spend almost 4 2 to 4 7 of their income on water the rich only pay 0 4 to 0 5 of their income whereas they consume more than twice as much a progressive block price or an income dependent price system may result in a more equalized income distribution however the analysis shows that there is a trade off between a more equalized income distribution and revenues earned by the water company more pro poor pricing systems may result as well in lower revenues for the water company

asymmetric rent seeking with more than two contestants this article considers a rent seeking model with n asymmetriccontestants each contestant may have a different valuation ofthe rent or a different relative ability to win the rent oneof the n contestants is selected as the winner based ontullock s probabilistic contest rule with constant returns toscale a pure strategy nash equilibrium solution is obtainedand its consequences are investigated

tie breaks and bid caps in all pay auctions we revisit the complete information all pay auction with bid caps introduced by che and gale 1998 dropping their assumption that tie breaking must be symmetric any choice of tie breaking rule leads to a dierent set of nash equilibria compared to the optimal bid cap of che and gale we obtain that in order to maximize the sum of bids the designer prefers to set a less restrictive bid cap combined with a tie breaking rule which slightly favors the weaker bidder moreover the designer is better o breaking ties deterministically in favor of the weak bidder than symmetrically except when bidding costs are strongly convex jel classication d72 d44

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

auctionin entry into tournaments a research tournament model with heterogeneous contestants is presented for a large class of contests the optimal number of competitors is two this insight makes designing the tournament easier and highlights the importance of selecting highly qualified contestants while customary uniform price and discriminatory price auctions are intuitively appealing mechanisms for solving this adverse selection problem in practice they generally will not be efficient mechanism for selecting contestants instead we propose an alternative auction format that is equally simple to implement and efficiently selects the most qualified contestants to compete regardless of the form of contestant heterogeneity

optimal design of research contests procurement of an innovation often requires substantial effort by potential suppliers motivating effort may be difficult if the level of effort and quality of the resulting innovation are unverifiable if innovators cannot benefit directly by marketing their innovations and if the buyer cannot extract up front payments from suppliers we study the use of contests to procure an innovation in such an environment an auction in which two suppliers are invited to innovate and then bid their prizes is optimal in a large class of contests if contestants are asymmetric it is optimal to handicap the most efficient one

a theory of affirmative action in college admissions i introduction race conscious preferential admissions have been widely practiced by selective colleges and universities to enhance minority representation in higher education for example the college of arts and sciences at the university of michigan automatically added 20 points out of a possible 150 points to a minority applicant s score in its rating system harvard university has an unofficial lift scheme which also targets minority applicants however controversy has surrounded affirmative action ever since its inception for instance california texas and florida have already terminated the use of race conscious admissions at state funded institutions this debate culminated in the recent supreme court ruling regarding admissions procedures at the university of michigan which endorsed admissions rules that took into account race as a qualifying characteristic unfortunately positive studies on this issue have been scarce relative to the high profile of the debate according to holzer and neumark 1999 theoretical studies of the efficiency of affirmative action on education are virtually nonexistent some have argued that affirmative action is merely a patronage program and necessarily results in mediocracy rather than meritocracy in the debate on affirmative action practices in college admissions a major criticism is that affirmative action designed to create diversity comes at the cost of academic quality a competing view offered by those opposed to affirmative action is that it weakens school applicants incentives to achieve academic excellence for instance justice thomas wrote in his opinion in grutter v bollinger that there is no incentive for the black applicant to continue to prepare for the lsat once he is reasonably assured of achieving the requisite score supporters of this practice tend to emphasize the importance of diversity and the positive influence of diversity on the pedagogical environment steele 1990 these views however do not fully recognize the incentive structure behind affirmative action admissions rules it is unclear how a college admissions rule affects high school students incentives to achieve academic excellence which adds to their human capital stock and future productivity the process of college admissions by and large resembles a contest in which contestants exert costly effort in order to win a limited number of prizes in the context of college admissions to compete for a limited number of seats in the incoming class college candidates have to present their academic credentials such as gpa and sat score to the admissions officer to win the seat high school students have to invest in their human capital which improves the academic performance whereas the academic investments are costly and nonrefundable regardless of the outcome for example the tuition the money spent on books the salary paid to tutors the time and energy and so on all of these features may be approximated by an all pay auction mechanism we propose a simple theoretical framework that models the process of college admissions as an all pay auction to investigate two major questions is there any theoretical rationale for an affirmative action admissions rule how do such rules affect college candidates incentives to invest in academic effort two candidates one a minority and the other a nonminority simultaneously choose their academic efforts human capital investments to compete for a seat in a college we show that an academic quality oriented college prefers to adopt an admissions rule that scales up the test score of the minority relative to the nonminority although this rule is designed purely to maximize the expected academic quality of the incoming class it turns out to favor the minority and create ethnic diversity we show that the unique equilibrium affirmative action admissions rule creates a positive cross group interaction between college candidates incentives to make educational effort

