optimum discriminatory tariffs under oligopolistic competition this paper attempts to present a simple cournot model to determine the optimal discriminatory tariff rates when the international market is a homogeneous heterogeneous product market in the model there are two foreign firms located in two different countries competing for sales in a local market when the firms sell a homogeneous product and the home country can impose differential tariffs on imports from different countries then the tariff on the low cost producer should be hgher in particular with constant marginal costs the tariff difference should equal half the cost difference on the other hand if the firms sell differentiated products with symmetric linear demands and technologies then the weaker the degree of product differentiation the greater is the tariff difference compared with the cost difference

domestic export subsidy and foreign welfare abstract in this paper we present an analysis based on imperfect competition to examine the conditions under which an export subsidy of the domestic country will not only increase its own welfare but also raise the welfare of the importing country and hence the world as a whole under these conditions it is then suggested that relaxation of gatt restrictions on export subsidies might be feasible to some extent

reform of the coal sector in an open economy the case of china cheap abundant and easy to transport and store coal has been produced and consumed to meet people s energy needs the last decade s growth in global coal use has been driven mainly by developing economies like china whose phenomenal economic growth has been powered by coal fired electricity and promoted by the export of manufactured goods a recent reform focus in china s coal sector is on coal taxation the paper develops a game theoretic model tailored to the context of china where coal taxation reform takes place against the background of privatisation of coal firms and an open economy it finds that the adoption of special coal taxes is optimal for social welfare under most circumstances but may induce coal firms to commit opportunistic behaviour in the process of privatisation the paper also cautions about potential resistance to the reform from consumers coal firms and government officials

r d policies trade and process innovation we set up a simple trade model with two countries hosting one firm each the firms invest in cost reducing r d and each government may grant r d subsidies to the domestic firm we show that it is optimal for a government to provide higher r d subsidies the lower the level of trade costs even if the firms are independent monopolies if firms produce imperfect substitutes policy competition may become so fierce that only one of the firms survives international policy harmonization eliminates policy competition and ensures a symmetric outcome however it is shown that harmonization is not necessarily welfare maximizing the optimal coordinated policies may imply an asymmetric outcome with r d subsidies to only one of the firms

golden parachutes shark repellents and hostile tender offers a common view of golden parachutes and shark repellents is that they are designed by management to insulate itself from the discipline imposed by the market for corporate control and so are harmful to shareholders this paper offers an alternative view that these devicesare beneficial to shareholders because they allow better contracting between manager and shareholders evidence on the incidence of goldenparachutes and on the compensation tenure relationship for managers of golden parachute firms supports the alternative view copyright 1986 by american economic association

antidumping protection and r d competition in recent years antidumping protection has spread throughout the world evidence shows that antidumping often targets r d intensive sectors raising a con cern that it may adversely affect worldwide investments in r d we investigate this issue in a model of reciprocal dumping extended to a two stage game in which two firms first choose r d levels and then compete in prices we find that when a single government institutes antidumping law the protected firm decreases investment in r d while the constrained firm invests more when both governments engage in antidumping actions both firms invest more in r d than under free trade jel classification f12 f13

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

strategic trade and industrial policy towards dynamic oligopolies we characterise optimal trade and industrial policy in dynamic oligopolistic markets if governments can commit to future policies optimal first period intervention should diverge from the profit shifting benchmark to an extent which exactly offsets the strategic behaviour implied by fudenberg and tirole s animal spirits taxonomy of business strategies without government commitment there is an additional basis for intervention whose sign depends on the strategic substitutability between future policy and current actions we consider a variety of applications to rd spillovers consumer switching costs etc and also extensions to constrained second best policies

trade and trade policy with imperfect competition the case of identical products and free entry abstract this paper analyses intra industry trade between economies containing an imperfectly competitive industry in which firms produce a homogeneous output production is subject to increasing returns to scale and there is free entry and exit of firms trade is shown to unambiguously increase welfare by reducing the degree of monopoly in each market and increasing firm size the effects of differences in technology and endowments on the pattern of trade and welfare are examined import tariffs are shown to raise welfare in the country employing the tariff and the welfare implications of various types of industry subsidy are examined

eco dumping capital mobility and international trade a small open economy s optimal environmental policy is studied in a model with international capital mobility and local pollution the country produces traded as well as non traded goods is it in the country s interest to engage in ecological dumping by choosing generous pollution allowances for the traded good sector the answer depends decisively on the policy regime in use dumping is not optimal if the country ensures that the implicit rent on pollution is completely appropriated within the country however if the implicit factor reward on pollution leaves the country because it accrues to foreign owners of mobile capital the local welfare maximizing government tends to discriminate against the traded good sector the opposite of ecological dumping

the determinants of spanish industrial exports to the european union this paper investigates the determinants of trends in spain s industrial exports to the other european union countries by using a sectoral panel data approach the results show that price elasticities of export demand differ widely among sectors they also provide support to the idea that non price factors have a significant influence on international competitiveness in particular they show that technological and advertising effort have a significant effect not only on the evolution of exports but also on price elasticity

strategic trade policy with endogenous choice of quality and asymmetric costs abstract this paper examines strategic trade and joint welfare maximizing incentives towards investment in the quality of exports by an ldc and a developed country firms first compete in qualities and then export to an imperfectly competitive third country market under bertrand competition unilateral policy involves an investment subsidy by the low quality ldc and an investment tax by the developed country whereas jointly optimal policy calls for the reverse so as to reduce price competition by increasing product differentiation under cournot competition unilateral policy is also reversed from the bertrand outcome but jointly optimal policy involves a tax in both countries

export subsidies as signals of competitiveness in a cournot duopoly model of international competition between a domestic and foreign firm it is shown that when the foreign firm has incomplete information about the marginal cost of the domestic firm then the domestic government can use an export subsidy to signal the competitiveness of its firm this signalling effect strengthens the usual profit shifting argument for an export subsidy the optimal export subsidy in the signalling equilibrium may be twice as large as the optimal profit shifting export subsidy under complete information

