can poorly informed regulators hinder competition this paper considers an entry deterrence game in which environmental policy is set without perfectly observing the incumbent firm s costs we investigate if regulators who can have an informational advantage relative to the potential entrant support entry deterring practices the paper demonstrates that while entry deterring equilibria only emerge under restrictive conditions when the regulator is perfectly informed these equilibria arise under larger settings as he becomes uninformed furthermore we show that the regulator is willing to support the incumbent s entry deterring practices regardless of his degree of information if entry costs are sufficiently high however when entry costs are lower the regulator only sustains this type of practices if he is poorly informed

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

trade and agricultural development in the 1980s and the challenges for the 1990s asia abstract asian developing countries have had varying experiences in trade and agricultural development in the 1980s attributable in part to their differing stages of economic development and structural characteristics other important influences relate to the external economic environment and the policy choices made by their governments not only during the period but also in the proceding decade the achievements of asian developing countries under the adverse external conditions of the 1980s are discussed in terms of their macroeconomic and agricultural growth the commodity structure of agricultural growth their food production and trade the expansion and diversification of their agricultural exports and the policy and nonpolicy factors affecting them special attention is given to the role of policy reforms implemented in china and the south asian countries following similar policy developments in northeast and southeast asia in the 1960s and 1970s toward greater openness in their trade regime and increased private sector participation in the economy these reforms have contributed to the observed acceleration in gdp agricultural and export growth in the 1980s however macroeconomic imbalances have emerged that threaten the sustainability of economic liberalization in those countries the major challenges for the 1990s also differ among the asian developing countries in the industrially advanced northeast economics of taiwan and south korea the primary need is to ease the transition of the remaining rural population as farm incomes continue to fall and workers move to industrial and service activities this challenge has to be addressed in the context of growing external pressure to further open their domestic market for

risk based pricing of interest rates for consumer loans abstract by focusing on observable default risk s role in loan terms and the subsequent consequences for household behavior this paper shows that lenders increasingly used risk based pricing of interest rates in consumer loan markets during the mid 1990s it tests three resulting predictions first the premium paid per unit of risk should have increased over this period second debt levels should have reacted accordingly third fewer high risk households should have been denied credit further contributing to the interest rate spread between the highest and lowest risk borrowers for people obtaining loans the premium paid per unit of risk did indeed become significantly larger after the mid 1990s for example for a 0 01 increase in the probability of bankruptcy the corresponding interest rate increase tripled for first mortgages doubled for automobile loans and rose nearly six fold for second mortgages additionally changes in borrowing levels and debt access reflected these new pricing practices particularly for secured debt borrowing increased most for the low risk households who saw their relative borrowing costs fall furthermore while very high risk households gained expanded access to credit the increases in their risk premiums implied that their borrowing as a whole either rose less or sometimes fell

a positive theory of environmental quality regulation this paper demonstrates that environmental quality regulation may enhance producer wealth while simultaneously reducing an externality problem by restricting access to common property regulation not only corrects a resource misallocation but it creates a scarcity rent as well in the recent history of environmental quality the common access problem has been addressed by federal and state agencies through a standards based approach rather than through the enforcement of tradable property rights as a consequence rents from the right to use these assets have accrued to producers the data are convincing that there is a strong interplay between producers consumers and the victims of pollution each party has some influence on the outcome and one sided analysis neglects many important aspects of regulation environmental quality regulation is complicated but many of the observed perplexities are consistent with a rent seeking self interest theory of government 46 references 1 figure 7 tables

toward a theoretical model of voluntary overcompliance abstract we explain why some firms voluntarily overcomply with environmental regulation in our model all consumers value environmental quality but differ in their willingness to pay which depends on their income levels publicly available information on environmental performance of firms enables consumers to identify clean firms firms participate in a two stage duopoly game where they first choose their levels of cleaning technology and next engage in price competition the market gets segmented by income levels a minimum standard binding on the dirty firm has the effect of improving the performance of the cleaner firm a subsidy obtains the same competitive outcome

