effects of indirect taxation in a mixed oligopoly abstract in a mixed oligopoly an increase in tax ad valorem or specific does not change total output but increases the output of the public firm and the tax revenue also privatization may increase both tax revenue and welfare

efficiency considerations and the exemption of food from sales and value added taxes we evaluate efficiency considerations underlying the widespread exemption of food from sales and value added taxes and the implications for tax policy household and restau rant meals and both constant and increasing returns cases are examined higher taxes on food offset the non taxation of time inputs into household production even under constant returns to scale with increasing returns gains from taxing food are higher and amplified by subsidizing restaurant food and all marginal cost components of restaurant meals on effi ciency grounds exemption of food from sales and value added taxes emerges as socially costly policy especially under increasing returns

group lending with endogenous group size this paper focuses on the size of the borrower group in group lending we show that when social ties in a community enhance borrowers incentives to exert eort a pro t maximizing nancier chooses a group of limited size borrowers that would be fundable under moral hazard but have insu cient social ties do not receive funding the result arises because there is a trade obetween raising pro ts through increased group size and providing incentives for borrowers with less social ties the result may explain why many micro lending institutions and rural credit cooperatives lend to groups of small size

the effects of taxation price control and government contracts in oligopoly and monopolistic competition abstract many government contracts with or policies towards oligopolistic sectors essentially involve private firms selling a given proportion or quantity of output to the government at a fixed price p r with the remainder being sold on the open market often this is combined with consumer rationing examples include cement and sugar in india and health housing and defence in many countries the paper investigates the effects of these schemes including sales and excise taxation on prices output and household welfare under oligopoly and monopolistic competition less government control reduced may raise prices and tax shifting can be above or below 100 percent

the institutional causes of china s great famine 1959 1961 this paper studies the causes of china s great famine during which 16 5 to 45 million individuals perished in rural areas we document that average rural food retention during the famine was too high to generate a severe famine without rural inequality in food availability that there was significant variance in famine mortality rates across rural regions and that rural mortality rates were positively correlated with per capita food production a surprising pattern that is unique to the famine years we provide evidence that an inflexible and progressive government procurement policy where procurement could not adjust to contemporaneous production and larger shares of expected production were procured from more productive regions was necessary for generating this pattern and that this policy was a quantitatively important contributor to overall famine mortality

basing point pricing and production concentration basing point pricing is a delivered price system in which the price quoted for delivery of a commodity is the sum of the price quoted at a predetermined basing point plus the cost of transportation from the basing point to the point of delivery whether or not the commodity is actually shipped from the basing point thus a seller who is not located at the base site absorbs freight for shipments toward the base point and charges phantom freight on shipments away from the base point basing point pricing has been widely practiced throughout the world for example testimony of the federal trade commission before the tnec i 94 i p 33 alleged that industries in the united states which then or previously followed basing point pricing included lumber iron and steel pig iron cement lime brick asphalt shingles and roofing window glass white lead metal lath building tile floor tile gypsum plaster bolts nuts and rivets cast iron soil pipe range boilers valves and fittings sewer pipes paper and paper products salt sugar corn derivatives industrial alcohol linseed oil fertilisers chemicals transportation equipment and power cable almost from its inception economists have generally considered basingpoint pricing to reflect a cartel or price leadership arrangement hoover i937 stigler i949 machlup i949 and such practices have been attacked under antitrust statutes for example aetna portland cement co vs ftc i 57 f 2nd 533 i946 triangle conduit cable co vs ftc i68 f 2nd i 75 7th cir i 948 cement institute vs ftc i57 f 2nd 533 i948 nonetheless basing point pricing remains prevalent particularly outside the united states opec has used a gulf based price plus transport costs to determine the delivered prices of crude oil to most places in the world haddock i982 p 290 the pricing of cement in great britain and steel in europe can be characterised as multibase point systems greenhut i987 recent attempts by for example haddock i982 to return to the theme that the basing point system could be competitive and desirable have been challenged by thisse and vives i988 and benson et al i990 on the basis of recent advances in the analysis of pricing policy given then that we assume basing point pricing to be a collusive device adopted by incumbent firms to impose some kind of price discipline on potential entrants the price leadership point referred to above important strategic and locational issues arise in particular a major concern of the early analysis of basing point pricing was the effect such a pricing policy would have on location choice of entrant firms