high tech and productivity evidence from israeli industrial firms abstract the main purpose of this study is to characterize and analyze high technology industrial firms a technology index is constructed and used to classify firms the largest concentration of hightech firms is israel is found in electronics and transport equipment industries and the lowest in textiles and clothing high tech firms appear to be more productive more export oriented pay higher wages and earn higher rates of return than low tech firms the fact that high tech firms in israel are export oriented is shown to be consistent with the international trade theories of comparative advantage and strategic rent seeking

the role of promotion in inducing specific human capital acquisition workers routinely carry out activities that increase their productivity with their current employer for which they are not directly compensated for example a worker may be asked to develop relationships with clients or shop floor staff or he may develop a better understanding of how his firm operates firmspecific human capital of this type is difficult to quantify so that it is likely to be difficult to directly compensate the worker for its acquisition this paper is concerned with designing compensation schemes for employees to induce them to collect nonverifiable firm specific human capital if firms develop reputations for fairly compensating workers for skill collection the vagueness of these skills may not provide a significant incentive problem i consider the case where firms do not have the opportunity to develop reputations as a result the acquisition of human capital is subject to a dual moral hazard problem first noted in kahn and huberman 1988 first a worker only collects skills if there is a promise of a higher wage if he does so second the employer has an incentive to claim that the worker has not collected these skills even when he in fact has in order to save on wage costs so on the one hand it is difficult to repay the worker after skills are collected as the firm has an incentive to renege however the worker cannot be repaid before collecting skills as he has no subsequent incentive to collect them following the institutional literature i assume that the firm can commit to a labor contract which attaches wages to different tasks the principal purpose of the paper is to show that the firm can use this ability to commit to a wage scale for different tasks to induce a worker to collect firm specific human capital in the presence of this dual moral hazard problem where the worker is rewarded for skill acquisition by promotion to another job assume that a worker can be assigned to one of two jobs d and

research and development voluntary export restriction and tariffs abstract the effect of trade policy on domestic research development r d in oligopolistic markets is shown to depend on the nature of policy instruments tariffs or non tariff barriers when the r d investment has uncertain consequences on marginal cost a voluntary export restriction ver decreases innovation by the domestic firm as compared to the free trade level this result holds both under cournot and bertrand competition a tariff increases r d investment it is a new rationale for southern firms to prefer ver as a policy instrument besides the well known argument that it facilitates collusion

import share under international oligopoly with differentiated products japanese imports in u s manufacturing this paper seeks to identify the determinants of the japanese impor t share in the u s market from the assumptions of international oligopoly and internationally differentiated products a theoretical model is developed where import share is considered as a cournot nash equilibrium the relative position of the reaction functions is determined by the previous commitments of both domestic and foreign firms on advertising r d and tangible investment as well as by artificial and natural trade barriers using a sample of twenty four three digit import competing u s industries matched to japanese industries the empirical analysis provides evidence supporting the model s predictions that the relative strategic expenditures and market structures of both partners explain the japanese import share in u s markets copyright 1988 by mit press

the control of export credit subsidies and its welfare consequences a two stage bertrand duopoly model demonstrates how the sequence of firm and government actions can explain the origins of export credit subsidies and can affect the welfare consequences of international agreements to adopt subsidy rate ceilings firms act first by stating prices in applications for export credit and can induce positive subsidies by inflating the prices the subsidies transfer rents from governments to firms without changing welfare defined as profits less subsidy expenditures governments become the first to act by adopting subsidy rate ceilings that bind ceilings cause firms to lower prices such that if a positive ceiling binds welfare falls

comparative advantage and the pursuit of strategic trade policy in the brander and spencer model j int econ 18 1985 83 100 it is shown that the absolute value of the export subsidy tax given by the country with low cost firm is larger than that given by the country with the high cost firm

optimal export subsidies and marginal cost differentials abstract this paper examines the relationship between the difference in optimal subsidies and that in marginal costs for different exporting countries it shows that this relationship crucially depends upon the concavity of the market demand curve this result provides policy makers with useful information when implementing trade policies

ceo replacement under private information this article examines the optimal ceo compensation and replacement policy when the ceo is privately informed about the firm s continuation value under his leadership ex ante moral hazard implies that the ceo must receive ex post quasi rents which endogenously biases him toward continuation our model shows that to induce bad ceos to quit it may be best to make continuation costly through steep incentive pay rather than simply rewarding quitting through severance pay incentive pay makes continuation attractive for good ceos who can expect high future on the job pay but unattractive for bad ceos who may instead prefer to take their outside option payoff our model generates novel empirical implications that jointly relate ceo compensation and turnover to corporate governance firm size cash flow risk and the informativeness of performance measurement jel g34

electricity and natural gas interdependency comparison of two methodologies for coupling large market models within the european regulatory framework power generation growth based on natural gas fired power plants ngfpps has lead to increasing interactions between electric power and natural gas industries more companies are progressively and simultaneously participating as big players in both markets however each company has traditionally been settled in one side holding a particular competitive advantage electric power generation companies mainly know how to operate their generation assets whereas gas companies mainly know how to manage their gas supply contracts and make use of often regulated gas assets multi product energy companies have even created independent departments which decisions are usually taken uncoordinatedly in any case companies or departments usually support their decision making process in mathematical tools which represent each market with detail this paper presents two methodologies for coupling two interdependent electricity and gas market models formulated as optimization problems each methodology fulfills different department wishes the electricity perspective methodology maximizes electricity market profits after calculating equivalent gas contracts with the gas market model in contrast the gas perspective methodology minimizes gas operation costs after obtaining the relationship between the marginal revenue and the gas consumption with the electricity market model this coordinated solution would allow companies to obtain synergies resulting in a competitive advantage over other companies that operate uncoordinatedly in both markets

