conglomerates and regulation conglomerates operating integrated productions in different regulated and unregulated sectors may benefit of scope economies however the precise size of these synergies is often unknown to both rival firms and regulators we show that the conglomerate s private information on scope economies may negatively affect both the regulated and the unregulated sectors depending on the precise nature of competition strategic substitutes or complements we also unveil a novel effect of regulation that involves an informational externality to the conglomerate s rivals notwithstanding these complications and independently of the nature of competition we show that in our model it is desirable as for welfare to let the firm run integrated productions unless diseconomies of scope may realize jel l51 l43 l52

an experimental test on retirement decisions i introduction the reform of social security systems is now one of the main issues on the economic policy agenda of most industrialized countries it is widely considered that unless serious changes take place the aging of the population implying a rise in the number of retirees relative to that of workers will threaten the viability of pay as you go public pension systems in the long run this threat is being reinforced by the progressive reduction in the retirement age of the working population the central reforms that are being proposed to neutralize these future financing problems are the raising of the contribution rate the decreasing of pension benefits or and the delay of the retirement age with reference to this latter reform as blondal and scarpetta 1998 state a direct way to encourage people to work longer would be to raise the pensionable age but delaying the retirement age may not be very popular according to recent surveys most workers claim that they are happy with the current retirement age see cremer and pestieau 2003 this may help to explain why reforms on the legal retirement age have currently become a very delicate matter for governments 1 on the other hand pension systems in virtually all organization for economic cooperation and development oecd countries in the mid 1990s made it financially unattractive to work after the age of 55 see gruber and wise 1997 or blondal and scarpetta 1998 indeed the general consensus in the theoretical literature related to social security and retirement decisions is that pension systems create enormous incentives to leave the labor force early 2 therefore increasing the retirement age as a tool to improve the financial problems of public pensions systems faces two sensitive problems the opposition of workers to a delay in the standard retirement age and the disincentives to continuous work being embedded in the pension system the large decline in labor force participation is attributed to the specific fact that to keep on working implies a reduction in the present value of total pension benefits the terms old age pension wealth and implicit tax on postponing retirement have been frequently used to illustrate these disincentives in the pension system the old age pension wealth is the discounted value of expected pension benefits minus the discounted cost of obtaining such benefits after the earliest age at which pensions can be accessed working for an extra year may imply changes in this pension wealth by foregoing 1 yr of pensions paying contributions for an additional year and maybe increasing the pension benefits per year therefore if the costs of postponing retirement are higher than the gains then it is considered that the pension system is implicitly taxing to prolong the working period that is the drop in pension wealth acts as an implicit tax on income from continued work and as such is a clear incentive to retire early actually reforms aiming to increase the effective retirement age to improve the financial problems of public pensions systems have mainly focused on the reduction of this implicit tax on prolonging the working period it is also considered that when the increase in pension benefits is exactly offset by the higher cost in terms of contributions and forgone pensions the pension system is not distorting the retirement decision that is the pension systems that are marginally actuarially fair will not distort individual decisions concerning retirement age and consequently they are defined as neutral systems for this reason the main economic policy measures move in the direction of strengthening the link between lifetime contributions and pension benefits 3 indeed this reform is one of the policy conclusions of maintaining prosperity in an ageing society oecd 2000 the most appropriate reform would be to allow people to retire at the age of their own choice and to adjust pension level so that the pension system is neutral on average

regulating horizontal diversification abstract this paper investigates the optimal design of diversification rules for regulated enterprises diversification generates profit in non core markets that can be shared with core customers however a diversified firm may divert its attention and effort to non core operations causing consumer welfare in core markets to decline diversification generally results in lower prices and higher powered reward structures in core markets surprisingly diversification is not always directed into the non core markets where the expected contribution of the regulated firm is most pronounced furthermore diversification may be permitted more often as the potential losses from effort diversion increase

social security and the retirement decision the effect of social security and private pensions on individual retirement decisions is modeled relaxing in turn three commonly maintained assumptions perfect capital markets actuarial fairness and certain lifetimes which together imply that there is no effect in each case raising the contribution level can cause systematic changes of either sign in general in individual retirement decisions for social security the effects associated with forced saving and deviations from actuarial fairness probably tend to advance retirement but those effects that arise solely from the insurance aspect of social security and private pensions are ambiguous in sign owing to the presence of a substitution effect that tends to delay retirement because the insurance benefits can be fully realized only by working longer