the empirics of microfinance what do we know microfinance has received a lot of attention recently both from policy makers as well as in academic circles two of the main topics that have been hotly debated are explaining joint liability group lending and its implications for reducing information asymmetries and the trade off between the financial sustainability and outreach of microfinance programmes this feature contains three novel empirical contributions providing new insights with respect to why and how joint liability group lending works it also contains the first large scale systematic analysis of the trade off between financial performance and outreach of microfinance institutions

entry deterrence in stackelberg perfect equilibria this paper examines entry deterrence in a duopoly where the postentry game is stackelberg it is argued that in reality firms can use a broader range of precommitments than is allowed for in the literature this paper permits such precommitments and analyzes the perfect equilibria it also allows for the fact that there may be fixed costs associated not only with entry but with beginning production several interesting possibilities are explained including the existence of excess capacity and the holding of inventories even in the absence of any uncertainty copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

economic welfare in delivered pricing duopoly bertrand and cournot abstract we investigate two delivered pricing models we find that in the bertrand cournot model the equilibrium distance between two firms locations is too large small for maximum social welfare while it is too small for maximum consumer surplus in both models

group credit a means to improve information transfer and loan repayment performance information asymmetries plague credit markets in developing countries leading to selective rationing and market segmentation with adverse income distributional consequences for small borrowers data collected from the finca group credit programme in costa rica were used to study the viability and cost effectiveness of group credit as a means to transmit information on borrower creditworthiness groups that screened members and used local information had lower delinquency rates than those that did not however less than half the groups had positive rates of economic return suggesting that group lending may improve information flow but is a cost sensitive institutional design

excise taxes on a non uniform pricing monopoly ad valorem and unit taxes compared in this paper ad valorem and unit taxation are compared on a model that allows for various monopolistic pricing policies including uniform pricing and all three types of pigouvian price discrimination it shows that for any given unit tax on a non uniform pricing monopoly 1 there exists an output neutral ad valorem tax rate that gives rise to a higher tax yield than the unit tax and 2 there exists an ad valorem tax rate that welfare dominates the unit tax not only in the aggregate sense but also in the pareto sense taxes d accise dans le cas d un monopole qui n a pas une tarification unique comparaison des taxes ad valorem et unitaire ce memoire compare la taxe ad valorem et la taxe par

customized advertising via a common media distributor we show that when a single media content distributor such as a television cable company or an internet provider delivers advertising messages on behalf of multiple competing brands it can sometimes utilize customized advertising to implement monopoly pricing even though such monopolistic pricing can be implemented with varying degrees of customization of commercials product revenues and consumer surplus are highest when the distributor chooses the highest level of customization feasible consumers would obviously prefer aggressive price competition in product markets however given that collusion on prices is facilitated anyway when the distributor acts as a common agent the welfare of consumers is enhanced when commercials are better aligned with their preferences

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

the effect of social capital on group loan repayment evidence from field experiments an important question to microfinance is the relevance of existing social capital in target communities to the performance of group lending this research presents evidence from field experiments in south africa and armenia in which subjects participate in trust and microfinance games we present evidence that personal trust between group members and social homogeneity are more important to group loan repayment than general societal trust or acquaintanceship between members we also find some evidence of reciprocity those who have been helped by other group members in the past are more likely to contribute in the future during the past decade exploring the role that social capital plays in economic behaviour has emerged as one of the most fascinating and fertile areas of economic research although precise definitions of social capital are notoriously difficult to pin down one of the early pioneers of the concept coleman 1988 defines social capital as social structure that facilitates certain actions of actors within the structure in his definition coleman specifically highlights the roles of mutual obligation expectations and trustworthiness social norms social sanctions and the transmission of information important studies in both developed and developing countries have analysed the impact of social capital in economic relationships putnam s celebrated work making democracy work civic traditions in modern italy 1993 and bowling alone america s declining social capital 1995 brought attention to the role that social capital plays in the development of the modern state udry s ground breaking 1994 work in nigeria illustrated how the social capital existing in traditional societies may allow for more efficient credit contracts than in developed economies with weaker social