trade policy with several goods and market linkages abstract in this paper we demonstrate a substantial role for trade policy in a competitive model finding that a an export subsidy may benefit the exporting country b a voluntary export restraint may benefit the importing country and c a countervailing duty may benefit the importing country even if it has no effect on the foreign price of that good these results are in sharp contrast to the conventional wisdom from two good or partial equilibrium models and are derived in a framework of several goods the pattern of substitution and complementarity across goods or market linkages determines the role for trade policy

export subsidies under dynamic duopoly abstract in this paper i analyze an export subsidy game under a dynamic cournot duopoly using a discrete time markov equilibrium model of dynamic cournot duoply according to maskin and tirole 1987 assuming a linear demand function i will show that under a dynamic duopoly 1 firms are more sensitive to changes in export subsidies 2 the equilibrium export subsidy in an export subsidy game is smaller 3 the output at the subsidy equilibrium is larger than a static duopoly with lower subsidy and higher output the welfare in countries under a dynamic duopoly is higher than a static duopoly

industrial targeting experimentation and long run specialization abstract this paper emphasizes the experimental nature of industrial targeting policies under uncertainty in a small open economy a government promotes entry of new firms in selected industries and updates its beliefs about the country s comparative advantage in a bayesian way this selective targeting policy is analyzed in the framework of a special type of statistical decision problem known as the multi armed bandit the paper analyzes how the costs and benefits of learning about a country s comparative advantage depend on the characteristics of the targeted industries the framework suggests that even an optimally designed industrial targeting policy may eventually steer the country away from specializing according to its true comparative advantage

finding multiple nash equilibria in pool based markets a stochastic epec approach we present a compact formulation to find all pure nash equilibria in a pool based electricity market with stochastic demands the equilibrium model is formulated as a stochastic equilibrium problem subject to equilibrium constraints epec the problem is based on a stackelberg game where the generating companies gencos optimize their strategic bids anticipating the solution of the independent system operator iso market clearing a finite strategy approach both in prices and quantities is applied to transform the nonlinear and nonconvex set of nash inequalities into a mixed integer linear problem milp a procedure to find all nash equilibria is developed by generating holes that are added as linear constraints to the feasibility region the result of the problem is the set of all pure nash equilibria and the market clearing prices and assigned energies by the iso a case study illustrates the methodology and proper conclusions are reached

policy rivalry among industrial states what can we learn from models of strategic trade policy the economic theory of international trade has changed dramatically over the last decade by admitting into its mainstream a body of literature that focuses on the implications of monopolistic and oligopolistic elements in international markets by applying the tools of the new industrial organization in an international context two new classes of models have emerged models of intra industry trade and models of strategic trade policy the policy implications of models of strategic trade policy were quite disturbing for the economics profession since these models demonstrated that the classical harmony between national and cosmopolitan welfare maximization does not exist if one assumes opportunities for strategic manipulation of oligopolistic international industries this article reviews two prominent models of strategic trade policy the brander spencer model and the krugman model and relates them to more familiar earlier concepts such as stackelberg s asymmetrical duopoly solution and the venerable infant industry argument for government intervention the primary purpose of this article however is to provide a synopsis of the large literature addressing the question of whether models of strategic trade policy can give guidance for government policy

environmental quality competition and eco labeling abstract a three stage game of investment environmental quality provision and price competition is developed to study the impact of green technology investment eco labeling in a duopoly model of vertical product differentiation the firms incentives to invest in green technologies depend on their relative cost structure when firms are identical with respect to fixed costs both firms will always invest but if one firm is more efficient in investing then the other firm may or may not invest depending on the level of unit cost of investment quality competition will be tighter when the low quality firm is more efficient and looser when the high quality firm is more efficient in investing socially optimal investment for both firms is always positive but lower than in the duopoly solution in the absence of environmental externalities the quality dispersion chosen by profit maximizing firms may be too high or too low while environmental externalities increase the possibility low quality dispersion that is too low within the market solution finally and importantly ecolabeling can be used as a means of reducing excessive investment and increasing environmental quality that is too low

foreign direct investment with unemployment and endogenous taxes and tariffs it is well known that high tariffs can induce foreign direct investment or tariff jumping this paper analyzes tariff jumping in the context of a host government which can set specific tariffs and taxes subject to the credibility constraint that the chosen levels be optimal once capital is irreversibly in place the foreign multinational is assumed to choose its location and level of investment strategically taking into account the induced tax and tariff levels in the presence of unemployment the optimal tariff exceeds the optimal tax for any given level of capital investment leading to foreign direct investment

cooperative r d and strategic trade policy in this paper three different cooperative r d arrangements in a strategic trade policy model are examined a policy game between two governments is analysed where each government chooses a particular cooperative r d policy in order to maximize national welfare allowing cooperation in r d is also compared with the use of r d subsidies it is jointly optimal for both governments to allow their firms to participate in the same type of cooperative r d and allowing cooperation in r d can

export subsidies as an outcome of the management labor conspiracy a mercantilistic trade policy is often introduced as a tool to generate more jobs in some key industries when employment in an export import industry is perceived to be low the government would be tempted to adopt measures of export promotion import protection to increase it by effectively guaranteeing employment however these policies would reduce incentives for the private sector to reach efficient labor contracts for example the labor union might refuse to sign a profit sharing contract with management and unilaterally demand high wages believing that the resulting loss in competitiveness would not affect the well being of its members since the government would protect the industry it is also conceivable that management and the labor union conspire to reach inefficient contracts so as to invite government intervention in certain cases trade policies only transfer income without any allocative effect this is not merely a theoretical curiosum free trade advocates have often pointed out that protectionist policies would have deleterious effects on the pattern of collective bargaining in the trade sensitive sectors this paper constructs simple models to illustrate this point for export subsidies and so it can be viewed as an addition to the literature that aims to bring attention to the pitfalls of the new mercantilism such as eaton and grossman 1986 dixit and grossman 1986 and horstman and markusen 1986 unlike these studies however the government policies considered here are reactive in the sense that the private sector moves first anticipating the government s response dixit and kyle 1985 carmichael

