optimal regulation with unknown demand and cost functions abstract this paper presents an analysis of optimal regulation of a firm that has private information about both its cost and demand functions an earlier paper on the same topic lewis and sappington rand j econ 19 1998 438 457 is reviewed a difficulty with their analysis is discussed and an alternative formulation of their model is proposed two broad classes of problem are considered i the case where social and private incentives are roughly aligned which implies optimal prices are weakly above marginal costs and ii the case where social and private incentives diverge which implies pricing below marginal cost may be optimal journal of economic literature classification numbers d42 d82 l51

privatization and contaminated site remediation in central and eastern europe do environmental liability policies matter abstract this paper examines the effects on site remediation decisions after state owned firms have been privatized of providing environmental information to potential investors and undertaking site remediation planning prior to privatization the literature suggests that to minimize distortions created by uncertain environmental problems governments should invest in environmental information for potential investors inventory problems and develop plans for remediation one of the believed benefits is a higher probability of site remediation because with uncertainty resolved potential conflicts after privatization are less likely few countries in central europe which has experienced both environmental problems and privatization on enormous scales have adopted this advice using firm level data empirical analysis is presented which suggests providing only information to investors is insufficient to spur remediation inventorying site contamination and planning remediation prior to privatization is a much more effective measure combining provision of information with remediation planning is found to be the most powerful policy package for encouraging remediation

convergence across canadian provinces 1961 to 1991 the purpose of this study is to provide a new look at the evolution of regional disparities in canada in the light of the recent convergence studies produced by european and american economists the degree of convergence of a variety of per capita income and output measures from 1961 to today is analysed the empirical analysis suggests that there is evidence of convergence in canada for different measurements of per capita income and output since the early 1960s during this period convergence has been helped by a favorable change in terms of trade and by government transfers and taxes our estimates of the convergence speed for canadian provinces are of the same magnitude as those found for regions within the same country and across countries in european and american studies

multi dimensional screening a user s guide abstract multi dimensional screening models have many potential applications but economists have so far been hindered by the considerable technical difficulties involved in their resolution this paper studies the simplest formulation of the general screening model and we provide a complete solution to this case we then show how this model can be applied to multi product nonlinear pricing and to multi product monopoly regulation finally we discuss how the model has been applied to other economic situations of interest including auction design and optimal taxation

collusion under asymmetric information when applied to groups the revelation principle postulates a bayesian nash behavior between agents their binding agreements are unenforceable or the principal can prevent them at no cost we analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information we characterize the set of implementable collusion proof contracts both when the principal offers anonymous and nonanonymous contracts after having isolated the nexi and the stakes of collusion we proceed to a normative analysis perform some comparative statics discuss our concept of collusion proofness and provide some insights about transaction costs in side contracting

ratifiable mechanisms learning from disagreement in a mechanism design problem participation constraints require that all types prefer the proposed mechanism to some status quo if equilibrium play in the status quo mechanism depends on the players beliefs then the inference drawn if someone objects to the proposed mechanism may alter the participation constraints we investigate this issue by modeling the mechanism design problem as a two stage process consisting of a ratification state followed by the actual play of the chosen game we develop and illustrate a new concept ratifiability that takes account of inferences from a veto in a consistent way

designing optimal disability insurance a case for asset testing we analyze an implementation of an optimal disability insurance system as a competitive equilibrium with taxes an optimum is implemented by an asset tested disability system in which a disability transfer is paid only if an agent has assets below a specified maximum the logic behind this result is that an agent who plans to falsely claim disability a finds doing so unattractive if he does not adjust his savings and b cannot collect disability insurance if he does adjust his savings in the desired direction upward for a calibrated economy we find that welfare gains from asset testing are significant

earmarked taxation welfare versus political support abstract compared with the traditional public finance approach of a monolithic fully informed planner earmarking of taxation is less likely to be optimal if a principal agent setting is considered where taxing and spending are performed by two separate agents which are monitored by the parliament we assume that the parliament either maximizes welfare or expected votes vote maximizers are more inclined to choose earmarking but at the price of inefficiently high costs