a pareto comparison of ad valorem and unit taxes in noncompetitive environments abstract a literature that began with wicksell 1896 has shown that an ad valorem tax is welfare superior to an equal yield unit tax in both monopoly and oligopoly markets this paper proves a stronger result for any unit tax imposed on a monopoly there exists an ad valorem tax that pareto dominates it that produces larger profit tax revenue and consumer surplus the paper then considers whether this pareto result generalizes to all cournot nash oligopolies the paper shows that pareto dominance holds in such markets whenever the tax level exceeds a critical value that depends on various market parameters

how to lend like mad and make a profit a micro credit paradigm versus the start up fund in south africa in current debates about micro credit joint liability schemes are often viewed as the only viable way to non collateralised lending and are thus seen as almost synonymous with micro credit this article reports about an alternative non participatory approach to micro credit prompted by the apparent inability of group credit schemes to reign in lending costs the article sets out the institutional requirements for cheap mass produced credit it argues that such credit can be viable if mechanisms are in place enforcing the self selection of potential borrowers and self motivation of existing borrowers the analysis of a mass minimalist micro credit institution from south africa supports the argument

central place theory and city size distribution this paper proposes a theory of city size distribution via a hierarchy approach rather than the popular random growth process it does so by formalizing central place theory using an equilibrium entry model and specifying the conditions under which city size distribution follows a power law central place theory describes the way in which a hierarchical city system with difierent layers of cities serving difierently sized market areas is formed from a uniformly populated space the force driving the city size difierences in this model is the heterogeneity in economies of scale across goods the city size distribution under a central place hierarchy exhibits a power law if the distribution of scale economies is regularly varying which is a general class that encompasses many well known commonly used distributions this model is also consistent with a power law for flrms and a number average size rule which is the log linear relationship between the number and average size of the cities in which an industry is located

state and peasant in contemporary china the political economy of village government this is a study of peasant state relations and village politics as they have evolved in response to the state s attempts to control the division of the harvest and extract the state defined surplus to provide the reader with a clearer sense of the evolution of peasant state relations over almost a forty year period and to highlight the dramatic changes that have taken place since 1978 1 have divided my analysis into two parts chapters 2 through 7 are on maoist china and chapters 8 and 9 are on post mao china the first part examines the state s grain policies and patterns of local politics that emerged during the highly collectivized maoist period when the state closed free grain markets and established the system of unified purchase and sales tonggou tongxiao the second part describes the new methods for the production and division of the harvest after 1978 when the government decollectivized agriculture and abolished its unified procurement program

an analysis of offer functions of banks and credit unions in guatemala economists have sought to identify institutions which might fill the gap in household access to credit arising from rationing by formal lenders credit unions have been identified as institutions which might use informational and monitoring advantages to fill that gap using information on household perceptions of their access to credit this article analyses the impact of certain credit unions on the access to credit of households in guatemala regression results indicate that credit unions serve markets unserved by formal lenders and that information on household perceptions of their access to credit is important in making inferences about lender lending activities

on the efficiency of location decisions under discriminatory pricing abstract the paper analyzes the question of whether delivered pricing policies give rise to an inefficient location of firms and in particular to a geographical distribution of capacity which is overly concentrated the analysis adds to the literature on spatial pricing and location decisions the element of uncertainty over the timely delivery of products and therefore the possibility that risk averse consumers may be willing to pay a higher delivered price for products if they can hedge and divide their orders among two suppliers the results are in strong contradiction to the common belief that identical delivered pricing systems produce a highly inefficient distribution and that fob would yield the optimal location however it is shown that in markets with coordination problems the concern about excessive concentration of productive capacity may be legitimate

vertical integration in a spatial setting inplications of the successive monopoly distortion abstract we extend earlier analyses of spatial markets to a vertical setting in which firms at both the upstream and downstream level face transportation costs and sunk cost investments depending on the costs of integration and the size of the successive monopoly distortion loss vertical integration may be partial total or not at all

the comparison between ad valorem and specific taxation under imperfect competition abstract this paper compares ad valorem and specific taxation in two models of oligopoly with and without free entry predominantly ad valorem taxation implies a relatively low consumer price high tax revenue and when entry is precluded low profits ad valorem taxation dominates specific taxation from the welfare perspective the set of circumstances under which with free entry specific taxation raises welfare is a strict subset of that in which ad valorem taxation is welfare improving and in both models the maximisation of consumer welfare subject to a binding revenue constraint requires maximum reliance on ad valorem taxation