the specification of partial static equilibrium models in conducting an investigation into the specification of partial static equilibrium factor demand models this paper isolates 1 the endogeneity of output and quasi fixed factor levels 2 the choice of omitted share equation and 3 the presence of serial correlation when using time series data as the specification issues that most affect the existing empirical literature the impact of specification changes are studied via a series of experiments conducted on an illustrative data set and are found to have significant effects on parameter estimates and model diagnostics departures between observed and full equilibrium levels of quasi fixed factors and price elasticities as a consequence caveats must be attached to several previous studies and care must be taken by future researchers in addressing using such models copyright 1987 by mit press

rigging the lobbying process an application of the all pay auction textabstractin a world where a politician can explicitly auction off a prize to the high bidder the standard auction literature can be used to analyse political behavior the justice system however precludes politicians from explicitly selling the prize to the highest bidder thus politicians cannot let it become public knowledge that they are in the business of selling political favors an institution has emerged in political markets to overcome this constraint which are termed as lobbying lobbyists make implicit payments to the politician through campaign contributions if these up front payments were rebated to those failing to receive the prize it would be clear that the politician was selling favors this article has examined an interesting principle arising in all pay auctions this principle states that a politician wishing to maximize political rents may find it in his best interest to exclude certain lobbyists from participating in the lobbying process particularly lobbyists valuing most the political prize

evaluating the welfare effects of reforming municipal water prices abstract despite the strong criticisms by economists of water utility pricing practices and the presence of well articulated theoretical models of efficient pricing alternatives few empirical studies have documented the magnitude of the efficiency gains from altering water prices the structures of water supply costs and water demands are estimated using data from vancouver canada a simulation program uses these estimated relationships to compute the impact upon a representative water utility s output and deficit and upon aggregate consumer surplus of a move from its current practice to efficient prices simulation results show that a move to seasonally differentiated pricing with an annual charge calculated to recoup the resulting deficit raises aggregate surplus by approximately 4 this result contrasts with recent water pricing studies that found welfare improvements of approximately 1

estimating demand under block rates electricity and water many empirical studies of the demand for electricity under declining block tariffs have been conducted but few have produced results consistent with traditional demand theory nordin bell j economics 7 719 21 1976 explains this in part by pointing out that most of those studies failed to take into account the income effects caused by intramarginal price differences the authors show here that nordin s suggestion involves the inappropriate use of ordinal level statistics ols they propose a method by which consistent estimates of the demand parameters can be obtained when a household s rule for selecting a block can be estimated 19 references 1 figure

efficiency and equity in natural resources pricing a proposal for urban water distribution service this paper focuses on the design of optimal prices for urban water distribution service in this context pricing should be aimed at achieving efficiency equity financial aspects and or public acceptability and transparency the proposed tariffs are based on the theoretical frameworks suggested by ramsey 1927 and feldstein 1972 as a prior step estimations of urban water demands and water costs are carried out for the spanish municipality of seville finally an empirical comparison in welfare terms is conducted between the proposed tariffs and those applicable in the year 2000

a tug of war team contest this paper analyzes a tug of war contest between two teams in each round of the tug of war a pair of agents from the opposing teams competes in a private value all pay auction with asymmetric value distributions and effort effectiveness whichever team arrives first at a given lead in terms of battle victories over the opponent wins the tug of war there exists a unique markov perfect equilibrium in bidding strategies which depend on the respective player s valuation and the current state of the tug of war we derive rich comparative statics for this equilibrium by using the fact that the state of the tug of war evolves according to a time homogeneous absorbing markov chain

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

revenue ranking of optimally biased contests the case of two players it is shown that the equilibrium in the asymmetric two player tullock contest is unique for parameter values r 2 this allows proving a revenue ranking result saying that a revenue maximizing designer capable of biasing the contest always prefers a technology with higher r

welfare and distribution effects of water pricing policies in this paper distribution and welfare effects of changes in block price systems are evaluated a method is discussed to determine for a marshallian demand function equivalent variation in case of a block price system the method is applied to compare for the metropolitan region of sao paulo alternative pricing policies on the basis of their demand welfare and distribution effects of changing water prices results show that there is a trade off between average welfare and income distribution a pro poor price system may result in lower average welfare than a flat price system but in higher individual welfare for the poor moreover there is a trade off between revenues for the water company and income distribution even though pro poor price systems may not be as good for average welfare as flat price systems their direct effects on poverty are important introducing pro poor price systems however may have financial consequences for the water companies

municipal water supply and sewage treatment costs prices and distortions municipal water supply and sewage treatment utilities in ontario canada are studied in order to establish their costs of supply and evaluate their pricing practices prices charged to residential and commercial customers are found to be only one third and one sixth of the estimated marginal cost for water supply and sewage treatment respectively for example the average price to residential customers is 0 32m superscript 3 while the estimated marginal cost is 0 87 m superscript 3 the estimated cost parameters are combined with estimated residential and nonresidential demands functions in order to calculate approximate welfare losses that arise from overconsumption

second best pricing of publicly produced inputs the case of downstream imperfect competition abstract efficient second best pricing is examined for a public enterprise facing two distortions a profit constraint and imperfect competition among some customer industries we suggest a measure of downstream industry distortion for the purpose of efficient pricing the pricing rule contains two opposing elements the shadow value of public profit and this measure of the downstream distortion whose sum determines whether the efficient second best input price is above or below marginal cost efficient pricing normally implies relative subsidization of imperfectly competitive downstream firms