local public works and intergovernmental transfers under asymmetric information abstract this paper studies local public works decisions in a hierarchical setting under bidimensional asymmetric information a local authority plans to undertake a public work and delegates its construction to a firm the federal government decides whether to fund the project without being informed of either the project s benefit or the constructor s efficiency the local authority knows these values to deal with this informational gap the federal government designs a public work contract specifying transfers to the local authority and to the firm we show under which circumstances cost sharing and compensations emerge as incentive devices then we identify which projects are effectively constructed more works with low high benefits are undertaken shut down than under full information

contracts with endogenous information abstract i study covert information acquisition and reporting in a principal agent problem allowing for general technologies of information acquisition when posteriors satisfy two dimensional versions of the standard first order stochastic dominance and concavity convexity of the distribution function conditions a first order approach is justified under the same conditions informativeness and riskiness of reports are equivalent high powered contracts that make the agent s informational rents more risky are used to increase incentives for information acquisition insensitive contracts are used to reduce incentives for information gathering the value of information to the agent is always positive the value of information to the principal is ambiguous

price discrimination by a many product firm determining the optimal selling strategy for a multiproduct firm facing consumers with unknown tastes is a difficult task this paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products becomes large

a malmquist based approach to change in local economic well being murias p novello s and martinez roget f a malmquist based approach to change in local economic well being regional studies the focus on the multifaceted nature of well being has increased substantially in recent years this paper employs data envelopment analysis dea combined with the malmquist index to examine the temporal change in the economic well being of spanish provinces over the ten year period between 1996 and 2006 this method not only allows the aggregation of multiple indicators and the estimation of well being shifts over time but also shows the sources of variation in local economic well being the results seem to suggest that whilst economic well being has improved in the great majority of provinces this advancement stems largely from a more favourable environment than from the specific capacity of each province to reduce its relative distance from key benchmarks

optimal second degree price discrimination and arbitrage on the role of asymetric information among buyers the traditional theory of second degree price discrimination tackles individual self selection but does not address the possibility that buyers could form a coalition to conduct arbitrage we study the optimal sale mechanism that takes into account both individual and coalition incentive compatibility we show that the monopolist can achieve the same profit regardless of whether or not buyers can form a coalition although marginal rates of substitution are not equalized across buyers of different types in the optimal sale mechanism they fail to realize the gains from arbitrage because of the transaction costs in coalition formation generated by asymmetric information

property transfers and environmental pollution incentive effects of alternative policies this paper considers how trans ferring some or all future responsibility for cleanup of a contaminated site affects the cur rent owner s incentives to reduce contamina tion given that he anticipates selling his prop erty in the future the results depend on the probabilities that the parties will be judgment proof the distribution of surplus and whether there is joint and several liability contrary to popular belief we show that transferring liabil ity can actually increase the seller s incentive to invest in pollution abatement furthermore abatement incentives are at least as great and generally greater with joint and several liability than without it jel q2

convergence of living standards among irish regions the roles of productivity profit outflows and demography 1960 1996 using a consistent data set this paper presents evidence for the first time on the degree of convergence of living standards among irish planning regions between 1960 and 1996 the basic decomposition of living standards into productivity and demographic factors is extended to include the income output ratio which is significant in ireland due to the presence of substantial profit outflows since the mid 1980s living standards converged strongly among regions between 1960 and 1979 but between 1979 and 1996 there was weak divergence the chief proximate cause of this reversal was the slowdown in the effect of productivity on the degree of convergence of living standards the emergence of profit outflows exerted a negative effect on living standards growth while the irish demographic dividend boosted growth but had a divergent effect on living standards growth during the 1980s and 1990s a renewed future role for regional policy focused on the major urban centres is proposed a partir d un ensemble d

measuring economies of vertical integration in network industries an application to the water sector this paper provides a framework that aims at distinguishing the technological economies of vertical integration from the vertical economies resulting from an inefficient input allocation due to upstream market imperfections to illustrate our analysis we use consistent panel data econometric methods to estimate cost functions on a sample of north american water utilities contrary to what has been found for other network industries electricity and gas for instance we show that the global and technological economies of vertical integration are not significant except for the smallest utilities