a signaling model of environmental overcompliance abstract we present a theory of unilateral regulatory overcompliance as a signaling device firms that have a competitive advantage in the use of a cleaner but more costly technology overcomply in order to signal to an imperfectly informed benevolent government that compliance costs are low thereby triggering tougher regulation we identify the conditions under which such an overcompliance signaling equilibrium arises showing that there may be over overcompliance in that firms may overcomply even when tougher regulation is not socially desirable we also discuss the differential implications of the signaling theory as compared to other theories of unilateral regulatory overcompliance

stochastic programming for decentralized newsvendor with transshipment abstract this paper discusses a family of two stage decentralized inventory problems using a unifying framework taxonomy depicted as a multilevel graph this framework allows us to model and link different problems of competing retailers who independently procure inventory in response to uncertain demand and anticipated inventory decisions of other retailers in this family of problems in the ex post stage the retailers exercise recourse actions in response to the realized demand and competitors chosen procurement levels for example retailers could coordinate inventory transshipment to satisfy shortage with overage based on profit sharing agreements our framework provides a unifying parsimonious view using a single methodological prism for a variety of problems equally importantly as recourse options are laid out our framework clarifies and contributes a modeling connection between problems in a clear taxonomy of models this unifying perspective explicitly links work that appeared in isolation and offers future research directions

vertical foreclosure with the choice of input specifications we develop an equilibrium model of vertical foreclosure with the choice of input specifications vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would as an independent firm provide a generalized input the changes in incentives with vertical integration can be explained by the externalities the choice of a specialized input entails vertical integration allows the upstream firm to internalize the benefit of raising the rival firm s costs at the downstream level we derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences

quality leadership when regulatory standards are forthcoming in many markets governments set minimum quality standards while some sellers compete on the basis of quality by exceeding them such quality leadership strategies often win public acclaim especially when they involve environmental attributes using a duopoly model of vertical product differentiation we show that if the high quality firm can commit to a quality level before regulations are promulgated it induces the regulator to weaken standards and welfare falls our results raise doubts about the social benefits of corporate self regulation and highlight the dangers of lengthy delays between legislative mandates for new regulations and their implementation

sources of ec horticultural import growth from developing countries abstract a decomposition analysis of horticultural trade flows is carried out to identify the main sources of change in ec horticultural imports from different ldc regions sources of change are associated with each region s international competitiveness the relative openness of the ec market the degree of trade preference enjoyed by the region and the ec global import growth the main contribution to the ldc export growth of fruit and vegetables to ec between 1975 79 and 1985 89 is found to be attributable to the global import growth effect however it has been significantly counteracted by the negative effect of a declining share of non ec suppliers as a group marked interregional differences in changes in regional preferences show a lack of a strong correlation between ldc export performance and the existence of preferential trade agreements with ec while the potential for ldc export growth to ec is clear the results seem to indicate that in general ec protection policies have adversely affected import growth from ldcs various factors influencing ldc export performance in horticultural products are discussed apart from ec protection policies and changes in trade preferences domestic supply factors are of significance in explaining export growth including a liberal trading environment but also specific policies to promote exports of horticultural products while non price competition weakens the discriminatory effect of preferential tariffs there is a pressing need for developing countries to adapt to the demands of the european distribution system relating to quality grades and regularity of supplies

liar s loan effects of origination channel and information falsification on mortgage delinquency 1 this paper presents an analysis of mortgage delinquency between 2004 and 2008 using a loan level data set from a major national mortgage bank our analysis highlights two problems underlying the mortgage crisis a reliance on mortgage brokers who tend to originate lower quality loans and a prevalence of low documentation loans known in the industry as liar s loans that result in borrower information falsification while over three quarters of the difference in delinquency rates between bank and broker channels can be attributed to observable loan and borrower characteristics the delinquency difference between full and low documentation mortgages is due to unobservable heterogeneity about half of it potentially due to income falsification

the effects of a content requirement on a foreign duopsonist abstract this paper considers the operation of a local content requirement in a duopsony between domestic and foreign firms and demonstrates its consequences for the domestic producer of a final good it is shown that content protection may have perverse effects on a foreign firm s profits and may be welfare improving overall shifting profits from the domestic firm to both the foreign firm and domestic input producers