a critique of traditional agricultural credit projects and policies abstract authors critique the results assumptions and policies commonly associated with agricultural credit projects in low income countries a summary of new views on these projects is present these views emphasize voluntary savings mobilization and positive real rates of interest several explanations are given for why few of these new views have been adopted by policymakers

foreign investment vertical integration and local equity requirements the paper presents a spatial model in which a foreign firm and local government behave strategically in setting a local equity requirement ler contrary to simple intuition larger equity requirements may increase economic efficiency but this conclusion is highly sensitive to the vertical structure of the foreign firm when the foreign firm has monopoly power in both foreign upstream and domestic downstream markets the optimal equity requirement is zero surprisingly the introduction of domestic competition upstream causes the government to adopt a ler which lowers economic efficiency

how to tax a spatial monopolist abstract this paper models the interaction of a government that maximizes tax revenue and a spatial monopolist that maximizes profit the government has two tax instruments a per unit output tax and a transport tax and the monopolist can strategically alter its location and the mode of transport if allowed only one tax instrument then the government chooses the output tax which generates inefficient strategic choices by the monopolist in order to avoid profit losses since the inefficiency is greater than with the transport tax this isolates a new tradeoff between government tax revenue and economic efficiency

did higher inequality impede growth in rural china this paper estimates the relationship between initial village inequality and subsequent household income growth for a large sample of households in rural china using a rich longitudinal survey spanning the years 1987 2002 and controlling for an array of household and village characteristics the paper finds that households located in higher inequality villages experienced significantly lower income growth through the 1990s however local inequality s predictive power and effects are significantly diminished by the end of the sample the paper exploits several advantages of the household level data to explore hypotheses that shed light on the channels by which inequality affects growth biases due to aggregation and heterogeneity of returns to own resources previously suggested as candidate explanations for the relationship are both ruled out instead the evidence points to unobserved village institutions at the time of economic reforms that were associated with household access to higher income activities as the source of the link between inequality and growth the empirical analysis addresses a number of pertinent econometric issues including measurement error and attrition but underscores others that are likely to be intractable for all investigations of the inequality growth relationship

vertical integration in a monopolistically competitive industry abstract this paper considers forward vertical integration by a monopolist producer of an intermediate good when the downstream industry is monopolistically competitive alternative methods of vertical control are considered in addition to the usual input mark up these include franchise fees royalties and resale price maintenance it is found that these methods in combination achieve perfect or near perfect replication of the outcome under full vertical integration the case where downstream products are differentiated by location in a circular space is studied in detail and alternative outcomes are ranked according to their social desirability

the effect of farm supply shifts on concentration and market power in the food processing sector in this paper we examine the marginal impact of changing farm supply on the market structure of the downstream food processing sector we develop a theoretical model that allows for cost differences among processors and endogenizes downstream entry and exit comparative statics results are consistent with several well established trends in the food processing sector in particular the analysis demonstrates that increasing concentration in the food processing sector is consistent with decreasing market power indeed we find that when the farm supply curve shifts outward an increase in concentration can only occur when there is a decrease in market power

repayment performance in group lending evidence from jordan abstract using data from a survey of 160 urban borrowing groups of the microfund for women in jordan we investigate the effect of screening peer monitoring group pressure and social ties on borrowing groups repayment behavior as an indirect test of different theoretical models the dependent variable used captures the intensity of default measured by the total number of days of late repayment after each due date allowing us to use count data models with cluster standard errors as theory predicts our empirical analysis suggests that peer monitoring group pressure and social ties reduce delinquency the paper uncovers interesting evidence about the role of social ties and religion most notably in an area where religion contributes to attitudes and beliefs of individuals we find that religiosity improves repayment performance

international credit and welfare a paradoxical theorem and its policy implications abstract this paper considers a developing nation that faces a foreign exchange shortage and hence its demand for foreign goods is limited both by its income and its foreign exchange balance availability of international credit relaxes the second constraint we develop a simple model of strategic interaction between lending institutions and firms and show that the availability of international credit at concessionary rates can leave the borrowing nation worse off than if it had to borrow money at higher market rates this paradox of benevolence is then used to motivate a discussion of policies pertaining to international lending and the southern government s method of rationing out foreign exchange to the importers