regulatory schemes and self protective environmental risk control a comparison of insurance liability and deposit refund systems abstract there has been an increasing interest in considering non traditional regulatory instruments for control of environmental risks traditional regulation has relied on liability in various forms after risky events have actually occurred there is concern that traditional instruments do not provide adequate signals to firms regarding social costs of risks this paper considers two important alternatives to traditional liability instruments insurance and deposit refund systems the purpose of the paper is to determine whether there is any theoretical superiority of these non traditional instruments in controlling environmental risk and safety a relatively simple model designed to capture the essential features of liability insurance and deposit refund instruments is developed and used to compare the resulting control levels under pure risk and pure uncertainty the paper shows how risk aversion limited liability afforded through bankruptcy and differences between social and private discount rates can affect the ranking of control levels under each of the three primary instruments the paper shows that under reasonable assumptions deposit refund systems such as input or discharge deposits or performance bonds will result in higher levels of controls than the other instruments results also suggest that it may be necessary to tailor regulatory instruments to specific firm situations such as requiring deposits from small firms in competitive industries

inequality and convergence in europe s regions reconsidering european regional policies europe s regions income disparities and regional policies in this paper we take a critical look at current european regional policies first we document the motivation for such policies that is the large income disparities across the regions of the eu15 large disparities are certainly present second we illustrate the various instruments adopted and discuss their underpinnings in established economic theories next we look at available data searching for three kinds of evidence 1 if disparities are either growing or decreasing we conclude they are neither 2 which are the major factors explaining such disparities and in particular if they are the factors predicted by the economic models adopted by the commission to justify current policies we conclude this is most certainly not the case 3 if there are clear signs that eu policies as opposed to other social and economic factors are actually reducing such disparities we cannot find any clear sign of such desired impact our conclusion is that regional and structural policies serve mostly a redistributional purpose motivated by the nature of the political equilibria upon which the european union is built they have little relationship with fostering economic growth this casts a serious doubt on their social value and furthermore strongly questions extending such policies to future members of the european union a successful eu enlargement in our view calls for an immediate and drastic revision of regional economic policies michele boldrin and fabio canova

customized bundle pricing for information goods a nonlinear mixed integer programming approach this paper proposes using nonlinear mixed integer programming to solve the customized bundle pricing problem in which consumers are allowed to choose up to n goods out of a larger pool of j goods prior work has suggested that this mechanism has attractive features for the pricing of information and other low marginal cost goods although closed form solutions exist for this problem for certain cases of consumer preferences many interesting scenarios cannot be easily handled without a numerical solution procedure in this paper we investigate the efficiency gains created by customized bundling over the alternatives of pure bundling or individual sale under different assumptions about customer preferences and firm cost structure as well as the potential loss of efficiency caused by pricing with incomplete information about consumer reservation values our analysis suggests that customized bundling enhances sellers profits and enhances welfare when consumers do not place positive values on all goods and that this consumer characteristic is much more important than the shape of the valuation distribution in determining the optimal pricing scheme we also find that customized bundling outperforms both pure bundling and individual sale in the presence of incomplete information and that customized bundling still outperforms other simpler pricing schemes even when exact consumer valuations are not known ex ante

the organization and scope of agents regulating multiproduct industries abstract a mechanism design problem with two dimensional uncertainty is solved to derive the optimal policy for regulating a monopolist with private information about the marginal cost of producing two different goods the paper establishes that informational economies of scope or incentive complementarities arise when one firm produces both goods the regulator should weigh these economies against the benefits of relative performance incentives when choosing between integrated and decentralized organizations unless the marginal costs of the two products are sufficiently positively correlated the optimal ex ante policy gives control of both markets to a single firm journal of economic literature classification number s d82 l22 l51

direct versus indirect taxation the design of the tax structure revisited this article studies the optimal direct indirect tax mix problem when individuals differ in several unobservable characteristics productivity and endowments it presents general expressions for the optimal commodity tax rates and proves that contrary to atkinson and stiglitz s 1976 result differential commodity taxation remains a useful instrument of tax policy even if preferences are separable between labor and produced goods when cross substitution effects are zero the expressions resemble traditional many households ramsey rules in a cobb douglas illustration where endowments differ only in good 1 interpreted as wealth the tax on good 2 provides an indirect way to tax the unobservable wealth