diversification strategies and scope economies evidence from a sample of italian regional bus transport providers a growing number of local public transport lpt companies diversify their production lines by providing a large set of services we investigate the cost structure of a sample of lpt companies operating in italy and assess the presence and the magnitude of scope economies we split the whole sample of firms according to their diversification strategy private firms mainly diversifying in competitive transport related services and public firms providing nontransport services in regulated markets scope economies appear sizeable for both groups but higher for firms pursuing a transport related strategy suggesting caution in the multiutility development pursued by public lpt firms in italy

exclusive dealing limiting outside activity and conflict of interest exclusive dealing is one of a number of non price vertical restraints that have become the subject of considerable scrutiny and rethinking both in the courts and in the academic literature 2 8 10 17 because of its association with antitrust law the emphasis of the exclusive dealing literature 3 7 13 16 21 has been on whether exclusive dealing can enhance or protect a firm s market power exclusive dealing and related restrictions on agent activities however are far more widespread than can credibly be attributed to antitrust considerations or interfirm strategic behavior the range of instances where exclusive dealing broadly construed applies is quite large including the familiar manufacturer retailer relationship as well as other situations where there may be a conflict of interest the decision to hire a worker to do a job or to have the job done by an independent contractor could be interpreted as the decision whether a firm wants its workers to exclusively deal their labor the exclusivity question arises in less formal or familiar settings as well should one for example permit a babysitter to have friends visit or should her attention be exclusively directed toward one s children should a university permit its faculty to engage in outside consulting or non university sponsored research or should it lay down rules restricting the time available for outside activities or the types of outside research that can be carried out antitrust courts and legal commentators over the past ten years especially since sylvania 4 have come to view non price vertical restraints more benignly than in the past 2 299 304 15 17 18 20 benign neglect however offers no help to a firm wondering whether to institute exclusive dealing not only may the costs and benefits of doing so be subtle but the decision may be controversial among the affected parties in the conventional exclusive dealing case retailers may not want a major supplier to cut them off if they continue to sell another manufacturer s product and will likely demand to be compensated for their lost business opportunities exclusive dealing may be viewed as the limiting version of a policy to limit outside activities by agents the purpose of this paper is to set out a very general neoclassical choice framework to discover conditions in which exclusive dealing or limitations on outside activities to mitigate conflicts of interest can enhance the operating efficiency of a vertical relationship a specific goal

an experimental test of the under annuitization puzzle with smooth ambiguity and charitable giving abstract in a life cycle model with a bequest motive we study the impact of smooth ambiguity aversion to uncertain survival probabilities on the optimal demand for annuities we implement a theory driven laboratory experiment first a subject s ambiguity attitude is elicited in a simple experimental setting able to make the smooth ambiguity model operational then in a two period annuity bequest decision problem the subject s bequest in the second period is presented as a donation to a previously chosen charity contingent to the subject being active after the first period in line with the theoretical predictions we find that ambiguity averse resp loving subjects invest less resp more in annuities than ambiguity neutral ones furthermore subjects contingent donation to the chosen charity increases in their investment in annuities only for sufficiently high levels of warm glow altruism

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

a regulatory bargain for diversified enterprises abstract this paper examines an alternative to traditional rate of return regulation and price cap regulation for public utilities which serve both non competitive and competitive markets the alternative is a regulatory bargain in which the allowed economic profit for the firm is tied to the level of net economic benefits consumer surplus accruing to the customers in non competitive markets among other things this form of regulation is shown to lead to cost minimizing production efficient pricing in competitive and non competitive markets diversification into competitive markets if and only if there are economies of scope and protection of customers in non competitive markets from economic harm reduced consumer surplus if the firm does diversify

reforming our pension system is it a demographic financial or political problem we argue that economic and demographic factors play a relatively small role in the old age crisis political factors are far more important a benevolent social planner can address the problems raised by population ageing and declining productivity growth however in reality social security systems are established and reformed through the political process majority voting and lobbying consequently the outcome is likely not to be socially optimal majority voting typically results in overspending on social security but also in rapidly phasing it out in case of unexpected shocks then the entrenched interests of retirees that oppose drastic cuts in benefits can be socially desirable