using repayment data to test across models of joint liability lending theories rationalising joint liability lending are rich in implications for repayment rates we exploit this fact to test four diverse models we show that the models repayment implications do not always coincide for example higher correlation of output and borrowers ability to act cooperatively can raise or lower repayment depending on the model data from thai borrowing groups suggest that repayment is affected negatively by the joint liability rate ceteris paribus and social ties and positively by the strength of local sanctions and correlated returns further the relative fit of the adverse selection versus informal sanctions models varies by region

imperfect price discrimination market structure and efficiency we introduce a flexible third degree price discrimination framework by modeling the information firms possess about consumers locations preferences on the salop circle as a partition higher information quality is translated into a partition refinement in the limit we obtain the perfect price discrimination paradigm we show that the free entry equilibrium number of firms exhibits a u shape as a function of the quality of information this implies that imperfect price discrimination generates the most efficient free entry outcome jel classification d43 l11 l43 discrimination imparfaite par les prix structure de marche et efficacite les auteurs produisent un cadre d analyse flexible de la discrimination par les prix au troisieme degre en modelisant l information que les firmes possedent a propos de la localisation preferences comme base de decoupage dans un cercle de salop une plus grande qualite d information se traduit par un decoupage plus fin a la limite on obtient le paradigme parfait de discrimination par les prix on montre que le nombre de firmes en equilibre quand l entree est libre est une fonction en forme de u dans son rapport avec la qualite de l information cela implique que la discrimination imparfaite par les prix engendre le resultat le plus efficace quand l entree est libre

do risky microfinance borrowers really invest in risky projects experimental evidence from bolivia abstractthis paper reports the results of an experiment testing a fundamental assumption in stiglitz and weiss 1981 model of credit rationing that defaulting borrowers are associated with investment in risky projects through an artefactual field experiment with 200 bolivian microfinance borrowers we observe that subjects from real world delinquent borrowing groups do not prefer risky projects to safer ones significantly more than subjects from repaying groups instead our results support more recent behavioural theories of credit market failure implications are that defaulting microfinance borrowers may be those who take too little investment risk rather than those who take too much

personalized pricing and advertising an asymmetric equilibrium analysis we study personalized price competition with costly advertising among n quality cost differentiated firms strategies involve mixing over both prices and whether to advertise in equilibrium only the top two firms advertise earning bertrand like profits welfare losses initially rise then fall with the ad cost with losses due to excessive advertising and sales by the wrong firm when firms are symmetric the symmetric equilibrium yields perverse comparative statics and is unstable our key results apply when demand is elastic when ad costs are heterogeneous and with noise in consumer tastes

green tax reform in an oligopolistic industry oecd countries reduce or eliminate certain taxes when they introduce new environmental taxes the purpose of this paper is to analyze the incidence of such green tax reform in an oligopolistic industry the paper shows that a rise in taxes could result in the expansion of the aggregate pollution in the presence of a large technology gap the paper further shows that the government loses tax revenue as a result of the green tax reform if it continues to apply the same environmental standard this implies that the government needs to raise environmental standards to keep the existing level of public spending after a green tax reform

demand shifts and market structure in free entry oligopoly equilibria abstract this papers examines the structural implications of demand shifts in free entry oligopoly equilibria the model generalizes the conjectural variations framework to consider asymmetric firm conjectures allows for the possibility of cost differences across firms and endogenizes conditions of entry and exit in the industry in non competitive environments changes in incumbent output and industry profitability are inversely related to changes in the equilibrium price following a demand shift in response to rotations of demand through the equilibrium point changes in profitability are positively related to changes in industry concentration and when marginal costs are non decreasing inversely related to changes in market power