the value of information and optimal organization the paper addresses the issue of optimal organization of production i compare three organizational forms centralization one agent produces difierent inputs decentralization each of the two agents produces a difierent input and contracts directly with the principal and delegation two agents produce difierent inputs the principal contracts with one of them only the optimal organizational form depends on the degree of complementarity substitutability between the inputs in the flnal use the degree of complementarity substitutability also determines whether delegation is payofi equivalent to the two agent mechanism from the point of view of the principal in the context of delegation i consider which of the two agents should serve as the primary contractor i also address the issue of collusion between the agents in a decentralized organization and characterize the conditions under which a stake of collusion exists jel fields d2 d82 l23

environmental liability and privatization in central and eastern europe toward an optimal policy it has been estimated that the costs of remediating contaminated sites in central and eastern europe cee will be very high these contingent environmental liabilities have emerged precisely at the time cee countries are attempting to privatize their capital stocks creating major challenges for privatization agencies it is also generally agreed that an inadequate handling of these liabilities in the past has reduced sales of state owned enterprises in central and eastern europe this paper uses an analytical model to identify optimal policies for minimizing the damage to privatization processes from environmental liabilities policy simulations are conducted which evaluate the effects of the use of liability indemnifications and environmental audits on privatization sales prices and government revenues net of environmental costs the major finding of the paper is that goals to mitigate the effects of environmental liability on privatizations and maximize government net revenues from privatization sales require equivalent environmental liability policies both goals require optimal provision of information and indemnifications to investors and moreover it is found that the two policies are complementary rather than substitutes

procurement when price and quality matter a buyer seeks to procure a good characterized by its price and its quality from suppliers who have private information about their cost structure xed cost and marginal cost of providing quality we characterize the buyer s optimal buying mechanism we then use the optimal mechanism as a theoretical and numerical benchmark to study simpler buying procedures such as scoring auctions and bargaining scoring auctions can extract a signifi cant proportion of the buyer s strategic surplus the difference between the expected utility from the optimal mechanism and the e cient auction bargaining does less well and often does worse than the e cient auction

green payments and dual policy goals abstract we use a mechanism design framework to analyze the optimal design of green payment policies with the dual goals of conservation and income support for small farms each farm is characterized by two dimensions of attributes farms size and conservation efficiency the policymaker may not be able to use the attributes as an explicit criterion for payments we characterize optimal policy when conservation efficiency is unobservable to policymakers and when farm size is also unobservable an income support goal is shown to reduce the conservation distortion caused by asymmetric information the cost of optimal green payment mechanisms is shown to depend crucially on whether large or small farms have greater conservation efficiency

regulation under asymmetric information in water utilities water utilities are reminiscent of network industries and are characterized by important fixed costs these factors contribute to a single firm serving an area justifying public intervention on pricing about one fourth of u s water utilities are private and subject to regulation regulators are unlikely to be perfectly informed and regulation is unlikely to be costlessly implemented these inherent imperfections have led economists to consider the incentive properties of regulatory procedures using the economics of information see david baron 1989 the empirical literature on regulation has focused on evaluating the effects of regulation on prices firms costs efficiency and innovation in such sectors as airlines electricity and energy as surveyed by paul l joskow and nancy l rose 1989 few of these empirical studies rely on the so called theory of regulation regarding the water industry there is an abundant literature on residential water demand firms cost and their efficiency given their public versusprivate nature relying on a model with asymmetric information and a sample of california water utilities frank a wolak 1994 assesses the consumer welfare loss due to asymmetric information and shows that the model with asymmetric information provides a superior description of the cost and demand data to the model under perfect information analyzing pricing for residential water is an important policy issue as the sector recently experienced price increases the problem is even more acute in california because of a high residential demand for water along with population growth water scarcity and the probability of severe droughts relying on a new dataset of 32 districts in california over the 1995 2000 period we analyze regulation of private water utilities for every district the california public utilities commission cpuc chooses a price for water an access fee per meter and a rate of return on capital to satisfy firms revenue requirements we assume that the cpuc is imperfectly informed about firms labor efficiency following david besanko 1984 and wolak 1994 we develop a model in which the firm s capital is used as a screening variable in particular the model has the features of a rate of return regulation we show how the rate of return and the access fee can be determined optimally to control firms rents we then adopt a structural approach to analyze the data a multistep estimator allows us to estimate the key parameters of the model the empirical results show price inelasticity an income effect slightly decreasing returns to scale and a concentration of efficient firms the computation of the optimal rate of return and access fee shows that the cpuc would tend to be cautious by allowing a lower than optimal rate and access fee relying on the estimated parameters a first experiment evaluates the cost of asymmetric information the price would be significantly lower resulting in a gain of consumer surplus a second experiment consists of simulating the outcome of an optimal price cap following the farid gasmi et al 2002 model the price cap became a popular regulatory tool in the 1980s such as for electricity though the incentives resulting in price cap regulation have been questioned by economists the counterfactual simulations show a price increase which results in a significant loss in consumer surplus the increase in firms profit does not however counterbalance this loss supporting the relevance of the actual rate of return mechanism