international r d rivalry and export market shares of unionized industries some evidence from the us manufacturing sector abstract this paper investigates how union activity that captures r d rents alters the strategic investment behavior of internationally competitive firms the effect of union activity in the spencer b j brander j a 1983 international r d rivalry and industrial strategy review of economic studies 50 707 722 framework is to reduce the firm s strategic investment in r d and its export market share the empirical investigation at the industry level indicates that union activity has a significant and negative impact on r d investment decisions in the us manufacturing sector an important contribution of this work is its attempt to empirically distinguish between strategic and non strategic r d the strategic effect of r d on export market share in an imperfectly competitive product market is a decreasing function of the level of union activity

capital subsidies and countervailing duties in oligopolistic industries abstract under gatt countries are allowed to impose countervailing duties to offset foreign subsidies however gatt rules limit the amount of duty to the amount of the subsidy this paper examines a generalized model of imperfect competition with capital subsidies and shows the conditions under which a countervailing duty will offset the effect of the subsidy on exports also conditions are specified under which exports will increase despite the imposition of the maximum tariff under gatt in addition the paper considers whether profit shifting motives for a subsidy still exist even when this maximum duty is anticipated

us trade wars in the twenty first century with emerging countries make america and its partners lose again in a context of rising protectionist rhetoric this paper looks at the potential impact of trade wars initiated by a change in us trade policies we use a static multicountry multisector general equilibrium model to evaluate six modalities of three potential trade wars for a total of 18 scenarios between the usa and china between the usa and mexico and a combination of the two previous conflicts in each case we evaluate various forms of trade retaliation by the us partner s the same level of import duty as the one imposed by the usa an import duty that minimises welfare loss a duty that minimises terms of trade deterioration a duty that generates the same amount of collected revenue and finally a nash equilibrium we conclude that there is no scenario in which the us government augments its domestic welfare or gdp there may be sectoral gains in value added in the usa but they are small and to the detriment of other sectors while losses for china are relatively small potential losses for the mexican economy are significant there are also free riders of these trade wars finally the way in which trade retaliations are designed matters greatly

durability and strategic trade are there rents to be captured abstract this paper analyzes strategic trade policy when home and foreign duopolists produce a durable good that is either sold or leased in a third country durability is important for two reasons it characterizes most of the products discussed in the strategic trade literature and it also calls for explicit dynamic modeling for duopolists who sell their product in a third country market this paper finds the optimal policy to be a tax on domestic output for duopolists who lease the good in a third country market though the optimal policy is a subsidy

technology policy and the organization of r d abstract in this study we examine how technology policy in the form of r d subsidies and encouragement of research joint ventures rjvs affects the investment incentives of firms in various types of imperfectly competitive markets we find that joint ventures yield lower research intensities in the absence of subsidies in the presence of optimal subsidy policy higher expected welfare is obtained with rjvs but the optimal policy may also involve a more costly subsidy program the analysis also identifies possible difficulties in implementing socially optimal policies arising from private incentives conflicting with the public interest

estimating the benefits of targeted r d subsidies we study the expected welfare effects of targeted r d subsi dies using project level data from finland we model the application and r d investment decisions of firms and the subsidy granting decision of the public agency in charge of the program our model and institutional environment allow us to identify different benefits and costs of the r d subsidy program we find that expected effects of subsidies are very het erogeneous and estimated application costs low on average the social rate of return on targeted subsidies is 30 to 50 but spillover effects of subsidies are smaller than effects on firm profits

international standards for intellectual property protection and r d incentives abstract we examine the effect of alternative standards for intellectual property protection uniform protection based on the gatt principle of non discrimination provides domestic and foreign firms with the same level of protection discriminatory protection based on section 337 of the u s trade laws provides different levels of protection depending upon where the firm is located we show that discriminatory protection may not increase and may decrease domestic r d the effect of asymmetric patent protection depends on whether the rivals have pre existing products on the costs of r d and on the value of the potential innovation

international r d rivalry and industrial strategy this paper presents a theory of government intervention which provides an explanation for industrial strategy policies such as r d or export subsidies in imperfectly competitive international markets domestic net welfare is improved by the capture of a greater share of the output of rent earning industries although the subsidy ridden noncooperative international equilibrium is jointly suboptimal behaviour of governments and firms is modelled as a three stage subgame perfect nash equilibrium the assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms

explicit versus implicit contracts evidence from ceo employment agreements we report evidence on the determinants of whether the relationship between a firm and its chief executive officer ceo is governed by an explicit written or an im plicit agreement we find that fewer than half of the ceos of s p 500 firms have comprehensive explicit employment agreements consistent with contracting theory explicit agreements are more likely to be observed and are likely to have a longer du ration in situations in which the sustamabihty of the relationship is less certain and where the expected loss to the ceo is greater if the firm fails to honor the agreement when a firm hires a chief executive officer ceo it enters into a complex relationship that has significant long term implications for its stockholders establishing the terms of this relationship requires determining the ceo s responsibilities compensation perquisites and term of employment the con ditions under which either party can sever the relationship and restrictions on the ceo s outside activities among other considerations despite the com plexity of these arrangements many public companies including some of the largest choose not to put such terms in writing in 2000 less than half of the firms in the s p 500 had a comprehensive written or explicit employment agreement ea with their ceos the other firms had either no written agree ment at all or agreements that covered only limited aspects of their relationship with the ceo such as change of control nondisclosure noncompete or nonso licitation agreements these latter firms and their ceos relied on implicit eas through which the ceo was employed at will we report evidence on the determinants of whether the relationship between a firm and its ceo is contractually defined in an explicit agreement this

is free trade passe abstract if there were an economist s creed it would surely contain the affirmations i understand the principle of comparative advantage and i advocate free trade yet the case for free trade is currently more in doubt than at any time since the 1817 publication of ricardo s principles of political economy and this is due to changes that have recently taken place in the theory of international trade while new developments in international trade theory may not yet be familiar to the profession at large they have been substantial and radical in the last ten years the traditional constant returns perfect competition models of international trade have been supplemented and to some extent supplanted by a new breed of models that emphasizes increasing returns and imperfect competition these new models call into doubt the extent to which actual trade can be explained by comparative advantage they also open the possibility that government intervention in trade via import restrictions export subsidies