the macroeconomics of early retirement early retirement was introduced after the appearance of redundant middle aged workers not entitled to pensions this distortionary policy reduces human capital accumulation and economic growth but shifts part of the tax burden on future generations why was it adopted alternative policies which do not introduce long term distortions but impose a larger cost on the current generation of workers were blocked by a coalition of high income workers who did not plan to retire early but sought to reduce the current tax burden and low income workers who expected to retire early and to benefit from the early retirement pension

what drives public acceptance of reforms longitudinal evidence from a dutch pension reform governments often find it hard to pursue economic reforms even if they eventually will benefit a majority of voters the literature remains inconclusive about the reasons for this some scholars on the one hand stress the role of distributional conflicts between different classes for instance dividing the young and the old in the case of pay as you go pensions others have highlighted that resistance to reform is rather broad based owing to the public s poor understanding of the need for reform this paper attempts to disentangle the drivers of public acceptance of reform by means of a case study the 2012 increase of the dutch statutory retirement age from 65 to 67 we exploit a unique longitudinal dataset on the attitudes of dutch households respecting pension reform in the 2003 2013 period our findings offer various new insights first we find that education occupational status and psychological traits were the most systematic drivers of reform preferences while age had a limited impact second and significantly we find that the year fixed effects were the main drivers of respondents acceptance of reform we interpret the pattern of the year coefficients as evidence of a collective learning process whereby households gradually updated their expectations and reform preferences in light of new information

planned and unplanned bequests we distinguish between bequests that are planned as part of a lifetime optimization process and those that are the unplanned result of errors in forecasting the date of death given the initial endowment we expect a positive relation between the bequest and the planning horizon and a negative relation between unexpectedly long life and the bequest a unique data set on wealthy decedents and their parents provides measures of expected horizons based on parents longevity both predictions are confirmed and there is an especially large and significant positive relation between the bequest and the length of the planning horizon

the effect of product diversification strategies on the performance of health insurance conglomerates abstractthe conglomerate organizational structure of health insurers suggests two distinct methods of product diversification the first is firm level diversification or diversification within individual affiliates and the second is conglomerate level diversification or diversification across affiliates of the conglomerate we hypothesize that using both firm and conglomerate level diversification may magnify the costs or benefits of diversification on the financial performance of the conglomerate our results confirm this hypothesis and suggest a positive relation between health insurer financial performance and the use of both product line diversification methods our results not only contribute to the body of literature related to corporate diversification but are also important to policymakers and all health insurance market participants as portions of the affordable care act continue to be implemented

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

a regulatory assessment of the electricity merchant transmission investment in eu current eu energy policy calls for a well integrated internal energy market by 2020 aimed at achieving interconnection of at least 10 of the installed electricity production capacity for all member states ms in 2030 this target will increase to 15 expanding to include the construction of electricity highways to connect ms and non eu neighbouring countries in order to fulfil energy and climate goals while most cross borders interconnections are envisaged as regulated lines private players will play a significant role in increasing interconnection via the merchant transmission investment mti exception by reviewing the procedural and substantive treatment of the existing five mti interconnectors this paper evaluates whether the existing legal and regulatory framework adopted in the eu represents a suitable model for the development of cross border interconnections further the paper explores the mti exception as a potential model for cross border interconnection with non eu neighbouring countries this analysis demonstrates that mti s potential contribution would not significantly impact the achievement of the 2020 target moreover the existing regulatory framework for merchant lines among ms is not apt for mti developed between ms and non eu countries since the interconnection developed with non eu neighbouring countries to date has necessitated non market characteristics too extraordinary to be practical on a continuing basis

