optimal nonuniform pricing with generalized consumer choice a frequent assumption in nonuniform pricing models is that local maximizing conditions are met exactly once for each purchasing consumer no consumer can be indifferent between two nonadjacent usage levels each consumer then responds to a change in marginal price only by incrementally reducing her usage more realistically maximizing conditions are sometimes twice met for some interior users who can be indifferent between nonadjacent usage levels and may therefore jump discretely if marginal prices change at either level the author derives a monopolist s generalized price schedule under these circumstances and shows that marginal price may fall below marginal cost copyright 1994 by blackwell publishing ltd

competition in posted prices with stochastic discounts we study price competition between firms over public list or posted prices when a fraction of consumers can subsequently receive discounts with some probability such stochastic discounts are a feature of markets in which some consumers bargain explicitly and of markets in which sellers use the marketing practice of couponing even though bargainers receive reductions off the posted prices the potential to discount dampens competitive pressure in the market thus raising all prices and increasing profits welfare falls because of the stochastic nature of the discounts which generates some misallocation of products to consumers stochastic discounts facilitate collusion by reducing the market share that can be gained from a deviation

on the political economy of educational vouchers abstract two significant challenges hamper the analyses of the collective choice of educational vouchers one is the multi dimensional choice set arising from the interdependence of the voucher public education spending and taxation second even absent a voucher preferences over public spending are not single peaked a middling level of public school spending may be less attractive to a household than either high public school spending or private education coupled with low public spending we show that besley and coate s 1997 representative democracy model provides a viable approach to overcome these hurdles we provide a complete characterization of equilibria with an endogenous voucher a voucher is adopted in political equilibrium provided the coefficient of variation of income is sufficiently small we undertake a parallel quantitative analysis and we find that no voucher arises in equilibrium for the u s income distribution which exhibits too much heterogeneity for a tighter income distribution including those in douglas county colorado where a voucher was recently adopted our model predicts a positive voucher public support for a not too large voucher arises because the cross subsidy to public school expenditure from those switching to private schools outweighs the subsidy to those who attend private school in the absence of a voucher

the analytics of the pricing of higher education and other services in which the customers are inputs many services provide outputs that depend partially on the customers as inputs the presence of other customers often contributes to the output experienced by each purchaser higher education is the premier example others are legion we provide a simple model that addresses the questions of competitive pricing and allocative efficiency for these types of services prices that charge customers for what they get on net output minus input from the firm both are competitive and support efficient allocations these prices internalize the apparent external effects of customers on each other few examples of such prices exist in the real world

early decision and financial aid competition among need blind colleges and universities abstract this paper presents a stylized theoretical model of competition among need blind colleges and universities that implement early decision admissions under need blind admissions an applicant s financial aid status cannot affect their likelihood of admission in the model a need blind school can use early decision admissions as a screening mechanism to indirectly identify a student s ability to pay while superficially maintaining a need blind policy as a result in equilibrium non financial aid students are more likely to be admitted than financial aid students of comparable quality

bargaining search and outside options abstract this paper studies a two sided incomplete information bargaining model between a seller and a buyer the buyer has an outside option which is modeled as a sequential search process during which he can choose to return to bargaining at any time two cases are considered in regime i both agents have symmetric information about the search parameters we find that in contrast to bargaining with complete information the option to return to bargaining is not redundant in equilibrium however the no delay result still holds in regime ii where agents have asymmetric information about the outside option delay is possible the solution characterizes the parameters for renegotiation and those for search with no return to the bargaining table

price commitment in search markets abstract this paper studies the formation of pricing rules in search markets at a cost each seller can commit himself to a fixed price if he takes no actions to preclude haggling his sales price is determined through bilateral negotiations with the buyer the selection of pricing rules exhibits strategic complementarities that may give rise to multiple equilibria differences in trading practices across countries and cultures may thus be consistent with equilibrium behavior in bazaar markets where the buyer s cost of switching sellers is relatively low most of the trade is conducted via bargaining and prices are close to the perfectly competitive outcome

religious participation and children s education a social capital approach abstract based on the argument in both economic and sociological literature that religion is conducive to children s human capital formation this paper provides a model of religious participation and explores a mechanism that social capital affects children s education a la coleman coleman j s 1988 social capital in the creation of human capital american journal of sociology 94 s95 s120 the model generates several interesting implications which help explain some important stylized facts about education and religion further in a dynamic setting the model shows that there exists a steady state in which individuals allocate a positive amount of time and resources to religious activities thus it complements the existing literature to explain why seemingly unproductive religions can be everlasting

price and quality competition under adverse selection market organization and efficiency firms compete with prices and qualities in markets where consumers have heterogeneous preferences and cost characteristics consumers demand two goods which can be supplied jointly or separately by firms we consider two strategy regimes for firms uniform price quality pairs and screening price quality menus for each regime we compare the equilibria under integration each firm supplying both goods and separation each firm supplying one good integrating and separating markets change quality efficiency and welfare the theory illustrates phenomena such as the carveout of mental health and substance abuse coverage from general health insurance and creaming for low cost students in locales with school choices copyright 2003 by the rand corporation

competition between private and public schools vouchers and peer group effects a theoretical and computational model with tax financed tuition free public schools and competitive tuition financed private schools is developed students differ by ability and income achievement depends on own ability and on peers abilities equilibrium has a strict hierarchy of school qualities and two dimensional student sorting with stratification by ability and income in private schools high ability low income students receive tuition discounts while low ability high income students pay tuition premia tuition vouchers increase the relative size of the private sector and the extent of student sorting and benefit high ability students relative to low ability students

