why voluntary export restraints are voluntary the paper presents an analysis of the effect upon an oligopolistic equilibrium of introducing a voluntary export restraint ver upon an importing firm a ver set at the free trade level of imports is shown to raise the profits of all firms within the industry the result follows as the imposition of a ver upon a free trade nash price competition forces the domestic firm to become an industry price leader the ver raises industry prices by facilitating collusion and lowers consumer welfare pourquoi les restrictions volontaires d 1 exportation sont volontaires ce memoire presente une analyse des effets de l introduction de restrictions volontaires a l exportation rve sur une entreprise qui importe dans un monde en equilibre oligopolistique on montre que l introduction de rve approximant le niveau des importations en regime de libre echange devrait augmenter les profits de toutes les entreprises dans l industrie cela decoule du fait que l imposition de rve sur un univers de concurrence par les prix a la nash en regime de libre echange force l entreprise domestique a devenir le leader en prix l introduction de rve augmente le niveau des prix de l industrie en facilitant la collusion et de ce fait reduit le niveau de bien etre des consomrnateurs

on the equivalence of import quotas and voluntary export restraint abstract this note re examines the trade effects of a voluntary export restraint and an import quota whether or not they are equivalent in the presence of a dominant monopolist supplier depends fundamentally on the elasticity of a alternative non restricted producers excess supply functions and the market share of the dominant monopolist

antecedents of early terminations in franchising franchisor versus franchisee cancelations franchisors capitalize on franchisee entrepreneurial capacity to grow however enabling franchisees to develop their ventures may damage system consistency this dilemma makes conflict particularly prevalent in the field of franchising nevertheless prior research has reported an incomplete picture of factors leading to serious disagreement and premature termination in franchise partnerships we address this gap first by adding the entrepreneurial autonomy of franchisees as a relevant but underexplored source of conflict and second by providing a more fine grained analysis of franchisors versus franchisees drivers of termination specifically we focus on the controversial issues of pricing and local advertising policies and analyze how expanding franchisees entrepreneurial autonomy in these decision areas is related to contract terminations depending on who ended the relationship the franchisor or a franchisee the study also highlights less controversial requirements and conditions e g upfront investments franchisor experience that may reduce early terminations our empirical objectives are met by using survey data from a sample of franchisor companies the results show how the performance outcomes of entrepreneurial autonomy differ depending on the decision area in which it is exercised results also throw light on the consequences of various critical franchise policies that may be masked if both types of termination franchisors vs franchisees are considered together

market equilibrium under the threat of a ver abstract this paper characterizes market equilibrium under oligopoly when a ver has introduced both asymmetry amongst exporters and uncertainty a restrained and an unrestrained exporter choose price strategically under the threat of a ver on the latter a pure strategy equilibrium is shown to result only when the probability of the ver is high otherwise a unique mixed strategy equilibrium results as the probability of the ver rises the expected domestic price rises even if the ver is not imposed

market share quotas abstract anecdotal evidence reveals that an import quota is not always filled when the quota is specified in terms of a market share limit instead of a quantity limit in a simple cournot duopoly we show that imposing a market share quota eliminates pure strategy equilibria instead a mixed strategy equilibrium occurs where the quota is not binding under one of the two equilibrium domestic strategies compared with a tariff that restrains the foreign market share to an equivalent level domestic output and social welfare may be higher under a market share quota