limited liability contracts between principal and agent abstract the optimal strategy of the principal is examined in an environment where there are ex post limitations on the maximum penalty that can be imposed on a riskneutral agent contrary to the case in which such limitations are not imposed it is in the principal s interest to deliberately forego the opportunity to induce socially efficient behavior and to instead design a contract that induces the agent to realize an efficient outcome only in the most productive state of nature and perhaps in certain very unproductive states the properties of the contract are examined in detail

the optimal income taxation of couples this paper analyzes the general nonlinear optimal income tax for couples a multidimensional screening problem each couple consists of a primary earner who always participates in the labor market but makes an hours of work choice and a secondary earner who chooses whether or not to work if second earner participation is a signal of the couple being better worse off we prove that optimal tax schemes display a positive tax subsidy on secondary earnings and that the tax subsidy on secondary earnings decreases with primary earnings and converges to zero asymptotically we present calibrated microsimulations for the united kingdom showing that decreasing tax rates on secondary earnings is quantitatively significant and consistent with actual income tax and transfer programs

price discrimination and majority voting the theory of second degree price discrimination for group behavior mixes the difficulties of incentive theory with those of social choice theory we present a special environment where all these difficulties can be solved easily

the organization of regulated production complementarities correlation and collusion we analyze the choice between vertical separation vs and vertical integration vi when two regulated firms produce complementary inputs with correlated costs and are protected by ex post break even constraints first in the absence of collusion the regulator prefers vi vs for negative and weak positive respectively strong positive correlation second if the firms can collude under vs and know all costs then vs is equivalent to vi however if firms collude under asymmetric information then collusion does not affect the choice between vs and vi since the regulator takes advantage of the transaction costs created by asymmetric information

monopolistic screening under learning by doing this article investigates the design of incentives in a dynamic adverse selection framework where agents production technologies display learning effects and agents learning rates are private knowledge in a simple two period model with full commitment available to the principal we show that whether learning effects are over or underexploited crucially depends on whether more effcient agents also learn faster so costs diverge through learning effects or whether it is the less effcient agents who learn faster so costs converge we further show that an overexploitation of learning effects can occur also if the full commitment assumption is relaxed

optimal collusion proof auctions abstract we study an optimal collusion proof auction in an environment where subsets of bidders may collude not just on their bids but also on their participation despite their ability to collude on participation informational asymmetry facing the potential colluders can be exploited significantly to weaken their collusive power the second best auction i e the optimal auction in a collusion free environment can be made collusion proof if at least one bidder is not collusive or there are multiple bidding cartels or the second best outcome involves a non trivial probability of the object not being sold regardless optimal collusion proof auction prescribes non trivial exclusion of collusive bidders i e a refusal to sell to any collusive bidder with positive probability