posted prices versus bargaining in markets with asymmetric information i introduction the spirited bargaining of the bazaar has been the predominant price setting mechanism in most producer and consumer markets in the western world for many centuries whereas the use of posted prices to optimize profits is a relatively recent phenomenon 1 the ascent and eventual widespread use of posted prices began in 1823 2 when alexander stewart introduced posted prices in his new york dry goods store the forerunner of his famed marble dry goods palace 3 originally considered a gimmick the advent of this revolution in retail pricing became evident as his store grew to become the largest in the u s and other famous merchants followed his lead 4 currently both bargaining and posted prices are common means of establishing trading prices the purpose of this paper is to provide a model of pricing institutions consistent with the fact that some markets witness posted prices while others witness bargaining in order to predict when each of these mechanisms will be utilized our modeling begins with a single seller who sequentially encountering potential buyers seeks to sell a good by using one of two pricing mechanisms a posted price or bargaining and a population of consumers who are distinguished by two characteristics each buyer has a private value v for the good and a bargaining ability gamma a buyer s bargaining ability reflects the proportion of the gains from trade he captures when bargaining with the seller these characteristics are distributed independently across the population of consumers according to random variables v and gamma search costs discount factors and the distributions of v and gamma are all common knowledge our assumption that bargaining ability differs across buyers is easily motivated one explanation emanates from buyers possessing different discount factors then by rubinstein s 1982 result more patient buyers exhibit better bargaining ability and acquire a larger share of the gains from trade an alternative and compelling source of bargaining ability is provided by diamond 1987 279 who speaks of the reality of actual markets in which infrequent traders are often ill informed thereby creating an incentive for sellers to find consumers whose beliefs make them willing to trade at high prices similarly stigler 1961 218 19 notes the widely held view that inexperienced buyers tourists pay higher prices than do experienced buyers the relevance of buyer information and experience to the seller s choice of a selling mechanism is underscored by macy s advertisements from the 1850s which stated that prior to the use of posted prices by macy s there was no regular price for anything and the most ignorant were the most imposed upon while with posted prices a child can trade with us as cheap as the shrewdest buyer in the country scull 1967 83 5 other sources of differential bargaining ability include differences in the opportunity cost of failing to reach an agreement the existence of outside opportunities risk aversion willpower and the buyer s intrinsic poker face or ability to conceal the maximum amount he is willing to pay as we shall see the observability or non observability of the buyer s characteristics v and gamma is not important in addition the source of the buyer s bargaining ability gamma is not important what is important is that a buyers differ from one another b there is some reasonable way of determining whether or not trade occurs and how the gains from trade are divided between the seller and a buyer with a given characteristic pair and c the bargaining process differs with different buyers in particular when bargaining with a weak buyer the seller acquires a greater portion of the gains from trade than when bargaining with a strong buyer 6 in our model buyers willing to trade at high prices are characterized by a high private value v and a low bargaining ability gamma

on price taking equilibria in club economies with nonanonymous crowding abstract competitive equilibrium in a coalition production economy or a club economy typically does not exist when there is free entry for two reasons first there may be an integer problem as is familiar from club theory with anonymous crowding second optimal groups may have different compositions from the population and then even if there is no integer problem it may be impossible to partition the population into optimal groups i define a notion of approximate equilibrium and show that such an equilibrium always exists in a sufficiently large economy i focus on the optimal size of the economy rather than of clubs

even up maintaining relationships abstract when are economic interactions mediated by prices and transfers and when are they mediated by variations in the continuation payoffs within a relationship to address this question we examine a relationship between two players who periodically face opportunities to undertake randomly generated projects that impose a cost on one player and a benefit on the other as well as opportunities to make voluntary transfers to one another we characterize the set of equilibria with particular emphasis on the efficient frontier in the absence of transfers incentives are often created by adjusting the continuation values of the relationship sometimes increasing player 1 s continuation payoff to induce player 1 to accept a particularly costly current project and sometimes increasing player 2 s continuation payoff in contrast once transfers enter the picture continuation payoffs maximize the sum of the two players payoffs no matter how asymmetric the point on the pareto frontier under consideration however transfers can also be relatively rare and in particular can occur less often than the adjustments in continuation values that occur without transfers players thus rely on transfers to create incentives but manage to do so while rarely making transfers

relational contracts and the theory of the firm relational contracts informal agreements sustained by the value of future relationships are prevalent within and between firms we develop repeated game models showing why and how relational contracts within firms vertical integration differ from those between nonintegration we show that integration affects the parties temptations to renege on a given relational contract and hence affects the best relational contract the parties can sustain in this sense the integration decision can be an instrument in the service of the parties relationship our approach also has implications for joint ventures alliances and networks and for the role of management within and between firms

centralization fiscal federalism and private school attendance a cge model is used to analyze the impact of public school financing on private school attendance the common perception that public school finance centralization will necessarily lead to greater private school attendance is not correct in such a model even when that centralization involves an extreme equalization as in california furthermore if centralization is less dramatic as in most states declines in private school attendance are even more pronounced this weakens the speculation that low exit rates to private schools in centralizing states imply that general public school quality does not drop as a result of such centralization

the mix of social and private provision of goods and services abstract in some countries health insurance and education are supplied as social goods at near zero prices and funded from taxation this paper analyses a case where such provision competes with income supplements as a redistribution device and where taxes or transferable vouchers influence the take up of the social goods compared to alternatives available in a private market each consumer chooses to consume either social or private goods and a vertical market segmentation results from differential demand for quality