committee assignments constituent preferences and campaign contributions committee assignments constituent preferences and campaign constributions the familiar economic model of regulation as developed by stigler 1971 peltzman 1976 and becker 1983 posits an essentially frictionless market process for regulatory policy formation in which a single regulator legislator chooses policy to maximize net support from competing groups in this paper we extend the supply side of this model by considering the effect of legislative institutions and unorganized constituent preferences on the ability of incumbents in the house of representatives to serve specific interest groups we then test this formulation by examining the recent history of interest group campaign contributions to these legislators our theoretical model concentrates on how a legislator allocates time between serving specific interest groups outside his district and serving his constituency we do not model interest group decisions directly assuming simply that they purchase their desired amount of service from the lowest cost suppliers our model sorts legislators by the supply price at which they can serve a particular group this price depends on the preferences of the voters in the legislators district and the productivity of the legislator in producing policy service for each group 1 the empirical section tests the model by examining the pattern of interest group campaign contributions to house incumbents from 1978 through 1984 our regression analysis tends to confirm both implications of the theory first the pattern of campaign contributions from specific interest groups to legislators is shaped by the division of substantive legislative and regulatory jurisdictions represented by the system of house standing committees second voter preferences influence the pattern of contributions by affecting the supply price at which a legislator can offer policy to interest groups legislators with sympathetic or indifferent constituencies are able to offer a lower price and are therefore able to attract larger sums than those with hostile constituencies these results are important for two reasons first the influence of congressional institutions such as committees on policy is not widely accepted while several studies faith levins and tollison 1982 weingast and moran 1983 weingast 1984 grier 1989 and robert 1990 have documented the effects of changes in a particular committee on policies under its jurisdiction this work considers the jurisdiction of only a single committee in each case 2 by examining the linkages between congressional committees and political action committees pacs we investigate whether interest groups act as if committees have power second while the chicago model of regulation emphasizes correctly in our view that policy is the result of vote maximizing calculations and the incremental balancing nature of any equilibrium the model is imprecise about which sets of preferences are most important in determining the levels of policy or the size of changes in policies focusing on committees promotes a parsimonious specification of both the political players members of the relevant committee rather than the entire congress and the pivotal voters committee members constituencies more than the nation determining specific policy outcomes the paper is organized as follows section i reviews some issues on the nature and sources of committee influence in the u s congress the second section incorporates committee assignments into a theory of decision making by interest group investors sections iii and iv describe our data and estimation technique and present the empirical results the fifth and final section discusses some implications and conclusions of this research i committee power in congress legislators differ substantively by virtue of their committee assignments committees in congress and particularly in the house of representatives possess disproportionate power over the policy areas in their respective jurisdictions have the right to hold hearings and recommend budget allocations for the bureaus in their jurisdiction goodwin 1970

territorial restrictions in franchise contracts i introduction efficient contracts establish the incentives for contractual parties through the assignment of rights or authority over decisions as well as shares of profit this insight has been widely used to explain the nature of the firm 1 the role of rights assignment in explaining specific business contracts however is relatively unexplored here we analyze contractual rights within franchise systems focusing on the right to add new franchisees to an existing franchise area the choice in a franchise contract is simple either grant the franchisor the right to add new franchisees in the future or allow existing franchisees the right to block the addition of new outlets the literature on vertical restraints assumes that the restraints specified in contracts are enforced and never renegotiated with respect to territorial exclusivity in particular the literature mainly takes two perspectives territorial protection either prevents franchisor hold up behavior the appropriation of franchisee returns from the investment in establishing the local market or it corrects distortions arising from competition among franchisees 2 our model extends the hold up story by recognizing the dynamic nature of contractual relations between parties contracts are always open for renegotiation and the initial contracts are designed with this in mind the key effect in assigning the right to add additional franchisees is on the status quo point in bargaining subsequent to the initial contract the central point is simple the party with the authority to add franchisees can extract a larger portion of the wealth created by investment in the system incentives depend on the appropriated portion of the return to investment therefore the optimal contract assigns the right to the party whose input is more valuable to the system 3 the next section offers a simple model that develops this theme in a subsequent section we examine some facts about franchise systems in place and illustrate alternative assignments of authority ii the model we consider the simplest franchise contract a franchisor f offers to a franchisee g a contract giving the right to collect profits from the use of the franchisor s brand name in a retail territory we assume that the level of economic profits cannot be verified by a third party such as a court this rules out explicit sharing rules for profits between the two parties 4 these profits depend upon the efforts of both the franchisor and franchisee in developing the market the efforts are undertaken immediately after the contract is signed the franchisee s input represents for example local advertising selling effort or quality and the franchisor s input represents for example national advertising or the maintenance of the brand name the profits from the venture are uncertain and depend on the realization of a draw should the system prove sufficiently successful it may be profitable to add another retail outlet the evolution of contracts will respond to any opportunity for profit enhancement and any restrictions in the initial contract preventing this realization will be open for renegotiation the role for territorial constraints in particular may be illustrated within a simple formal model the effort levels of the franchisor and franchisee are denoted by e sub f and e sub g and are measured in dollars the profits earned from the brand name depend upon a stochastic variable e g demand uncertainty denoted by theta which is realized after the efforts are undertaken after the realization of theta there is an opportunity for the franchisor to sell a position in the territory to a second franchisee a product idea that enjoys success warrants an expanded retail network as the market is mature at this point no further investment is required the key element of the contract for our interest is the allocation of authority over the admission of additional retailers to the territory in question does the contract guarantee to the original franchisee exclusive authority to the use of the brand name in the territory