domestic price distortions and agricultural income in developing countries abstract the static effects on agricultural crop production and income arising from the correction of three common policy biases in developing countries the underpricing of food agricultural export taxation and currency overvaluation are examined analytically and empirically using philippine data based on a model of the agricultural sector with the food export crop tradeoff in production as a key component the findings argue for a careful examination of the relative efficiencies of different liberalization policy instruments in advancing specific development objectives in cases where possibly for socio political reasons not all price distortions in interrelated markets can be corrected

a rent seeking model of voluntary overcompliance we provide an explanation for voluntary overcompliance the phenomenon in which firms voluntarily choose to overcomply with environmental regulations in our model a polluting firm faces a rent seeking contest with an environmental group by making a small concession beforehand i e by overcomplying voluntary the firm lowers the stake the environmental group has in the rent seeking contest which lowers the group s lobbying effort in that contest voluntary overcompliance increases social welfare yet the firm undersupplies overcompliance from a welfare point of view an increase in the effectiveness of lobbying of the environmental group increases the level of overcompliance

good times bad times and vertical upstream integration abstract we consider a set of downstream firms each of which has a stochastic requirement for a particular input downstream firms can produce the input themselves yet do not trade it upstream firms produce the input to sell it through a walrasian market to downstream firms efficient pooling of capacities requires the input to be produced by upstream firms and traded in the market yet downstream firms will always vertically integrate by producing some of its own input needs a downstream firm cuts down on aggregate input demand thus depressing prices in the market

the failing firm defense this paper evaluates the welfare consequences of the failing firm defense ffd in the eu and u s merger laws to this end i combine an oligopoly model with an endogenous valuations auction model the ffd is shown to work reasonably well for consumers unless small firms are too small the ffd may however lead to total surplus losses due to a least danger to competition ldc condition which favors small and thus possibly inefficient firms it is also shown that in a multi firm setting the ffd increases the incentive for predation only when the assets are industry specific

optimal cross licensing arrangements collusion versus entry deterrence this paper analyzes optimal cross licensing arrangements between incumbent firms in the presence of potential entrants the optimal cross licensing royalty rate trades off incentives to sustain a collusive outcome vis a vis incentives to deter entry with the threat of patent litigation we show that a positive cross licensing royalty rate which would otherwise relax competition and sustain a collusive outcome dulls incentives to litigate against entrants our analysis can shed light on the puzzling practice of royalty free cross licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry deterrence mechanism

frontrunners and laggards the strategy of environmental regulation under uncertainty the extant literature on the political economy of environmental regulation does not provide a unified theoretical explanation for three salient stylized facts first companies voluntarily invest to reduce the environmental burden that they cause under threat of regulation second ex ante estimates of the compliance cost tend to be systematically higher than ex post estimates finally regulators use limited information provided by the industry i construct a game theoretic model of environmental regulation under uncertainty with a benevolent regulator in equilibrium companies undertake voluntary action to induce regulation that raises barriers to entry this profit driven behavior is not always socially detrimental however as the regulator obtains a credible commitment to production and a more accurate estimate of the compliance cost additionally the results provide a selection explanation for the mismatch between ex ante and ex post cost estimates if companies condition compliance on the installation cost only low cost companies install in equilibrium the analysis combines regulatory capture with social welfare maximization to explain the curious combination of voluntary action and low ex post compliance cost without serious information collection by the regulator

beyond export led growth abstract in light of the adverse conditions in the current international economic environment this paper reassesses the feasibility of continuing to rely on manufacturing export led growth as the major development dynamic for most ldcs during the next decade this paper argues that after the initial stages of industrial development the emphasis in policy toward agriculture should shift from surplus extraction to surplus creation and to the generation of demand linkages with the rest of the economy the author compares the relative merits of two alternative open development strategies export led industrialization and agricultural demand led industrialization adli by means of several simulation experiments the experiments are performed with a computable general equilibrium model of a small low income semi industrial open economy which is a stylization of south korea of 1963 they are carried out in an international environment assumed to represent the next decade based on a rate of growth of international demand for imports of about half the 1960 1973 rate the results support the adli approach on all counts