competition incentives and public school productivity abstract when competition increases it is often presumed that public schools will be forced to become more efficient this paper challenges that presumption showing that in well defined circumstances rent seeking public schools find it optimal to reduce productivity when a voucher is introduced this occurs for incentive reasons alone more generally the productivity effects of vouchers are shown to be non uniform varying systematically according to the distribution of households and the form the voucher takes when the voucher is targeted perverse productivity outcomes do not arise the analysis has relevance to the policy issue of voucher design

optimal selling strategies when to haggle when to hold firm a seller encountering risk neutral buyers one at a time should if commitments are feasible quote a single take it or leave it price to each this strategy is superior to any other for finite or infinite buyer populations whether there is learning or the distribution of buyer prices is known at the outset with one object for sale or many although haggling may offer advantages in terms of price discrimination these gains are more than offset by the losses it generates by encouraging buyers to refuse purchases at high prices

let me talk to my manager haggling in a competitive environment although negotiating over prices with sellers is common in many markets such as automobiles furniture services consumer electronics etc it is not clear how a haggling price policy can help a firm gain a strategic advantage or whether it is even sustainable in a competitive market in this paper we explore the implications of haggling and fixed prices as pricing policies in a competitive market we develop a model in which two competing retailers choose between offering either a fixed price or haggling over prices with customers there are two consumer segments in our analysis one segment thehagglers has a lower opportunity cost of time and a lower haggling cost than the other segment thenonhagglers when both retailers follow the same pricing policy then a haggling policy is more profitable than a fixed price policy only when the proportion of nonhagglers is sufficiently high we find two kinds of prisoners dilemma under some conditions a more profitable haggling policy can be broken by a fixed price policy and under other conditions a fixed price policy can be broken by a haggling policy surprisingly we show that under some conditions an asymmetric outcome with one retailer haggling and the other offering a fixed price is also an equilibrium

the wage expectations of european business and economics students expected earnings and expected returns to education are seen by labor economists as a major determinant of educational attainment in spite of this the empirical knowledge about expectations and their formation is scarce in this paper we report the results of the first systematic study of the wage expectations of european university students our data are based on a uniform questionnaire answered by about 3 000 business and economics university students across europe we study the determinants of wage expectations and expected employment probabilities the variability of these expectations and their variation across countries and universities we also examine the tradeoff between expected starting wages and expected wage growth

public goods and the value of product quality regulations the case of food safety abstract the paper examines preferences for product quality regulations our premise is that preferences for product quality regulations derive from preferences for both private and public goods the model is used to explain public attitudes toward a referendum measure to eliminate pesticide residues on food results from a survey of consumers are consistent with the conceptual model and show that preferences for public goods influence support for the product quality regulation the results help explain why consumption behavior is a poor predictor of political behavior and have implications for methods that use voting and market behavior to value public goods

the disciplinary role of takeovers this paper presents a theory of the disciplinary role of takeovers based on an explicit model of managerial incentive problems stemming from asymmetric information it is argued that an informed raider can reduce incentive problems by making managerial compensation more sensitive to information unavailable to shareholders the paper also highlights the importance of specifying the source of contractual inefficiencies when analyzing the effect of takeovers on incentives

the religious factor in private education abstract we quantify the religious factor in private education in the united states by calibrating a political economy model of school choice among public private nonsectarian and subsidized religious schools in which parents differ in their incomes and in their preferences for religious education this shows strong latent demand for religious schooling conditioned on current subsidized tuition levels in parochial schools which is suppressed by the need to pay twice for private education applying the results of the calibration to gauge the effect of means tested school voucher programs on religious and nonsectarian private enrollment we find that when the amount of the voucher is relatively small including subsidized religious schools in such programs is necessary for providing low income families effective access to private education

relational incentive contracts standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced this paper studies the design of self enforced relational contracts i show that optimal contracts often can take a simple stationary form but that self enforcement restricts promised compensation and affects incentive provision with hidden information it may be optimal for an agent to supply the same inefficient effort regardless of cost conditions with moral hazard optimal contracts involve just two levels of compensation this is true even if performance measures are subjective in which case optimal contracts terminate following poor performance jel c73 d82 l14

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

school choice stratification and information on school performance lessons from chile in the early 1980s chile implemented a nationwide school choice system under which the government finances education via a flat per student sub sidy or voucher to the public or private school chosen by a family at present about 94 percent of all schools public religious and secular private are voucher funded more than half of urban schools are private and most of these operate as for profit institutions 1 since the early 1990s chile has also publicized information on school performance and increased per pupil expen diture substantially despite these and other reforms chile has found it challenging to improve students learning outcomes 2 hsieh and urquiola find that the country s rel ative performance in international tests did not change much between 1970 and 1999 3 its performance on the 2000 programme for international student assessment pisa is not only much lower than the oecd average but is similar to that of other latin american countries and low relative to countries with similar income per capita

educational vouchers and cream skimming educational vouchers and cream skimming epple and romano 1998 show equilibrium provision of education by public and private schools has the latter skim off the wealthiest and most able students and universal vouchers lead to further cream skimming here we study voucher design that injects private school competition and increases technical efficiencies without cream skimming conditioning vouchers on student ability without restriction on participating schools policies fails to affect significantly cream skimming however by adding restrictions like tuition constraints such vouchers can reap the benefits of school competition without increased stratification this is accomplished while allowing voluntary participation in the voucher system and without tax increases