milestone payments or royalties contract design for r d licensing we study how innovators can optimally design licensing contracts when there is incomplete information on the licensee s valuation of the innovation and limited control over the licensee s development efforts a licensing contract typically contains an up front payment milestone payments at successful completion of a project phase and royalties on sales we use principal agent models to formulate the licensor s contracting problem and we find that under adverse selection the optimal contract structure changes with the licensee s valuation of the innovation as the licensee s valuation increases the licensor s optimal level of involvement in the development directly or through royalties should decrease only a risk averse licensor should include both up front and milestone payments moral hazard alone is not detrimental to the licensor s value but may create an additional value loss when combined with adverse selection our results inform managerial practice about the advantages and disadvantages of the different terms included in licensing contracts and recommend the optimal composition of the contract

liability transfers an economic assessment of buyer and lender liability abstract this paper examines the conditions under which it is efficient to transfer liability for contamination of a given piece of property from the seller to the buyer at the time of sale and then for debt financed sales for which there is a foreclosure subsequently to the lender who has financed the purchase we identify two key potential sources of inefficiency which depend on the relative probabilities that the parties will be judgment proof at the time liability is imposed the results suggest that the efficiency effects of liability transfers will depend on the relative magnitudes of these two sources of inefficiency

informing consumers about their own preferences we analyze a model of monopolistic price discrimination where only some consumers are originally sufficiently informed about their preferences e g about their future demand for a utility such as electricity or telecommunication when more consumers become informed we show that this benefits also those consumers who remain uninformed as it reduces the firm s incentives to extract information rent by reducing the costs of information acquisition or forcing firms to supply consumers with the respective information about past usage policy can further improve welfare as contracts become more efficient the last observation stands in contrast to earlier findings by cremer and khalil american economic review 1992 where all consumers are uninformed

economic and social convergence in colombia royuela v and garcia g a economic and social convergence in colombia regional studies gross domestic product gdp has usually been used as a proxy for human well being nevertheless other social aspects should also be considered such as life expectancy infant mortality educational enrolment and crime issues this paper investigates economic and social convergence between regions in colombia in the period 1975 2005 the main results confirm that there is convergence in colombia in key social variables although not in the classic economic variable gdp per capita it is also found that spatial autocorrelation reinforces convergence processes through deepening market and social factors while isolation condemns regions to non convergence

step by step the benefits of stage based r d licensing contracts we examine how a licensor can optimally design licensing contracts for multi phase r d projects when he does not know the licensee s project valuation leading to adverse selection and cannot enforce the licensee s effort level resulting in moral hazard we focus on the effect of the phased nature typical of such projects and compare single phase and multi phase contracts we determine the optimal values for the upfront payment milestone payments and royalties and the optimal timing for outlicensing including multiple milestones and accompanying payments can be an effective way of discriminating between licensees holding different valuations without having to manipulate the royalty rate which induces licensees to invest less resulting in lower project values and socially suboptimal solutions interestingly we also find that multiple milestone payments are beneficial even when the licensor is risk averse contrary to standard contract theory results which recommend that only an upfront payment should be used in terms of licensing timing we show that the optimal time depends on the licensor s risk aversion the characteristics of the licensee and the project value

bundling and optimal auctions of multiple products we study the optimal i e revenue maximizing auction of multiple products we make three major points first we extend the relationship between price discrimination and optimal auctions from the single product case to the multiple product case a monopolist setting prices for multiple products may offer discounts on purchases of bundles of products similarly the optimal auction of multiple products facilitates price discrimination by allocating products inefficiently to customers who are willing to purchase both products second we demonstrate that optimal auctions are qualitatively distinct from monopoly sales of multiple products because of uncertainty about the values of other consumers two products are bundled probabilistically in an optimal auction for a customer who is willing to buy both of them a customer may then receive a discount on a lower valued product without receiving a higher valued product third we show that in an optimal auction of two products the allocation of one product may vary with the amount of competition for the other product

quality of life indices for analysing convergence in the european union giannias d liargovas p and manolas g 1999 quality of life indices for analysing convergence in the european union reg studies 33 27 35 this paper investigates convergence and tests it empirically across countries of the european union between 1970 and 1990 convergence is defined not only in terms of economic indicators but also in terms of social and quality of life indicators real convergence is computed by evaluating a weighted average coefficient of variation based on economic and quality of life variables the weights are based on an experts opinion survey country rankings based on the values of a composite quality of life index are also constructed the results confirm that real convergence was achieved between 1970 75 for most of the countries convergence stagnated between 1980 85 and then it increased southern european member states did not exhibit similar patterns giannias d liargovas p et manolas g 1999 l analyse de la convergence au sein de l union europe enne a partir