legislative monopoly and the size of government if the economics profession had a fetish it would surely be competition unrestricted competition allows resources to flow to their most productive uses and maximizes the net welfare of society one of the few points virtually all modem economists would agree on is that with the possible exception of a few well defined special cases e g money production and public utilities they have never met an entry barrier they did not want to eliminate entry barriers facing potential competitors in markets reduce economic efficiency and generate social waste in a classic article tullock 2 extended this reasoning to the political process he makes the following argument lower entry barriers into politics e g lowered costs of entry into the legislature for potential entrants makes governmental decision making more competitive and tends to make p mc 2 competitive government will supply a higher level of public goods at lower tax prices taxes will therefore be lower holding other things equal in political jurisdictions which are more competitive while taxes will be higher in monopoly jurisdictions which will seek to exploit monopoly rents from taxpayers this reasoning makes the assumption that it is appropriate to model government as a kind of firm which provides public goods in exchange for tax revenues from taxpayer voters in such a setting increased competition would most likely produce increased efficiency in the provision of public goods and increase net social welfare buchanan 6 made a very different argument which while not directly intended to apply to the problem of the behavior of government may have direct bearing on those problems he was concerned with the social welfare effects of the monopolization of crime by organized criminal

agency theory and franchising some empirical results this article provides an empirical assessment of various agency theoretic explanations for franchising including risk sharing one sided moral hazard and two sided moral hazard the empirical models use proxies for factors such as risk moral hazard and franchisors need for capital to explain both franchisors decisions about the terms of their contracts royalty rates and up front franchise fees and the extent to which they use franchising in this article i exploit several new sources of data on franchising to construct a cross section of 548 franchisors involved in various business activities in the united states in 1986 the data are most consistent with a model based on two sided moral hazard the empirical models are also more successful at explaining the extent to which franchisors choose to franchise stores than at explaining the terms of franchise contracts finally contrary to the predictions of several theoretical models i find that royalty rates and franchise fees are not negatively related

tax mix corners and other kinks abstractthis paper models the local tax mix determination process in the presence of statewide fiscal limitations the decentralized government finance archetype and shows how excess sensitivity of local public spending to grants the conventionally and somewhat misleadingly termed flypaper effect arises in the constrained tax mix irrespective of whether lower or upper limits bind and how it cannot in general be taken as a symptom of local government overspending an empirical application to italian province panel data provides consistent evidence of the role of corner solutions produced by two sided tax limits in explaining the sensitivity of local public expenditures to grants

the industrial structure of the california assembly committee assignments economic interests and campaign contributions this paper examines the provision of campaign contributions made by economic interests to incumbents seeking reelection in the 1984 1986 and 1988 california assembly elections the study tests whether the distribution of campaign contributions by specific industrial sectors corresponds to legislator possession of the policy property rights associated with membership on relevant assembly standing committees a non parametric statistical model compares the distribution of campaign contributions from groups within a given industrial sector to members of relevant policy committees with the distribution of contributions from all other contributor classes the empirical analysis confirms that committee assignments significantly affect the allocation of special interest resources in assembly elections substantiating the importance of institutional considerations in influencing special interest activity

incentive conflicts and contractual restraints evidence from franchising abstract this study uses agency theory to develop testable implications about three provisions commonly observed in franchise contracts 1 restrictions on passive ownership 2 area development plans and 3 mandatory advertising expenditures the primary hypothesis is that these provisions are most likely when there are significant externalities among the units within the franchise system the evidence based on a large sample of franchise contracts is generally consistent with this hypothesis the evidence also suggests that these incentive instruments are complements in contrast to the theory most of the results do not support the hypothesis that the percentage of company owned units is related to externalities within the system franchisee risk aversion and or wealth constraints appear more important while the study focuses on franchising the results provide insights into related provisions in other contracts

strategic trade practices in the presence of a ver the authors investigate the choice of competing exporters to move simultaneously or sequentially when a voluntary export restraint has introduced both asymmetry and uncertainty amongst them a restrained and an unrestrained exporter choose price strategically under the threat of a voluntary export restraint on the latter given the choice firms adopt a sequential move strategy but which leads and which follows depends upon the threat of the second voluntary export restraint the restricted firm thus sells its full quota even if this threat is low copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

voluntary export restraints as protection policy the u s beef case there are several well known implications of international trade theory which are relevant to our study with a tariff an importing country s welfare can improve only if the excess supply curve is upward sloping under the large country assumption bhagwati has shown that a quota used by an importer can be equivalent to a tariff and mintz has contrasted features of tariffs quotas and vers empirical work has focused largely on the effects of tariffs and equivalent quotas generally exporting countries lose from such trade barriers in contrast we find that exporting countries gain and importing countries lose with a ver we also contrast the gains and losses of vers in the case of frozen boneless beef to an optimal tariff and optimal export tax the theoretical implications of vers for beef exporters were first recognized by freebairn and gruen

vertical restraints and the law evidence from automobile franchising abstract after a 2002 european commission regulation prohibited the use of dealer exclusive territories automobile franchise contracts in italy introduced price ceilings and standards on verifiable marketing and service inputs such as advertising and salespeople the contracts also imposed quantity floors a practice already in use before the regulatory change the introduction of standards suggests that consistent with a view of vertical restraints as coordination mechanisms manufacturers used exclusive territories to induce desired dealer services and once the use of exclusive territories was prohibited they switched to alternative contractual devices to achieve this goal the introduction of price ceilings despite free intrabrand competition also suggests that car manufacturers tried to prevent some dealers from gaming the quantity floors by selling to other dealers customers while charging monopolistic prices at their own locations