cooperative and non cooperative exploitation of the arcto norwegian cod stock a two agent model for the exploitation of the arcto norwegian cod stock is developed to investigate the economic benefits that can be realized from the resource and the effect of exploitation on stock sustainability under cooperation and non cooperation the two agents are identified in this study as a trawl fishery versus a coastal fishery unlike in munro 1979 where conflicts in the management strategies of agents arise from differences in the perceptions of the discount factor fishing effort costs and consumer preferences here conflicts arise mainly from the differences in fishing gear and grounds and the age group of cod targeted by the two agents using a game theoretic framework we show that given available data the optimum optimorum is obtained under cooperation with side payments and no predetermined harvest shares in which case the coastal fishery buys out the trawl fishery however sensitivity analysis shows that if the price premium assumed for mature cod is taken away the trawl fishery takes over as the producer of the optimum optimorum

erratum to competition incentives and public school productivity abstract when competition increases it is often presumed that public schools will be forced to become more efficient this paper challenges that presumption showing that in well defined circumstances rent seeking public schools find it optimal to reduce productivity when a voucher is introduced this occurs for incentive reasons alone more generally the productivity effects of vouchers are shown to be non uniform varying systematically according to household and community characteristics and the form the voucher takes when the voucher is targeted perverse productivity outcomes do not arise the analysis has relevance to the policy issue of voucher design

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

access pricing and competition abstract in many industries electricity telecommunications railways the network can be described as a natural monopoly a central issue is how to combine the necessary regulation of the network with the organization of competition in activities which use the network as an input and are potentially competitive generation of electricity value added services road transportation in this paper we derive access pricing formulas in the framework of an optimal regulation under incomplete information first we study how access pricing formulas take into account the fixed costs of the network and the incentive constraints of the natural monopoly over the network second we examine the difficulties coming from the accounting impossibility to disentangle costs of the network and costs of the monopoly s competitive goods third the analysis is extended to the cases where governmental transfers are prohibited where the competitors have market power and where competitors are not regulated fourth the possibility some consumers bypass the network is taken into account finally the role of access pricing for inducing the best market structure is assessed the conclusion summarizes our results and suggests avenues of further research

collusion under monitoring of sales collusion under imperfect monitoring is explored when firms prices are private information and their quantities are public information such an information structure is consistent with several recent price fixing cartels such as those in lysine and vitamins for a class of symmetric oligopoly games it is shown that symmetric equilibrium punishments cannot sustain any collusion an asymmetric punishment is characterized that does sustain collusion and it has firms whose sales exceed their quotas compensating those firms with sales below their quotas in practice cartels could have performed such transfers through sales among the cartel members

profit maximizing clubs abstract we study a nash equilibrium among profit maximizing clubs which choose facility size and admission price the number of clubs is endogenous entry is deterred whenever the symmetric nash equilibrium with one additional firm would yield negative profit equilibrium exists with positive profit the equilibrium price is higher than the congestion price and the equilibrium number of clubs is bounded below by one fewer than the efficient number in general there will be too much entry than too little one can choose an economy sufficiently large that the equilibrium price is within epsilon of the competitive price

ability tracking school competition and the distribution of educational benefits abstract to study the effects of ability grouping on school competition we develop a theoretical and computational model of tracking in public and private schools we examine tracking s consequences for the allocation of students of differing abilities and income within and between public and private schools private schools tend to attract the most able and wealthiest students and rarely track in equilibrium public sector schools can maximize attendance by tracking students public schools retain a greater proportion of higher ability students by tracking but lose more wealthy lower ability students to the private sector consequently socioeconomic status is a predictor of track assignment in public schools for the entire population public sector tracking has small aggregate effects on achievement and welfare but results in significant redistribution from lower to higher ability students

mobility targeting and private school vouchers simulations are derived from a three district model of low middle and highincome school districts calibrated to new york data with housing stocks that vary within and across districts in this model it is demonstrated that school district targeted vouchers are similar in their impact to nontargeted vouchers but vastly different from vouchers targeted to low income households furthermore strong migration effects are shown to significantly improve the likely equity consequences of voucher programs jel 122 128 h73 persistent frustration with the perceived low quality of public education exacerbated by concerns over the inherently unequal levels of public school quality across school districts has caused policy makers courts and researchers to investigate modifications and alternatives to the current public school system one idea that has received increasing academic and public attention is that of private school vouchers with proponents arguing that the competitive pressures of voucher programs would cause improvements in the efficiency of the publicschool system while at the same time addressing equity concerns if vouchers can be targeted to low income households or low income school districts but aside from a few limited experiments in some u s cities our experience with vouchers in the united states remains virtually nonexistent this limits the amount of information researchers can derive from standard empirical analysis in that it forces them to rely on only current nonvoucher induced differences in competition despite important suggestive results such work may not anticipate all the impacts from a large scale policy such as the voucher policies currently under discussion at the same time theoretical models of school finance are also limited in that they often either focus on only one particular aspect of the general equilibrium school finance problem or they are too rich and complex to yield crisp predictions

education choice endogenous growth and income distribution this paper studies an economy where parents can choose between public or private schools and can vote on taxes used to fund public schools the model is calibrated to us data and studied using simulations a bimodal income distribution emerges where public education students converge to a low income equilibrium while private education students experience endogenous growth with higher incomes however public education students experience long run growth through a spillover from private education students possible problems with the existence of a private alternative to pubic education such as the emergence of a education based class structure are identified