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

competition and regulation in vertically related markets in an industry where naturally monopolistic and competitive activities are vertically related should the natural monopolist be allowed also to operate in the deregulated competitive sector unlike much of the literature on vertical integration this paper assumes that monopoly pricing behaviour is regulated and therefore the effect of vertical integration on the task of regulation is central to the analysis in the model there is both imperfect information and imperfect competition when vertical integration by the monopolist is allowed the regulator s task is made harder insofar as the monopolist has anticompetitive incentives to raise rivals costs on the other hand integration may lead to there being fewer firms in the deregulated sector and hence less duplication of fixed costs the overall welfare comparison between separation and integration is ambiguous as two simple examples illustrate various extensions to the analysis are also considered one of the central questions in debates on regulatory reform is how to organize industries that contain both naturally monopolistic and potentially competitive activities electricity transmission and distribution are characterized by natural monopoly cost conditions but electricity generation is not in the gas industry pipeline services may be naturally monopolistic but supply to larger customers is not in telecommunications natural monopoly is more a feature of local network operations than of long distance operations and is not present in apparatus manufacture and supply or in the provision of value added services in railways while the infrastructure of track and stations is naturally monopolistic the supply of train services might not be policy developments notably those associated with privatization in britain and deregulation in the united states have sometimes led to radical structural reform in these industries at t for decades a vertically integrated monopolist was required under the 1982 settlement of its long running antitrust case against the u s government to divest itself of its local network operations the central electricity generating board cegb in england and wales was restructured both vertically transmission grid activities were separated from generation and horizontally before privatization in 1990 1991 by contrast british telecom was privatized as a vertically integrated dominant firm bt now faces competition from mercury and others especially in the long distance market but its dominance of local network operations might affect competition there and in other areas such as apparatus supply the local network monopoly would of course have to be regulated in any event but its link via ownership to vertically related and potentially competitive activities poses additional regulatory questions many of the efforts of the regulatory body oftel notably in relation to interconnection between bt s and rivals 1 for a general account of the theory and british experience of regulatory reform in the utility industries

the effect of unemployment on consumption an experimental analysis this paper reports on an experiment that investigates the apparently robust phenomenon of over sensitivity of consumption to current income using a particularly simple formulation we also investigate whether individuals correctly respond to their employment status we find that subjects over react our data enables us to investigate where this over sensitivity originates we conclude that economic agents differ in their ability to plan ahead and understand the dynamic process determining their employment status however agents seem able to respond appropriately to changes in the parameters governing their decision processes in that the comparative static predictions of the theory are largely confirmed

diversification incentives under price based and cost based regulation this article considers two schemes of regulationforfirms that serve both monopoly markets and markets subjected to substantial competition the first form cost based regulation combines elements of rate of return regulation on monopoly markets with filly distributed cost pricing much like the form of regulation currently in place in the domestic telephone industry the secondform price based regulation would establish rate caps on noncompetitive services and allow the firm to enter into competitive markets and charge whatever prices it might like in those markets models of both forms of regulation are developed and analyzed with respect to incentives for cost misreporting choice of technology cost reducing innovation choices of prices and output levels and diversification into competitive markets

measuring the competitiveness benefits of a transmission investment policy the case of the alberta electricity market transmission expansions can increase the extent of competition faced by wholesale electricity suppliers with the ability to exercise unilateral market power this can cause them to submit offer curves closer to their marginal cost curves which sets market clearing prices closer to competitive benchmark price levels these lower wholesale market clearing prices are the competitiveness benefit consumers realize from the transmission expansion this paper quantifies empirically the competitiveness benefits of a transmission expansion policy that causes strategic suppliers to expect no transmission congestion using hourly generation unit level offer output market clearing price and congestion data from the alberta wholesale electricity market from january 1 2009 to july 31 2013 an upper and lower bound on the hourly consumer competitiveness benefits of this transmission policy is computed both of these competitiveness benefits measures are economically significant which argues for including them in transmission planning processes for wholesale electricity markets to ensure that all transmission expansions with positive net benefits to electricity consumers are undertaken

anticompetitive vertical integration by a dominant firm backward vertical integration by a dominant firm into an upstream competitive industry causes both input and output prices to rise the dominant firm s advantage may or may not offset the negative effect of higher prices on social welfare whether it does depends on a simple indicator derived from input and output market shares and the degree of prior vertical integration a vertical merger is similar to a hypothetical horizontal merger suggesting that vertical merger policy for this industry should be similar to horizontal merger policy the dominant firm model yields an observable sufficient indicator of welfare improving vertical mergers copyright 1998 by american economic association

quality choice and vertical integration abstract we show that despite coordination in the quality level of the components that they provide independent vertically related disintegrated monopolists will provide products of lower quality level than a sole integrated monopolist further the integrated monopolist achieves higher market coverage higher consumer surplus and higher profits we establish these results for any distribution of preferences in the standard model of quality differentiation despite the lower quality we also show that for a wide class of cost functions price will be higher in a market of independent vertically related monopolists all results are the effects of the interaction of double marginalization occurring in the market of independent monopolists with the choice of quality