trade and protection in vertically related markets abstract we consider home country tariff and subsidy policies in a setting where a home firm is partially dependent on a foreign vertically integrated firm for supplies of a key input the firms are cournot competitors in the home market for the final product we show that a tariff on final product imports may cause the foreign vertically integrated firm to reduce the price charged for the input under circumstances where a simple monopoly supplier of the input would increase its price supply conditions for the input significantly affect whether imports of the input should be taxed or subsidized

industrial policy and firm heterogeneity our concern in this paper is with firm specific industrial policy when r d subsidies or taxes are differentiated among firms the question arises as to which firms in an industry should receive such support we analyze a situation where firms differ in their r d technologies in two distinct ways in the costs of performing r d activities and in the output obtained from such activities we find that the optimal firm specific industrial policy is affected differently by the two sources of firm heterogeneity furthermore a change in a firm s r d productivity has an ambiguous effect on the optimal policy towards the firm jel classification o31 l52 f13

equilibrium of interdependent gas and electricity markets with marginal price based bilateral energy trading the increasing interdependencies between natural gas systems and power systems create new business opportunities in coupled energy distribution markets this paper studies the marginal price based bilateral energy trading on the equilibrium of coupled natural gas and electricity distribution markets convex relaxation is employed to solve a multiperiod optimal power flow problem which is used to clear the electricity market a successive second order cone programming approach is utilized to solve a multiperiod optimal gas flow problem which is used to clear the gas market in addition the line pack effect in the gas network is considered which can offer storage capacity and provide extra operation flexibility for both networks in both problems locational marginal energy prices are recovered from the lagrangian multipliers associated with nodal balancing equations furthermore a best response decomposition algorithm is developed to identify the equilibrium of the coupled energy markets with bilateral gas and electricity trading which leverages the computational superiority of socps cases studies on two test systems validate the proposed methodology

a structuralist perspective on the role of technology in economic growth and development abstract this paper presents an integrated view of what is termed a structuralist perspective to economic growth and development that stands in contrast to the mainstream orthodox or neoclassical view in the structuralist view structural changes are causes of growth rather than outcomes of a process of capital accumulation and of rising per capita incomes moreover the growth process may be punctuated by periods of discrete shifts in resource allocation creative destruction and growth acceleration rather than being smooth throughout structural changes need not be automatic they require a skill specific infrastructure of new capabilities which when established generate new comparative advantages market failures may be pervasive due to problems of human capital accumulation critical mass and discrete choice among alternative growth paths thus in addition to creating a favorable environment for business and assuring through macroeconomic policy adequate investment successful growth may require an adequate industrial and technological policy particularly at nodes of structural change the paper surveys the structuralist insights appearing in the literature starting with the early postwar economic development literature and including recently developed formal models it also proposes a kinked or scalloped aggregate production function as a simple tool for structuralist analysis

executive effort and selection of risky projects this article examines the incentives of executives to adopt risky projects the agency problem considered is that of motivating the executive to expend effort to generate information about the profitability of projects and to select the best project conditional upon the information that his effort generates we show that the executive and the principal will not always agree regarding which project is best we provide conditions under which this conflict of interest leads from the principal s perspective to either an underinvestment or an overinvestment in risky projects

rain agriculture and tariffs this paper examines whether and how rainfall shocks affect tariff setting in the agricultural sector in a model of strategic trade policy the authors show that the impact of a negative rainfall shock on optimal import tariffs is generally ambiguous depending on the weight placed by the domestic policy maker on tariff revenue profits and the consumer surplus the more weight placed on domestic profits the more likely it is that the policy maker will respond to a rainfall shortage by reducing import tariffs these findings are robust to alternative assumptions about market structure and the timing of the game using detailed panel data on applied tariffs and rainfall for 70 nations the authors find robust evidence that rainfall shortages generally induce policy makers to set lower tariffs on agricultural imports

the tax treatment of r d expenditures of multinational enterprises abstract this paper investigates the tax treatment by national governments of r d expenditures of multinational enterprises in a noncooperative world the international tax system is generally shown to discourage r d investments by multinational firms for the special case of symmetric corporate tax rates the multinational is allowed to expense less than the total of its r d expenses worldwide internationalization of the firm s operations and ownership is demonstrated to lead to less generous expensing rules within individual countries and may even eliminate r d tax deductions altogether

export subsidies and high productivity cause or effect according to the emerging strategic theory of trade policy countries selling in imperfectly competitive world markets may benefit from export subsidies this paper demonstrates that the theory predicts that it is the countries with the lowest production costs that offer the highest subsidies it is argued that this result diminishes the attraction of the theory as a positive explanation of trade policy

oligopolistic competition and international trade quantity and quality restrictions abstract we examine trade restrictions such as quantity and quality limitations on imports in an oligopolistic industry consisting of foreign and domestic firms we find that the effects of trade policy hinge on the location of the quality produced by the firms in the quality spectrum a quota leads to positive protection while minimum quality standards leads to negative protection furthermore minimum standards lower national welfare and a quota has an ambiguous effect on welfare

job protection versus contracts at will trading off entrenchment and shirking i take an efficient contracting approach to answer the question how much job protection to offer employees in particular those at the top of organizations given their privileged information or formal authority senior managers who are not given such protection are likely to take opportunistic actions that make them less dispensable the optimal employment contract trades off the resulting inefficiencies that arise from such self made job security with the reduced incentives and higher compensation costs under explicit employment protection one implication of the model is that more senior managers such as ceos should receive both higher rents and more protection e g through contracts that are explicitly not at will or that specify a longer duration