participation constraints in adverse selection models abstract this paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter s reservation utility depends on his type the informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade the paper identifies conditions for the optimal contract to be separating to be nonstochastic and to induce full participation it also discusses the nature of the solution when bunching occurs the results are applied to nonlinear pricing under price cap regulation and bypass competition and to competition in nonlinear pricing journal of economic literature classification numbers d82 d42 d23 d78 l51 l15

ends against the middle determining public service provision when there are private alternatives abstract public provision of a service coexists with private market provision the quality of public provision is determined by majority vote preferences are not single peaked owing to the presence of private alternatives we identify two cases in one majority voting equilibrium always exists and the median income voter is pivotal in the other a necessary condition for equilibrium indentifies the pivotal voter who must have income below the median when equilibrium exists a coalition of middle income households who consume the public alternative will be opposed by a coalition of rich and poor households with the rich choosing private consumption

school vouchers a survey of the economics literature we review the theoretical computational and empirical research on school vouchers with a focus on the latter our assessment is that the evidence to date is not sufficient to warrant recommending that vouchers be adopted on a widespread basis however multiple positive findings support continued exploration specifically the empirical research on small scale programs does not suggest that awarding students a voucher is a systematically reliable way to improve educational outcomes and some detrimental effects have been found nevertheless in some settings or for some subgroups or outcomes vouchers can have a substantial positive effect on those who use them studies of large scale voucher programs find student sorting as a result of their implementation although of varying magnitude evidence on both small scale and large scale programs suggests that competition induced by vouchers leads public schools to improve moreover research is making progress on understanding how vouchers may be designed to limit adverse effects from sorting while preserving positive effects related to competition finally our sense is that work originating in a single case e g a given country or in a single research approach e g experimental designs will not provide a full understanding of voucher effects fairly wide ranging empirical and theoretical work will be necessary to make progress

labor market integration investment in risky human capital and fiscal competition this paper presents a general equilibrium model where human capital investment increases specialization and exposes skilled workers to region specific earnings risk interjurisdictional mobility of skilled labor mitigates these risks state contingent migration of skilled labor also improves efficiency with perfect capital markets labor market integration raises welfare and reduces ex post earnings inequality if instead human capital investment can only be financed through local taxes labor market integration leads to interjurisdictional fiscal competition shifting the burden of taxation to low skilled immobile workers decentralized public provision of human capital investment creates earnings inequalities and is inefficient

tirole s industrial regulation and organization legacy in economics jean tirole was awarded the 2014 sveriges riksbank prize in economic sciences in memory of alfred nobel for his analysis of market power and regulation this paper provides an overview of some of that work and of his related contributions to game theory

capitalization and the voucher an analysis of precinct returns from california s proposition 174 abstract in 1993 californians voted on a school voucher initiative we hypothesize that homeowners in good school districts understood the voucher to be a threat to their property values and thus voted against it precinct returns from los angeles county confirm this hypothesis we also examine an alternative hypothesis explaining the relationship between school quality and precinct returns according to the alternative voters perceived the initiative to be a referendum on public school quality to distinguish between the two hypotheses we compare the voting patterns of homeowners and renters the comparison does not favor one hypothesis over the other

are two a good representative for many abstract this paper studies a discrete formulation of the screening model with type dependent reservation utilities it closes the gap between various pooling results derived in continuous type models and the separating results obtained for the binary case we show that binary models do not capture the most interesting features of general models with countervailing incentives however as soon as at least three types are introduced all interesting results of the continuum case can be replicated in a discrete framework two kinds of pooling can appear in the three type model overtake pooling which can be ruled out by standard monotonicity conditions and crash pooling which is really a consequence of countervailing incentives journal of economic literature classification numbers c72 d82

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

coexistence of public and private job agencies screening with heterogeneous institutions in response to the analysis of bureaucracies and the finding of inherent inefficiencies public choice theory argues for an increase in competition by contracting out government services and deregulation the paper explores the effect of coexisting public and private employment services in a model with private information of the worker about her ability and unobservable effort choice the employer s use of an efficient unemployment exchange and an efficient private agency may lead to optimal screening with first best contracts this is due to the assumption that good types of workers lose more human capital than bad types in periods of unemployment or mismatch in contrast to standard screening contracts a bad type of worker earns an information rent if the employment exchange is inefficient but the employer chooses not to use the private agency for good types

educational vouchers welfare effects and voting abstract we analyze the welfare effects and voting equilibrium with vouchers for private schools the analysis shows that vouchers like tuition tax credits martinello and west 1988 frey 1983 may improve the welfare of all families including families whose children remain in public schools if public educational quality is unchanged and publicly financed educational expenditures decrease thus voters will approve a voucher only if it reduces taxes when public educational quality is endogenous a voucher may increase quality by reducing the tax cost of quality and will be approved if it reduce taxes at the pre voucher public education level and increases quality

optimal bypass and cream skimming this paper develops a normative model of regulatory policy toward bypass and cream skimming it analyzes the effects of bypass on second degree price discrimination on the rent of the regulated firm and on the welfare of low demand customers it shows that pricing under marginal cost may be optimal for the regulated firm excessive cream skimming occurs if access to the bypass technology is not regulated and the prohibition of bypass may increase or decrease the regulated firm s rent jel 026 613 the regulation of natural monopolies is often associated with policies toward competition including restrictions on entry this paper is concerned with a common form of competition which threatens the regulated firm on its most lucrative markets examples abound in the telecommunications industry the development of microwave radio and communication satellites in the 1960 s introduced the possibility that big telecommunication customers might bypass the major common carrier att and the 1978 natural gas policy act in the united states has created the possibility for industrial plants to bypass the local distribution utilities by building direct connections to the pipelines gas producers or intermediaries