multi sector model of tradable emission permits this paper presents a multi sector model of tradable emission permits which includes oligopolistic and perfectly competitive industries the firms in oligopolistic industries are assumed to exercise market power in the tradable permit market as well as in the product market specifically we examine the effects of the initial permit allocation on the equilibrium outcomes focusing on the interaction among these product and permit markets it is shown that raising the number of initial permits allocated to one firm in an oligopolistic industry increases the output produced by that firm under certain conditions raising a clean less polluting firm s share of the initial permits can lead to reductions in both the product and permit prices we discuss criteria for the socially optimal allocation of initial permits considering the trade off between production inefficiency and consumer benefit

mortgage mis pricing the case of co borrowers abstract this paper provides evidence for a performance differential between loans with one borrower and loans with two borrowers we argue that the choice of observables considered during the rate adjustment process may lead to mortgage mispricing for loans with co borrowers our findings offer an example of borrower level information that mortgage lenders collect which is not used in pricing but is predictive of performance

self regulation taxation and public voluntary environmental agreements an increasingly popular instrument for solving environmental problems is the public voluntary agreement va in which government offers technical assistance and positive publicity to firms that reach certain environmental goals prior papers treat such agreements as a superior low cost instrument that can be used to preempt a threat of traditional inefficient regulation we present a more general model in which public vas may instead be weak tools used when political opposition makes environmental taxes infeasible we explore the conditions under which taxes public vas and unilateral industry actions are to be expected and the welfare implications of the various instruments notably we also show that welfare may be reduced by the introduction of public vas 2002 elsevier b v all rights reserved

regional redistribution through the u s mortgage market abstract regional shocks are an important feature of the us economy households ability to self insure against these shocks depends on how they affect local interest rates in the united states m

a characterization for the negative welfare effects of cost reduction in cournot oligopoly abstract this paper characterizes the welfare effects of cost reductions in a cournot model with linear costs under linear demand a small reduction in a firm s marginal cost reduces welfare if and only if its market share is less than 1 2n 2 or equivalently its marginal cost exceeds a critical level determined by the market a large cost reduction by the firm increases welfare if and only if its magnitude is at least twice the difference between the current marginal cost and its critical value the paper also extends the results to non linear demand but the characterizations become less tractable

selective contracts foreclosure and the chicago school view abstract i examine a mechanism by which exclusive supply contracts may inefficiently deter entry into the market in the model the incumbent supplier selectively offers contracts only to some buyers and convinces them to consent by guaranteeing them low prices the contracts strengthen the monopoly position of the incumbent supplier and allow it to extract rents from the remaining buyers that were not offered contracts aside from the favorable contract terms buyers have another reason to consent to the exclusivity scheme the latter raises the input costs of rival buyers that were not offered contracts the model has potential applications to the recent microsoft antitrust case 1994 i define exclusive supply contract as an agreement under which an upstream firm becomes the exclusive supplier of a downstream firm the downstream firm is prohibited from buying from other suppliers

social benefit certification as a game tourism ecocertification programs persist and proliferate despite low market penetration and apparent consumer indifference this has been viewed simply as an early adoption phase a two decade historical analysis of development patterns for 17 programs however suggests that they can be analysed as a multi move political game between corporate and civic advocates where neither can quit without losing the political game framework yields predictions which are testably different from a pure market early adopter framework it also draws a key distinction between consumer benefit and social benefit measures applicable to corporate social responsibility initiatives in many industry sectors

an experimental evaluation of strategic preemption abstract this paper reports the results of a series of two stage two person noncooperative games where one player can strategically preempt the other in one of our designs the subgame perfect equilibrium entails complete preemption in the other it entails partial preemption the data show that players tend to completely preempt when it is privately optimal however when partial preemption is privately optimal a non trivial fraction of players persist in choosing the non preemptive structure this may result because of occasional irrational behavior following preemptive play which induces some dominant agents to play less aggressively

when does environmental regulation facilitate entry deterring practices abstract this paper evaluates the welfare benefits of introducing environmental regulation in a market that is subject to the threat of entry we consider complete and incomplete information settings where potential entrants use the regulator s tax policy and the incumbent s output decisions in order to infer the incumbent s cost structure when the regulator is absent we show that firms entry deterring practices increase pollution relative to complete information hence under certain conditions environmental regulation becomes more beneficial in incomplete than in complete information contexts our results therefore identify under which cases an under or over estimation of the welfare benefits of environmental regulation arises from ignoring the information setting in which firms interact we also examine how this estimation error increases as firms become more symmetric in their production costs