strategic environmental policy under incomplete information this paper introduces incomplete information into recent analyses of strategic environmental policy it is shown how asymmetric information between planners and producers affects national incentives to impose strategic environmental standards on domestic industries in international oligopolistic competition relative to the full information case incomplete information is likely to mitigate allocative distortions originating from strategic behaviour a countervailing effect tending to raise distortion is however revealed from the analysis this effect is absent when governments intervene in free trade through direct production subsidies the results suggest that incentives to capture foreign rents are less reduced due to private information when environmental standards rather than direct production subsidies are the strategic instrument

demand elasticities asymmetry and strategic trade policy abstract this paper shows that demand elasticities and cost asymmetry are important determinants of strategic trade policy in the symmetric case the direction of intervention is critically dependent upon the elasticity of demand under unit elastic demand free trade is optimal under symmetry and a subsidy tax is optimal if the exporting firm has lower higher marginal cost than its competitor if both the exporting governments intervene then the conventional result that the lower cost firm gets the higher subsidy is reversed for inelastic demand however such an equilibrium is unstable in policy space

equilibria in an oligopolistic electricity pool with stepwise offer curves we study the equilibria reached by strategic producers in a pool based network constrained electricity market the behavior of each producer is modeled by a mathematical program with equilibrium constraints mpec whose objective is maximizing profit and whose complementarity constraints describe market clearing the joint solution of all these mpecs constitutes an equilibrium problem with equilibrium constraints epec the equilibria associated with the epec are analyzed by solving the strong stationarity conditions of all mpecs which can be linearized without approximation by mixed integer linear programming milp techniques the resulting mixed integer linear conditions can be reformulated as an optimization problem that allows establishing diverse objectives to differentiate among alternative equilibria

strategic offering and equilibrium in coupled gas and electricity markets the wide integration of gas fired units and implementation of power to gas technologies bring increasing interdependence among the natural gas and electricity infrastructures this paper studies the equilibrium of the coupled gas and electricity markets which is driven by the strategic offering behaviors each producer endeavours to maximize its own profit by taking the market clearing process into consideration the market equilibrium can be obtained from an equilibrium problem with equilibrium constraints a special diagonalization algorithm is devised in which the unilateral equilibrium of the gas or electricity market is found in the inner loop given the rivals strategies the interactions of the two markets are tackled in the outer loop case studies on two test systems validate the proposed methodology

fair trade and harmonization of climate change policies in europe abstract in march 2000 the european commission presented a green paper on greenhouse gas emissions trading within europe supporting implementation of a community wide scheme in which the design and regulation of all essential elements would be harmonized at the community level the present paper analyzes economic arguments used to justify such a coordinated scenario showing these arguments to be based on misleading rhetoric about fair trade and harmonization diverse allocations of emissions allowances across member states are justified in theory in practice too no empirical evidence or model based results demonstrate that an uncoordinated european trading scheme would adversely affect competitiveness to any significant extent or substantially increase industrial relocations

profit sharing and welfare in an export subsidy game abstract this paper studies an export subsidy game in a duopoly in which one firm engages in sharing profits with its union in a non cooperative equilibrium of an export subsidy game without any cost advantage of firms the export subsidy to the profit sharing firm is smaller than the export subsidy to the non sharing firm and the output of the profit sharing firm is smaller than the output of the non sharing firm thus in an export subsidy game a profit sharing contract reduces the welfare in the country

the state as strategist in international business research no matter what strategy managers choose cross national differences in states strategic capabilities and objectives affect multinational corporations capabilities to manage interdependent operations in this paper we develop four attribute dimensions along which states strategic economic capabilities vary we then apply these dimensions to show how they contribute to familiar international business models of managerial process mnc strategy and organizational structure and country competitiveness

finding equilibria in the pool based electricity market with strategic wind power producers and network constraints this paper proposes a model to find the equilibria in the short term electricity market with large scale wind power penetration the behavior of each strategic player is modeled through a two stage mathematical problem with equilibrium constraints mpec where the upper level problem maximizes the profit of the strategic player and the lower level problem describes the clearing processes of the day ahead and real time markets while considering the network constraints the joint solution of all the mpecs constitutes an equilibrium problem with equilibrium constraints epec the uncertain wind power production and demand are represented by a set of plausible scenarios by using the duality theory and karush kuhn tucker condition each mpec is transferred into a mixed integer linear programing problem the nash equilibria of the electricity market are obtained by solving the epec using game theory and the diagonalization algorithm case studies are performed to show the effectiveness of the proposed model

golden parachutes executive decision making and shareholder wealth abstract this study examines changes in executive decision making and shareholder wealth which are associated with the adoption of special executive termination agreements typically referred to as golden parachutes two hypotheses associated with golden parachutes contracts which provide remuneration if there is a change in control of the corporation are developed for empirical analysis the results suggest that the adoption of golden parachutes is associated with a positive security market reaction moreover the cross sectional analysis of the security market reaction is consistent with the hypothesis that golden parachutes have a favorable effect on the reaction of executives to takeover bids

r d rivalry industrial policy and u s japanese trade the authors examine how the strategic aspect of japanese research and development expenditures and industrial policies affected u s japanese bilateral trade during the late 1970s and investigate which component of r d expenditures on process innovation product quality improvements new products and new technology or technology transfer proved to be most effective they find that while japanese r d expenditures have generally promoted japan s trade advantage certain components of r d have proved more effective than other the depreciation subsidy and special status with the ministry of international trade and industry is positively related to the japanese trade performance while legal cartelization status has not had any apparent effect copyright 1988 by mit press

political constraints to growth in an economic union abstract this paper studies the political economy of growth in an economic union such as the eu in the spirit of acemoglu aghion and zilibotti acemoglu d aghion p and zilibotti f 2006a distance to frontier selection and economic growth journal of the european economic association 4 1 37 74 acemoglu d aghion p and zilibotti f 2006b growth development and appropriate versus inappropriate institutions mimeo mit as the economy approaches the world technology frontier structural reforms that increase competition in intermediate goods sectors are necessary to boost innovation and productivity growth reforms however raise the opposition of incumbents and therefore are politically difficult to implement when there are important cross border policy spillover effects national governments are more easily captured by vested interests as they fail to internalize the benefits of reforms on the rest of the union in this situation productivity growth may be sluggish and the economy can fail to converge to the frontier on the other hand when policy is chosen by a union government or a collective body that takes into account union welfare the internalization of spillovers raises the perceived benefit of reforms and consequently lowers the ability of lobbies to obtain high levels of protection