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

regulation competition and asymmetric information abstract this article studies a model of regulation under asymmetric information when there exists a competitive fringe of unregulated alternative producers the correlation between the unknown cost parameters of the fringe and of the regulated firm allows the regulator to use the threat of entry by the fringe to reduce the informational cost of regulation the presence of the fringe is welfare enhancing the allocative distortions can be larger or smaller than those in the no fringe case and the optimal contract sometimes allows inefficient entry the optimal contract can exhibit non standard bunching phenomena and discontinuities

an incentive scheme of a non linear price schedule for regulating a monopolist with unknown cost abstract we construct a non linear price schedule that serves as an incentive tool under doubly asymmetric information where the regulator has incomplete information about a monopolist s cost parameter while the monopolist cannot identify consumer types

urban economic theory land use and city size this book examines the economic reasons why people choose to live where they live and develops through analysis of the bid rent function a unified theory of urban land use and city size the first part of the book explicates the basic theory of urban land use and optimal city size residential location behavior of households is examined in a microeconomic framework and equilibrium and optimal patterns of residential land use are discussed the corresponding equilibrium and optimal city sizes are studied in a variety of contexts part two extends the classical theories of von thunen and alonso with the addition of externality factors such as local public goods crowding and congestion and racial prejudice the rigorous mathematical approach and theoretical treatment of the material make urban economic theory of interest to researchers in urban economics location theory urban geography and urban planning

the productivity of schools and other local public goods producers abstract i construct an agency model of local public goods producers in which households make tiebout choices among jurisdictions in a world of imperfect information and costly residential mobility i examine producers effort and rent under local property tax finance and centralized finance i show that if there are a sufficient number of jurisdictions conventional local property tax finance can attain about as much productivity as a social planner with centralized finance can even if the social planner is armed with more information than a real social planner could plausibly have the key insight is that decentralized tiebout choices make some information the social planner would need verifiable and other information unnecessary

equilibrium and inefficiency in a community model with peer group effects public service output depends on input expenditures on own personal characteristics and on the characteristics of the other residents in the community the peer group effect in a community model with public expenditures set by voting with migration between communities and with land price differentials capitalization it is shown that communities may become heterogeneous in composition and second best inefficient this equilibrium occurs when the peer group effect is neither too strong nor too weak the inefficiency arises because an externality is created by migration the land price differential does not play the part of the price of the better peer group but of a transfer payment

the political economy of school choice linking theory and evidence abstract we derive an improved methodology for linking theoretical parameters of a political economy model of school choice to empirical values estimated by regressing local private enrollment shares on mean income the median to mean ratio religious and ethnic composition and other variables this leads us to reject the commonly maintained assumption that a coalition of ends against the middle determines local school funding and to conclude instead that the median income voter is decisive it also allows us to estimate the perceived relative efficiency advantage of private schooling which we find to be about 30 at the margin

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

optimality and sustainability regulation and intermodal competition in telecommunications as regulators continue to open utility markets to entry new market contestants may specialize in providing service for the utility s largest customers consequently old utility pricing procedures may no longer be sustainable taking telecommunications regulation as an example this article develops optimal pricing strategies for utilities that have large customers who have other attractive service options i demonstrate that under an optimal nonuniform price schedule utilities can legitimately price high level usage below its associated marginal usage cost furthermore customers will make economically efficient choices when deciding whether to forego utility service

pollution permits and compliance strategies abstract this paper analyzes the impact of spot and futures markets for tradeable pollution permits on the potential polluters compliance decisions polluters can buy permits invest in pollution abatement or else stop production or source out we show that stand alone spot markets induce excessive investment the introduction of a futures market reduces this incentive to invest but is not the optimal way to control pollution a menu of options on pollution rights possibly coupled with intertemporally bundled sales yields higher welfare because of its focus on long run demand elasticities and rent extraction this paper can be applied to a variety of situations such as demand side management public transportation bypass in telecommunications or forward sales by a private monopolist

finishing high school and starting college do catholic schools make a difference in this paper we consider two measures of the relative effectiveness of public and catholic schools finishing high school and starting college these measures are potentially more important indicators of school quality than standardized test scores in light of the economic consequences of obtaining more education single equation estimates suggest that for the typical student attending a catholic high school raises the probability of finishing high school or entering a four year college by thirteen percentage points in bivariate probit models we find almost no evidence that our single equation estimates are subject to selection bias

price discrimination in input markets we analyze the short and long run implications of third degree price discrimination in input markets in contrast to the extant literature which typically assumes that the supplier is an unconstrained monopolist in our model input prices are constrained by the threat of demand side substitution in our model the more efficient buyer receives a discount a ban on price discrimination thus benefits smaller but hurts more efficient larger firms it also stifles incentives to invest and innovate with linear demand a ban on price discrimination benefits consumers in the short run but reduces consumer surplus in the long run which is once again the opposite of what is found without the threat of demand side substitution

infinitely repeated games with public monitoring and monetary transfers this paper studies infinitely repeated games with imperfect public monitoring and the possibility of monetary transfers it is shown that all public perfect equilibrium payoffs can be implemented with a simple class of stationary equilibria that use stick and carrot punishments a fast algorithm is developed that exactly computes the set of pure strategies equilibrium payoffs for all discount factors