measuring the dynamic efficiency costs of regulators preferences municipal water utilities in the arid west evidence suggests that municipal water utility administrators in the western us price water significantly below its marginal cost and in so doing inefficiently exploit aquifer stocks and induce social surplus losses this paper empirically identifies the objective function of those managers measures the deadweight losses resulting from their price discounting decisions and recovers the efficient water pricing policy function from counterfactual experiments in doing so the estimation uses a continuous butconstrained control version of a nested fixed point algorithm in order to measure the important intertemporal consequences of groundwater pricing decisions

optimal pricing of local telephone service although payment for nearly all other goods and services including toll long distance telephone calls increases with greater consumption nearly 90 percent of the residential telephone subscribers and more than half the business subscribers in the united states now pay a flat monthly rate for local calls see larry garfinkel recently however the telephone companies and regulatory commissions have been moving cautiously toward imposing usage charges for local telephone calls there is renewed interest in what is currently termed usage sensitive pricing t usp it is due to the combined forces of inflation increased local usage and competition from independent firms that sell telephone terminal equipment and supply private toll lines to business customers under usp the pricing of such services as telephone installation directory assistance and minutes of calling is based on incremental rather than average costs since world war ii technological advances have benefited long distance far more than local telephone calling development in microwave communications coaxial cable satellites and waveguides have dramatically lowered the costs of long distance transmission in contrast the costs of local service have moved upward since the late 1960 s at a rate not far below the general price index see at t 1975 faced with a continuing stream of requests for local telephone rate increases state regulatory commissions are finding the concept of tying prices to usage increasingly attractive at t and some of the independent telephone carriers are beginning to test usp plans in several cities with flat rate tariffs increases in local calling add to carrier costs but not to their revenues the local calling rate per subscriber has increased by an average of 2 percent for the past seven years at t s chairman has stated we are moving more and more in the direction of usage sensitive pricing see washington star news p a12 and according to newspaper accounts of at t management documents the bell system plans to phase out flat rate telephone service and begin charging for each local call in major metropolitan areas in 1978 80 see seattle postintelligencer pp 1 10 still regulatory commissions consumer groups and the carriers themselves remain cautious about requiring usage sensitive tariffs for all subscribers the prospective gains from prices more closely related to costs are at least partially offset by the added costs of metering equipment and billing most telephone subscribers prefer flat rates according to bell system marketing surveys see garfinkel p 28 and it is by no means clear which groups of subscribers will be helped and which harmed by such revisions in local tariff structures will the poor end up paying more because they use their phones more should different prices be charged for calls at different times of day on what bases should the monthly and per call rates be determined the purpose of this paper is to sort out some of the questions of economic efficiency and equity that arise when changes are considered in the methods of pricing local telephone services in section i i construct a department of economics the rand corporation and the international institute of management berlin this study was supported under a grant from the john and mary r markle foundation i am indebted to walter s baer for numerous contributions to this paper to s c littlechild and patricia munch and to the managing editor and a referee of this review for critical and constructive review of a draft i have benefited as well from the comments and suggestions of james h alleman stanley m besen william s comanor john m drew leland l johnson john a kay edward d lowry carl pavarini john rolph ralph turvey and chris witze bryant mori assisted with the computer programming see my 1976 paper for a more extensive version of this paper which also discusses optimal flat rate and optimal peak load tariffs

analysing rationing policies drought and its effects on urban users welfare analysing rationing policies during drought the aim of this paper is to study the impact on consumers of rationing policies implemented during water shortages water scarcity gives rise to the need for rationing and various methods including supply cutoffs can be used a model is devised to quantify the welfare losses associated with qualitive and quantitive restrictions based on virtual prices and using the consumer surplus as a welfare measurement welfare variations for different users have been calculated to achieve the aim information relative to seville spain has been used analysing the drought period that took place in the first half of the 1990s it has been possible to observe the main source that led to welfare losses for each kind of user

lottery versus all pay auction models of lobbying i first provide a complete characterization of the unique equilibrium of the lottery game by n lobbyists with asymmetric valuations and then compare the lottery and the all pay auction models of lobbying i show that the exclusion principle discovered by baye kovenock and de vries 1993 for all pay auction does not apply to lottery i also show that the perverse effect that an exogenous cap may increase the total lobbying expenditure in a two bidder all pay auction discovered by che and gale 1998 does not apply to lottery

long run price inflexibility and efficiency loss for municipal water supply abstract a marginal cost pricing mcp policy for a publicly produced good leads to politically unacceptable price fluctuations when economies of scale exist in plant construction a partial equilibrium analysis of water supply defines a general optimal constant price for water which is a weighted average of the annual marginal short run and capacity expansion costs for special cases of arithmetic or geometric growth in demand the demand growth rate and the discount rate determine the fraction of capital costs which a constant price will recover under conditions which favor the mcp policy the constant pricing policy produces 98 5 of the net benefits produced by the mcp policy