strategic trade policy intellectual property rights protection and north south trade abstract in this paper we analyze the issue of optimal tariffs when the northern and southern firms compete in quantities in an imperfectly competitive northern market and there are potentially varying degrees of intellectual property rights ipr violation by the south ipr violation is reflected through the leakage of technological knowledge spillovers from the northern to the southern firm creating unit cost reduction it is shown that optimal tariffs in this framework are always higher than in the simple duopoly model since they serve here not only as profit shifting devices but also as instruments that influence domestic innovative activity generate scale economies and countervail the ipr violation of the south the other notable difference from the standard duopoly model is that positive tariffs may be desirable from the world welfare point of view

trade policy mix ipr protection and r d subsidies this paper analyses strategic r d policy under circumstances where intellectual property rights protection resulting from firms r d investment is not perfect by examining policy choices wherein a government chooses both r d subsidies and ipr protection levels simultaneously we show that it is optimal for a government to adopt sufficiently weak ipr protection and to subsidize r d investments of domestic firms inducing r d investment of foreign rival firms will increase the profits of domestic firms ce memoire analyse une politique strategique de r d quand la protection des droits de propriete intellectuelle dpi qui decoulent d investissements en r d par les entreprises est imparfaite en examinant les choix de politiques par lesquels un gouvernement definit simultanement les niveaux de subventions pour la r d et de protection de la propriete intellectuelle on montre qu il est optimal pour un gouvernement d adopter une protection des dpi suffisamment faible et de subventionner les investissements en r d des entreprises nationales susciter un accroissement des investissements en r d des entreprises etrangeres rivales devrait augmenter les profits des entreprises nationales

policies and international trade agreements on technical compatibility for industries with network externalities abstract the paper considers a country home in which consumers have heterogeneous preferences over ex ante incompatible domestic and imported products and benefit from a network externality we analyze the cases with trade under perfect competition and the international duopoly in which both governments strategically use policies toward compatibility but cannot use conventional trade policies in both cases the equilibrium outcome of the non cooperative game depends upon the strength of the network externality effect and involves either an excessively high equilibrium level of compatibility in combination with either too much or too little trade or very low equilibrium levels of both compatibility and trade the paper concludes with the analysis of the international agreements on policies toward compatibility and evaluates the existing provisions in the wto legal system aimed at minimizing the trade inhibiting impact of standards and regulations in the area of technical compatibility

two sided uncertainty and up or out contracts a bilateral moral hazard problem provides a rationale for up or out employment contracts the employer sets a wage higher than opportunity cost to induce the worker to invest in firm specific capital if the individual does not make the grade it is in the firm s interest ex post to fire him had the initial arrangement not included provisions for firing individuals the firm would underreport the value of the employee wrecking the incentive scheme the basic model permits both firm and worker to be risk neutral therefore it admits a straightforward multiperiod extension which we also investigate

optimal trade policy under oligopoly a calibrated model of the europe japan rivalry in the eec car market this paper was originally presented at the cefi conference on imperfect competition and international trade aix en provence france june 18 19 1987 we wish to thank avinash dixit who gave the initial impetus to this research we are also grateful to alexis jacquemin and paul krugman for valuable discussion and comments we thank also the french commissariat au plan for financial support and the chambre syndicale des constructeurs automobiles csca for gracious assistance

assisting domestic industries under international oligopoly the relevance of the nature of competition to optimal policies optimal trade and industrial policies are derived for a home market that is supplied by a domestic firm and a foreign firm the optimal policy combination can be quite sensitive to the nature of the duopoly s competition for example for some cost and demand s tructures the optimal policy under cournot competition consists of a domestic production tax and a tariff but that under bertrand compet ition consists of a production subsidy and free trade copyright 1988 by american economic association

equilibrium pollution taxes in a two industry open economy abstract this paper involves strategic implications of environmental policy in case of two international oligopolies when countries take part in an international environmental agreement and have agreed on national target levels for a global pollutant this set up permits an analysis of the design of optimal emission taxes across domestic producers by differentiating taxes between industries with different abatement cost demand and number of domestic firms governments are in a position to raise national net foreign rents it is argued that a single national emission trading programme encompassing all domestic producers cannot provide the equivalent strategic policy design

international r d competition and trade policy abstract r d is modelled as a costly random draw from a set of technologies for producing a homogeneous good it is shown that free trade stimulates r d as compared to autarky by increasing competition and the market size both leading to higher expected returns to r d if the technological gap is too wide however socially beneficial r d may be discouraged in the technologically inferior country in this case complete protection can be better than free trade but it is inferior to other policies like tariffs or in particular direct subsidies to r d

completing the european internal market some notes on trade policy this paper examines international trade policy within a completed european internal market the ethier horn argument for internal tariffs in a customs union is shown to be inapplicable to most of the ec s existing cost increasing barriers to trade the implications of abolishing both article 115 which prevents trade deflection and monetary compensatory amounts on agricultural trade are examined national production subsidies are examined in the context of the free intra ec mobility of capital and skilled labour subsidies are doubly harmful to a small open economy in the presence of factor mobility moreover even where rent snatching subsidies may be profitable for the ec as a whole subsidy wars could erupt between member states as they compete for rent generating industries

noncooperative versus cooperative r d with endogenous spillover rates this paper deals with a general version of a two stage model of r d and product market competition we provide a thorough generalization of previous results on the comparative performance of noncooperative and cooperative r d dispensing in particular with ex post firm symmetry and linear demand assumptions we also characterize the structure of profit maximizing r d cartels where firms competing in a product market jointly decide r d expenditure as well as internal spillover levels we establish the firms would essentially always prefer extremal spillovers and within the context of a standard specification derive conditions for the optimality of minimal spillover