relational incentives and moral hazard in teams this paper studies moral hazard in teams using a model where efforts are promoted via the combination of profit shares and relational contracts the focus is on how these two forms of incentives interact according to the degree of effort observability and the importance of future interaction the optimal allocation of profit shares can range from a wide dispersion across players to a full concentration of shares in the hands of a single player when shares are sufficiently concentrated the corresponding residual claimant can also adopt the role of administering all relational contracts therefore serving as an endogenously chosen principal copyright 2007 wiley blackwell

believing in economic theories sex lies evidence trust and ideology i introduction beliefs about the descriptive validity of economic theories may influence preferences among economic policies if so these beliefs may shape and constrain economic institutions and policies in democracies we examine how beliefs about the descriptive validity of supply and demand theory respond to evidence and how these beliefs are related to individual attitudes and demographic characteristics with a strong focus on the potential role played by ideology political economists usually view heterogeneity of policy preferences as mostly reflecting heterogeneity of values interests or goals a large interdisciplinary debate continues about the relative importance of diverse self interests and public spirited goals in explaining political outcomes but the potential role played by diversity of positive beliefs has received relatively little attention preferences under uncertainty are typically decomposed into values utilities of outcomes and beliefs about the likelihoods of outcomes suggesting that heterogeneity of policy preferences may derive as much from differences in beliefs about how the economic world functions as from differences in interests such descriptive beliefs frequently differ sharply from those of economists slembeck 2003 for instance blendon et al 1997 reported that only 28 of the us public think price increases are mainly due to the laws of supply and demand and nearly three fourths of the public believed that the increase in gasoline prices in 1996 was due more to the oil companies trying to increase profits than to supply and demand while 85 of economists believed that supply and demand explained the price increase the recurring significance of ideology or proxies for it in empirical studies of political outcomes provides one reason to take this idea seriously rubin 2001 concluded that while electoral constraints based on voter interests limit politicians behavior factors measuring ideology have large power in explaining congressional voting ideology could reflect self interest but other explanations are possible from the perspective of bounded rationality people might use ideology heuristically to evaluate descriptive claims when evidence is scant or hard to evaluate from a game theoretic perspective people may regard descriptive claims made by others with ideologies different from their own as manipulation attempts and hence may discount them particularly in the long run causality may run the other way around revisions of descriptive beliefs about the workings of the economic world may bring about changes in ideology we address some of these matters below and discuss others in our conclusions romer 2003 p 29 offered a theoretical account of how diverse but correlated beliefs can lead to inefficient policy outcomes even when interests do not vary and concluded that t he research program suggested by this paper is that of bringing ideology back into the analysis of politics there may be a great deal to be learned if we do not presume that ideology is just a mask for individuals well informed pursuit of their self interest but instead consider the possibility that it often reflects individuals beliefs and that these beliefs often influence their actions our results here provide some evidence supporting this view we understand of course that the student respondents we examine in this study are a narrowly selected subset of any polity 1 bearing this in mind perhaps it is best to view our work as illustrating an approach to exploring the relationship between ideology and descriptive belief still more broadly we freely combine econometric and experimental methods of economics with survey measurement tools borrowed from political and social psychology our work here may also be regarded as an applied introduction to some of the latter tools

on the pacific salmon treaty this article studies the optimal design of the pacific salmon treaty which was signed by the usa and canada in 1999 to share salmon on the pacific coast moral hazard exists because countries may steal from each other if a country s observed output is suspiciously too high the treaty either reduces the country s future share or asks the country to make a monetary transfer to its opponent a calibrated version of our model shows that it is optimal for the usa to pay canada 328 93 million every 30 78 years switching to the optimal contract improves the total welfare by 1 55

countervailing incentives in agency problems abstract we analyze countervailing incentives in agency problem countervailing incentives exist when the agent has an incentive to understate his private information for some of its realizations and to overstate it for others when countervailing incentives arise pooling generally characterizes the equilibrium contract furthermore performance is distorted both above and below efficient levels in addition the agent s rents generally increase with the realization of his private information over some ranges and decrease over other ranges we demonstate that the creation of countervailing incentives can enhance aggregate welfare

quantitative asset pricing implications of endogenous solvency constraints we study the asset pricing implications of an economy where solvency constraints are endogenously determined to deter agents from defaulting while allowing as much risk sharing as possible we solve analytically for efficient allocations and for the corresponding asset prices portfolio holdings and solvency constraints for a simple example then we calibrate a more general model to u s aggregate as well as idiosyncratic income processes we find equity premia risk premia for long term bonds and sharpe ratios of magnitudes similar to the u s data for low risk aversion and a low time discount factor article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