the organization of supplier networks effects of delegation and intermediation in a one principal two agent model with adverse selection and collusion among agents we show that delegating to one agent the right to subcontract with the other agent always earns lower profit for the principal compared with centralized contracting delegation to an intermediary is also not in the principal s interest if the agents supply substitutes it can be beneficial if the agents produce complements and the intermediary is well informed

risk and incentives in the financing of hazardous waste cleanup abstract this paper evaluates alternative approaches to financing hazardous waste cleanup recognizing that future cleanup costs are not known with certainty and that the choice of a financing approach implies a specific allocation of risk both retroactive and prospective use of different forms of strict liability are considered in the prospective case the standard principal agent paradigm is extended to capture the risk sharing and incentive effects relating to the choice of waste generating inputs the results indicate when a fund used for cleanup should or should not be subrogated

delegated monitoring versus arm s length contracting abstract this paper analyzes the optimal organization of input suppliers in a procurement context we discuss when a top firm chooses to induce information sharing and active coordination between its suppliers consolidation rather than having them contract at arm s length delegation in designing the organization the firm anticipates that different supplier networks have different costs of inducing information revelation from suppliers when the cost of information sharing varies the optimal organization exhibits various discrete degrees of consolidation there is excessive arm s length contracting compared to the case where the top firm controls this organizational choice itself the paper offers also a methodology to study in a unified framework various organizational forms separately analyzed in the literature

sellers with misspecified models principals often operate on misspecified models of their agents preferences when preferences are such that non local incentive constraints may bind in the optimum even slight misspecification of the preferences can lead to large and non vanishing losses instead we propose a two step scheme whereby the principal 1 identifies the model optimal menu and 2 modifies prices by offering to share with the agent a fixed proportion of the profit she would receive if an item were sold at the model optimal price we show that her loss is bounded and vanishes smoothly as the model converges to the truth finally two step mechanisms without a sharing rule like 2 will not yield a valid approximation

regulating complementary products a comparative institutional analysis optimal regulation subject to informational constraints is analyzed for industries for which production requires complementary inputs an issue for regulatory policy is whether supply in these industries should be bundled or unbundled bundled supply calls for regulation of an integrated industry unbundled supply has each component regulated separately a main result is that unbundling introduces into regulation an additional component of information cost that is similar to double marginalization in the monopoly pricing of complementary products unbundling may be advantageous if it allows sufficient competition in nonmonopoly services but the information cost can exceed the benefits of competition

quality of life and economic convergence across spanish regions 1980 2001 marchante a j and ortega b 2006 quality of life and economic convergence across spanish regions 1980 2001 regional studies 40 471 483 evaluations of regional welfare conventionally rely on gross value added gva per capita as an indicator of living standards this paper attempts to readdress the regional welfare issue by using alternative composite indicators in the context of the united nations development programme undp human development indices evidence is presented regarding to what extent such alternative measures of living standards are converging with this aim a database for the spanish regions nuts ii was constructed for 1980 2001 and an augmented version of the human development index ahdi was estimated incorporating sub indices of health education and the resources required for a decent standard of living including an indicator of social exclusion the regional convergence of three per capita income measures and the raw data of seven indicators of quality of life were also

bundling with customer self selection a simple approach to bundling low marginal cost goods with declining costs of distributing digital products comes renewed interest in strategies for pricing goods with low marginal costs in this paper we evaluate customized bundling a pricing strategy that gives consumers the right to choose up to a quantity m of goods drawn from a larger pool of n different goods for a fixed price we show that the complex mixed bundle problem can be reduced to the customized bundle problem under some commonly used assumptions we also show that for a monopoly seller of low marginal cost goods this strategy outperforms individual selling m 1 and pure bundling m n when goods have a positive marginal cost or when customers have heterogeneous preferences over goods comparative statics results also show that the optimal bundle size for customized bundling decreases in both heterogeneity of consumer preferences over different goods and marginal costs of production we further explore how the customized bundle solution is affected by factors such as the nature of distribution functions in which valuations are drawn the correlations of values across goods and the complementarity or substitutability among products altogether our results suggest that customized bundling has a number of advantages both in theory and practice over other bundling strategies in many relevant settings