competition policy in the united states an overview this paper provides a summary of the basic policies in the united states that affect the state of competition in u s markets much of the paper focuses on antitrust policy but a substantial fraction of the paper is devoted to regulatory policies for both types of policies the paper explains the basic structures of the policies and also provides discussions of recent developments copyright 1993 by oxford university press

an empirical test of the resource based theory strategic regulation in the dutch audit industry the resource based view of the firm is a recent strategic management theory that seeks to identify the resources that may provide firms with a sustainable competitive advantage this paper has two purposes first the paper relates strategic management arguments to parallel lines of reasoning in industrial organization theory and argues that strategic regulation is a major source of sustainable competitive advantage the second purpose of the paper is to report the results of an empirical test of the resource based theory on the basis of a longitudinal data set on the postwar history of the dutch audit industry a key determinant of this history proves to be strategic regulation which stimulates demand for audit services and protects rent producing resources

upgrades switching costs and the leverage theory of tying this article investigates the role of product upgrades and consumer switching costs in the tying of complementary products previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential where essential means that all uses of the complementary good require the initial monopolised product we show that this is not true in settings characterised by product upgrades and consumer switching costs we also discuss various extensions including the role of the reversibility of tying

regional free trade and social integration this paper analyzes recent free trade arrangements from a positive political economy perspective in contrast to most other literature which fails to take into account geographical factors it is argued here that proximity and transportation costs play an important role in trade arrangements another important also largely neglected factor is the degree of social cohesion in terms of labor standards among potential trading partners a political support maximizing government will consider these factors when balancing political support from free traders and protectionists

the failure of models that predict failure distance incentives and defaults statistical default models widely used to assess default risk fail to account for a change in the relations between different variables resulting from an underlying change in agent behavior we demonstrate this phenomenon using data on securitized subprime mortgages issued in the period 1997 2006 as the level of securitization increases lenders have an incentive to originate loans that rate high based on characteristics that are reported to investors even if other unreported variables imply a lower borrower quality consistent with this behavior we find that over time lenders set interest rates only on the basis of variables that are reported to investors ignoring other credit relevant information as a result among borrowers with similar reported characteristics over time the set that receives loans becomes worse along the unreported information dimension this change in lender behavior alters the data generating process by transforming the mapping from observables to loan defaults to illustrate this effect we show that the interest rate on a loan becomes a worse predictor of default as securitization increases moreover a statistical default model estimated in a low securitization period breaks down in a high securitization period in a systematic manner it underpredicts defaults among borrowers for whom soft information is more valuable regulations that rely on such models to assess default risk could therefore be undermined by the actions of market participants

the elementary economics of social dilemmas a social dilemma is in essence a prisoners dilemma in a continuous strategy space i discuss a number of social dilemmas that have caught my attention offer an elementary diagrammatic synthesis of them and discuss some of the economic insights that the diagrams capture including incentives for pre commitment finally i model pre commitment via delegation and link results to the literature on the evolution of preferences l economie elementaire des dilemmes sociaux un dilemme social est essentiellement un dilemme du prisonnier dans un espace continu de strategie l auteur discute d un certain nombre de dilemmes sociaux qui ont retenu son attention il en propose une synthese graphique elementaire et discute certaines des suggestions economiques qui decoulent de ces diagrammes comme par exemple les incitations a se pre engager finalement l auteur construit un modele de pre engagement par delegation et relie ses resultats a la litterature sur l evolution des references

voluntary environmental agreements good or bad news for environmental protection abstract there has been growing interest in the use of voluntary agreements vas as an environmental policy tool this article uses a simple model to determine whether vas are likely to lead to efficient environmental protection we consider cases where polluters are induced to participate either by a background threat of mandatory controls the stick approach or by cost sharing subsidies the carrot approach the results suggest that the overall impact on environmental quality could be positive or negative depending on a number of factors including the allocation of bargaining power the magnitude of the background threat and the social cost of funds