trade tragedy and the commons we develop a theory of resource management where the degree to which coun tries escape the tragedy of the commons and hence the de facto property rights regime is endogenously determined three forces determine success or failure in resource management the regulator s enforcement power the extent of har vesting capacity and the ability of the resource to generate competitive returns without being extinguished the model can explain heterogeneity across coun tries and resources in the effectiveness of resource management and it predicts that changes in prices population and technology can cause transitions to better or worse management regimes jel p14 q21 q22 q23 q32 many of the world s major renewable resource stocks are in a state of decline this is true for capture fisheries for forests in developing countries and for many measures of the biosphere s health other renewable resources including many species of wildlife marine mammals and coral reefs are also under threat while poverty and government corruption are surely respon sible for some of this record particular emphasis is often placed on the potentially damaging role played by international trade this emphasis is not surprising given that natural resource products are a key export for much of the developing world and property rights over renewable resources are both difficult to define and poorly enforced but property rights are not an immutable country characteristic such as weather mineral deposits or topography they are instead market institutions developed to facilitate transactions and protect scarce resources consequently changes in prices technology and other effects of market integration may alter the de facto property rights regime and lead to impacts quite dif ferent from those predicted by existing analyses the purpose of this paper is to examine renew able resource use within a framework where the enforcement of property rights and hence the efficacy of resource management is endogenously determined we develop a theory where an existing government regulates the use of a renewable resource by a set of agents who have a right to harvest the resource could be a fishery forest stock aquifer etc and we assume it is local and therefore contained within one country the govern ment sets rules limiting harvests but agents may cheat on these allocations and risk punishment property rights are endogenous in this framework because the government must account for agents incentive to cheat as a result the effective protection for the resource or what we refer to as the de facto property rights regime may be far from perfect even though property rights would be perfectly enforced if there was no monitoring problem

to bargain or not to bargain the role of fixed costs in price negotiations abstract retailers routinely allow consumers to negotiate a discount off the posted price especially for big ticket items such as home appliances furniture automobiles and real estate as well as on online platforms such as amazon ebay and alibaba the profitability of such a strategy relative to selling only at posted prices depends on consumers willingness to initiate a negotiation and ability to negotiate a discount in this paper we incorporate a consumers decision of whether or not to negotiate into a demand model the decision to negotiate hinges on how the expected discount from negotiation compares to the magnitude of a non pecuniary cost that the consumer incurs by initiating the negotiation this cost has implications for consumer demand and firm profitability the current study shows how this cost can be non parametrically identified separately from consumers ability to get a discount and marginal utility of income the application of this model to individual level data on refrigera

optimal contracting in networks abstract we study optimal contracting between a firm selling a divisible good that exhibits positive externality and a group of agents in a social network the extent of externality that each agent receives from the consumption of neighboring agents is privately held and is unknown to the firm by explicitly characterizing the optimal multilateral contract we demonstrate how inefficiency in an agent s trade propagates through the network and creates unequal and network dependent downward distortion in other agents trades furthermore we describe bilateral contracts non linear pricing schemes and characterize their explicit dependence on the network structure we show that the firm will benefit from uncertainty in an agent s valuation of other agents externality we describe the profit gap between multilateral and bilateral contracts and analyze the consequences of the explicit dependence of the contracts on network structure when the network is balanced in terms of homogeneity of agents influence network structure has no impact on the firm s profit for bilateral contracts on the other hand when the influences are heterogeneous with high dispersion as in core periphery networks the restriction to bilateral contracts can result in profit losses that grow unbounded with the size of networks

the impact of bargaining on markets with price takers too many bargainers spoil the broth in this paper we study how bargainers impact on markets in which firms set a list price to sell to those consumers who take prices as given the list price acts as an outside option for the bargainers so the higher the list price the more the firms can extract from bargainers we find that an increase in the proportion of consumers seeking to bargain can lower consumer surplus overall even though new bargainers receive a lower price the reason is that the list price for those who do not bargain and the bargained prices for those who were already bargaining rise sellers have a greater incentive to make the bargainers outside option less attractive reducing the incentive to compete for price takers competition authority exhortations to bargain can therefore be misplaced we also consider the implications for optimal seller bargaining

posted pricing vs bargaining in sequential selling process we study the role of bargaining in a firm s sequential selling process the seller firm under consideration sequentially sells a fixed amount of stock to a random arrival stream of potential buyers who are heterogeneous in product valuation based on the stock level and the time to the end of the selling season the seller may dynamically choose either to post a take it or leave it price or to engage in bargaining with an arriving buyer we introduce a stochastic order called the scaled pricing order for the buyer s valuation distribution the scaled pricing order measures the average portion of trade surplus that the seller can obtain by posting a price for distributions with increasing length biased hazard rate checking the property of increasing decreasing scaled pricing order boils down to verifying the concavity convexity of the mills ratio we fully characterize the family of distributions that are invariant in the scaled pricing order which includes uniform and exponential distributions

the melting pot and school choice abstract in the united states parents are offered free public education in the mainstream culture but must pay the full cost of tuition if they educate their children privately this creates strong economic incentives for remaining within the public system which promotes the assimilation of minorities a pareto improvement can be achieved by subsidizing private education in exchange for modifying its social content so as to reduce polarization popular opposition to voucher programs that facilitate school choice without regulating cultural content may partly reflect voters concerns that such programs threaten to erode the common ground created by public education

location and education in south african cities under and after apartheid we model a south african city during apartheid in which both schooling and mobility are restricted on the basis of race and after apartheid in which no restrictions are imposed we first show that the inequality between blacks and whites decreases when apartheid laws are removed indeed blacks are better off because of human capital externalities due to the possibility of mixing with white students whereas whites are worse off due to negative human capital externalities and intensified land market competition after apartheid we also show that reducing the commuting costs of black children always increases the utility of black families and may even increase that of whites

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association

bargaining versus posted price selling abstract two popular selling methods bargaining and posted price selling are compared here in a dynamic model when bargaining costs no more than posted price selling we find that bargaining is always optimal when bargaining costs more however bargaining is still preferred if and only if the common cost for both selling methods is large enough we also find that an increase in the discount rate or the seller s bargaining power favors bargaining finally we find that if the distribution becomes more dispersed and the increase in a buyer s valuation is sufficiently large bargaining is more likely to be adopted