optimal tax and transfer programs for couples with extensive labor supply responses this paper analyzes the optimal design of general nonlinear tax transfer schedules for couples under unitary and collective approaches to family decision making we consider a double extensive model of labor supply where each spouse makes a labor force participation choice for given hours of work we present simple and intuitive optimal tax rules that generalize existing findings on the optimal taxation of single person households with extensive responses saez 2002 to the case of two person households with double extensive responses without income effects on labor supply optimal tax rules as a function of sufficient statistics are the same under the unitary and collective approaches with income effects on labor supply optimal tax rules under the two approaches continue to depend on the same sufficient statistics but the collective model features an additional pigouvian term arising from a within family participation externality finally we present microsimulations of tax reform for 15 european countries suggesting that a reduction of tax rates on secondary earners relative to primary earners is associated with strong welfare gains in all countries

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

indivisible toxic torts the economics of joint and several liability cost effective or efficient pollution control has traditionally devoted most of its attention to analyzing the effects of legislative or regulatory policy instruments such as emission taxes or marketable emission permits recent contributions have expanded this focus to include the effects of monitoring and enforcement policies 2 with a few noteworthy exceptions 3 however the role of the court system in general and liability law in particular have not received analytical attention among environmental economists in proportion to their importance in resource allocation

optimal multi object auctions this paper analyses optimal auctions of several objects in the first model bidders have a binary distribution over their valuations for each object in which case the optimal auction is efficient the optimal auction takes one of two formats either objects are sold in independent auctions or a degree of bundling is introduced in the sense that the probability a bidder wins one object is increasing in her value for the other the format of the optimal auction may depend upon the number of bidders in the second model the restriction to binary distributions is relaxed and the optimal auction is then inefficient

liability for past environmental contamination and privatization this paper examines the role ofliability for past environmental contaminationin the privatization processes of central andeastern europe in particular it establishes alink between a risk averse investor s amount ofinformation regarding the extent of pastenvironmental contamination and its cleanupcosts and the investor s willingness to payfor a particular enterprise i e bid as theinvestor obtains a more precise estimate of theuncertain cleanup costs the investor facesless risk therefore the investor s riskpremium falls and the investor s bid rises this link generates four hypotheses regarding aprivatization agency s responses to theinvestor s knowledge of clean up costs

robustly collusion proof implementation a contract with multiple agents may be susceptible to collusion we show that agents collusion imposes no cost in a large class of circumstances with risk neutral agents including both uncorrelated and correlated types in those circumstances any payoff the principal can attain in the absence of collusion including the second best level can be attained in the presence of collusion in a way robust to many aspects of collusion behavior the collusion proof implementation generalizes to a setting in which only a subset of agents may collude provided that noncollusive agents incentives can be protected via an ex post incentive compatible and ex post individually rational mechanism our collusion proof implementation also sheds light on the extent to which hierarchical delegation of contracts can optimally respond to collusion

multi attribute procurement contracts abstract we consider the design of multi attribute procurement contracts when the supplier possesses multi dimensional private information specifically we consider a buyer who must design a contract to procure a single product whose value is a function of two attributes the potential supplier s cost structure is two dimensional including one component for each attribute and is unknown to the buyer in contrast to the existing one dimensional models we find that in some cases the buyer can extract all of the channel profits without distorting the specifications of the final product and we identify conditions under which that will be the case in other words with more dimensions to leverage the buyer may be able to discern the supplier s type without paying any information rents thus reducing her procurement costs it is also possible that the buyer can extract all the channel profits by distorting the product specifications downward finally we demonstrate how our results can be extended to a setting with multiple customer classes where the valuation for the product attributes varies across the classes we find that greater differentiation in customer valuation leads to a setting in which the buyer is less likely to extract all of the channel profit without distortion