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

the economic effects of franchise termination laws we would like to thank blake rhodes and pam schommer for excellent research assistance participants in workshops at arizona state university university of california berkeley the university of chicago dartmouth college iowa state university the justice department the university of rochester and the university of utah as well as jeff coles arnold cowan jim dana franklin m fisher stuart gilson ben hermalin cliff holderness gregg jarrell alan krueger wayne mikkelson walter oi jim poterba ajai singh cliff smith kathy spier david weisbach jamie zender jerry zimmerman and especially kevin j murphy and an anonymous referee for comments on an earlier draft brickley and weisbach thank the managerial economics research center of the university of rochester and the john m olin foundation and dark thanks the college of business at iowa state university for financial support brickley also thanks the garn institute of finance at the university of utah for financial assistance 1 see mark robichaut franchise rules are back off drawing board wall st j july 6 1990 at bl note that in this article we focus on laws that apply to business format franchises for an analysis of state laws in automobile franchising see richard l smith ii franchise regulation an economic analysis of state restrictions on automobile distribution 25 j law econ 125 1982 richard a epstein unconscionability a critical appraisal 18 j law econ 293 314 15 1975 and paul h rubin the theory of the firm and the structure of the franchise contract 21 j law econ 223 1978 other work on the economics of franchising includes james a brickley frederick h dark the choice of organizational form the case of franchising 18 j fin econ 401 1987 james a brickley frederick h dark michael s weisbach an agency perspective on franchising 20 fin mgmt 1991 in

markets state franchise laws dealer terminations and the auto crisis abstract in fall 2008 general motors and chrysler were both on the brink of bankruptcy and ford was not far behind as the government stepped in and restructuring began gm and chrysler announced their plan to terminate about 2 200 dealerships in this paper we first provide an overview of franchising in car distribution how it came about and the legal framework within which it functions states earn about 20 percent of all state sales taxes from auto dealers as a result new car dealerships and especially local or state car dealership associations have been able to exert influence over local legislatures this has led to a set of state laws that almost guarantee dealership profitability and survival albeit at the expense of manufacturer profits available evidence and theory suggests that as a result of these laws distribution costs and retail prices are higher than they otherwise would be and this is particularly true for detroit s big three car manufacturers which is likely a factor contribut

resale price maintenance an economic assessment of the federal trade commission s case against the corning glass works this article examines the economic explanations for the use of resale price maintenance rpm by the corning glass works using empirical evidence developed from the federal trade commission s case challenging the practice three classes of rpm theories are tested the supplier and dealer anticompetitive theories and the class of principle agent theories the article uses both ex ante and ex post tests to distinguish the theories including tests based on structural evidence as well as data on sales advertising and stock market reactions for the company and its competitors around critical events in the case the evidence most convincingly rejects the anticompetitive theories and points toward a principle agent explanation in which rpm helped increase sales of corning s products the case is of interest in part because the simple products at issue in the case are not the types of products most often associated with potential efficiency explanations for rpm

agency and strategic contracts theory and evidence from r d agreements in the pharmaceutical industry we examine the use of strategic rights in research and development r d agreements between a client and an agent when an entrant may compete with the client for the license of non contracted discoveries developed by the agent the agent puts effort either in the contracted project or into other r d activities which can result in non contracted discoveries strategic rights help the client and the agent extract rent from the entrant and also motivate the agent to place effort into the contracted project accordingly firms are more likely to adopt strategic rights when the likelihood of entry is larger moreover strategic rights and termination rights are substitutes in mitigating agency problems by investigating r d agreements between pharmaceutical clients and bio tech agents we find consistent evidence of the positive impact of entry threat on the use of strategic rights as well as evidence of the substitution between strategic rights and termination rights

a simple test of the thesis that committee jurisdictions shape corporate pac contributions the results presented in the previous section tend to confirm the hypothesis that committee assignments shape the pattern of corporate pac contributions this note corroborates existing research on corporate pacs at a significantly lower level of aggregation than the samples on which existing research has been conducted further because a nonparametric test was used rather than the more standard regressional analysis these results should increase our confidence that the essential institutions of government affect and engender responses by economic agents