cooperative and noncooperative r d in duopoly with spillovers comment claude d aspremont and alexis jacquemin 1988 employ a simple yet elegant symmetric duopoly model of r d and spillovers to compare several equilibrium concepts these concepts include 1 the two stage noncooperative solution 2 the two stage mixed game 3 the two stage fully cooperative solution 2 and 4 the social planner s optimum 3 for each of the cases stated above they computed the equilibrium levels of output q q1 q2 and r d xl x2 x and the required second order conditions they report i for large spillovers i e b 0 5 x x x and q q q q and ii for small spillovers i e 3 x 2x x and q q q q where x denotes a firm s r d level q denotes total industry output denotes the social optimum denotes the fully cooperative model the noncooperative two stage case and the mixed game 3 is the spillover parameter here we show that comparing the pure cooperative and the pure noncooperative solutions as defined by d aspremont and jacquemin is only meaningful when the noncooperative solution is stable that is when spillovers are not too small we find that for very small spillovers in our example this occurs when 3 0 17 the d aspremont jacquemin observation holds because the noncooperative model is unstable the importance of this result rests on the fact that even though the output reaction functions cross correctly when 3 0 17 the r d reaction functions do not when 0 17 0 41 stability obtains but r d levels are higher in the noncooperative case than the fully cooperative one for large spillovers the d aspremont jacquemin result is confirmed moreover we find that the introduction of spillovers in the case of the noncooperative model tends to promote stability in the case of the cooperative model however as the level of spillovers is increased an equilibrium ceases to exist

on the solution of revenue and network constrained day ahead market clearing under marginal pricing part i an exact bilevel programming approach the first of this two paper series addresses a practical day ahead auction model where generation revenue constraints are explicitly incorporated in the problem formulation as routinely done in several national electricity markets across europe the revenue constrained market clearing procedure includes the effect of the transmission network inter temporal constraints associated with generation scheduling demand side bidding and marginal pricing this auction design is an instance of price based market clearing which features two major complicating factors first locational marginal prices become decision variables of the optimization process in addition producer revenues are formulated as bilinear and highly nonconvex products of power outputs and market clearing prices the resulting problem is formulated as a mixed integer nonlinear bilevel program with bilinear terms for which available solution techniques rely on heuristics approximations or modeling simplifications this paper presents a novel and exact methodology whereby the original problem is recast as an equivalent single level mixed integer linear program as a consequence finite convergence to optimality is guaranteed and the use of standard commercial software is allowed the proposed transformation is based on duality theory of linear programming karush kuhn tucker optimality conditions and integer algebra results in the second part of this two paper series numerical results from several case studies illustrate the effective performance of the proposed solution approach

infant industry tariff protection with pressure groups abstract this paper analyzes the increasing tariff protection in the spanish iron and steel industry over the first third of the 20th century learning effects are explicitly included to model a dynamic game of trade liberalization the government chooses the tariff level while firms decide how much to produce each period firms production decisions determine their future cost levels assuming that learning reduces only fixed costs the dynamic game may be solved in closed form so that the optimality and time consistency of the actual policy can be evaluated furthermore the model is used to measure the relative importance of producers and consumers on the government s equilibrium tariff strategy the model is calibrated for year 1913 and it is shown that the existence of important unexploited dynamic economies of scale may have justified high tariff levels at that time in addition the results also show that the spanish iron and steel producers behaved more competitively than what is commonly assumed and that the government s protection policy was not significantly conditioned by steel producers

international trade and industrial organization this survey reviews recent contributions to the interface between international trade and industrial organization import competition places a substantial limit on domestic market power in the short run competitive conditions can influence the speed and efficiency of a domestic market s adjustment to international disturbances exports effects on competition among national sellers are unclear and depend on the scope for price discrimination models of trade with monopolistic competition explain intra industry trade and also the widely observed sensitivity of firm size to market size exposure to trade also increases the technical efficiency of production diverse policy issues turn on the distinction between national and global welfare and the scope for commitment

the impact of parallel imports on investments in cost reducing research and development abstract we develop a two country model of endogenous investment in process innovation by a manufacturer facing competition from parallel imports pi we find that the distortions associated with pi inhibit innovation however the difference between the manufacturer s expected profits under successful and failed innovation is u shaped in the cost of engaging in pi thus the reduction in r d investment depends on both legality of pi and transport costs the reduction in innovation could harm global welfare depending on whether the manufacturer was deterring pi with a high wholesale price if so banning such trade would raise expected welfare

how many franchises in a market abstract this paper studies how firms use their number of franchises as a strategic tool firms can commit to high output by creating many franchises however signing a single franchise contract with a low wholesale price is an equally effective way to generate output the value of granting many franchises is undercut when firms can sign contracts afterwards so firms place only a single franchise in a market this finding reverses previous results which did not model contracts the same issues arise in international competition policy where countries use anti trust policy to affect their number of exporters and use subsidies to affect the choices of exporters

optimal export subsidy when demand is uncertain abstract a standard result in export subsidy tax game models is that if governments can credibly precommit themselves to a particular trade policy an export subsidy tax is optimal when firms engage in quantity price respectively competition brander and spencer 1985 eaton and grossman 1986 in this paper we consider a model of dynamic duopoly when demand in the importing country is uncertain we show that in a symmetric equilibrium a subsidy is generally optimal for price competition

the sensitivity of strategic and corrective r d policy in oligopolistic industries abstract we evaluate the case for r d subsidies in export sectors when the outcome of r d is uncertain and the product market is oligopolistic when r d reduces expected costs in the particular sense of first order stochastic dominance a national strategic basis for r d subsidies exists whether firms choose prices or quantities this must be balanced against a corrective incentive to tax r d whenever the number of domestic firms exceeds one however when r d increases the riskiness of the cost distribution as well the results may switch there emerges a strategic incentive to tax and a corrective incentive to subsidize r d