delivered pricing and merger with demand constraints i introduction studies of merger activity in models of spatial price discrimination conventionally assume that pricing by firms is not constrained by demand instead the only constraints on the discriminatory prices charged are the cost structures of the adjacent rivals the issue of demand constraints has received attention by wang and yang 1999 in related literature but not in examining the consequences of a spatial merger we demonstrate that when discriminatory prices are constrained by willingness to pay demand the conclusions of existing models must be substantially modified first although introducing a demand constraint does not alter firm locations in the absence of merger it does alter firm locations in the presence of merger second the demand constraint results in equilibrium locations that depend on transport cost which is not the case in previous models transport cost plays an important role in spatial models and its absence to date from models of spatial merger is unrealistic moreover the dependence of location on transport costs invites the possibility that a tax on transport costs can change locations in an efficient fashion third introducing a demand constraint reverses previous results relating to the merger paradox in particular in the absence of a demand constraint models of spatial price discrimination provide instances in which the parties to a merger gain profit and the excluded firms lose profits there are no such instances in the presence of demand constraints in what follows the second section places our work within the literature and highlights the issue of demand constraints the third section presents the model contrasting it with earlier models the fourth section identifies the equilibrium locations that arise when there is the prospect of merger and contrasts these locations with those that arise in the absence of demand constraints the section also demonstrates that when demand is constrained the model of spatial price discrimination yields no cases that resolve the merger paradox a result contrasting with that offered by the model in which demand constraints are absent the fifth section demonstrates that a tax on transport can increase welfare indeed the optimal tax often completely eliminates spatial price competition by creating local monopolies the sixth section considers the full range of cases in which some but not all firms may face constrained demand and also proves that in the fully constrained case considered earlier the entire market will be served a seventh section considers a partially constrained case and the eighth section concludes ii spatial price discrimination and constrained demand spatial models have proven especially useful in capturing aspects of competition in horizontally differentiated markets as emphasized by tirole 1988 in particular they provide a general method for examining markets in which an ordered product characteristic differentiates output 1 among the more popular models is that of discriminatory pricing in which the price a firm is able to charge depends upon how close it is to its rivals thisse and vives 1988 show that such pricing is the preferred alternative when firms are able to adopt it lederer and hurter 1986 demonstrate that under such pricing rivals locate symmetrically along a linear market thus minimizing total transport costs early studies of merger in a model of spatial discrimination assumed that location choices do not anticipate the merger reitzes and levy 1995 show that such a merger increases the prices and profits of the participants but leaves those of all other firms unchanged gupta et al 1997 show that an anticipated horizontal merger alters the locations of spatially discriminating duopolists and increases transport cost thereby reducing efficiency rothschild et al 2000 confirm this finding in the case of two firms merging in a three firm market and also examine the effects of merger on the excluded rival

the determinants of moneylender interest rates evidence from rural india this study examines the determinants of moneylender interest rates in rural india in the context of two major developments of the 1960s a the incidence of agricultural technical change in the process popularly denoted by the term green revolution and b the spread of government sponsored subsidised credit through rural banks and co operative credit agencies it finds that farmers residing in areas characterised by the use of green revolution technology face lower moneylender interest rates it also finds evidence of the reduction of moneylender monopoly power as a result of increased competition from formal lending agencies it concludes that informal rural credit markets are sensitive mechanisms which respond to environmental as well as borrower characteristics

a model of monopoly with strategic government intervention abstract a formal model of firm government interaction is developed in which the firm chooses the producer price and the government chooses the ad valorem tax rate to maximise revenue collection this game is then embedded as the second stage of a two stage game where in stage 1 the firm gets to choose its technology and therefore its cost function the main results of the paper are i to characterise the nash and stackelberg equilibria of the government firm game ii to demonstrate that strategic inefficiency i e the choice of high cost technologies when lower cost options are available is pervasive in these models whenever the government uses ad valorem taxes and iii to show that if the government s choice between ad valorem tax and specific or per unit tax is endogenised then in a perfect equilibrium the government will in fact choose the ad valorem system

the effects of well management and the nature of the aquifer on groundwater resources we compare groundwater use under collective well management in china where village leaders allocate water among households and under private well management where farmers either pump from their own wells or buy water from wells owned by other farmers villages are divided into connected or isolated groups depending on whether there are lateral groundwater flows between aquifers underlying a village and neighboring ones in rural china households under collective well management use less water even under collective management households located in connected villages use more water indicating that the connectedness of the aquifers may undermine leaders incentives to conserve water

imperfect information screening and the costs of informal lending a study of a rural credit market in pakistan many governments have perceived the rural moneylender as usurious this article takes a first step toward directly testing the validity of this view in a study of services costs and charges of fourteen informal market moneylenders and their clients in chambar pakistan the article examines whether the high implicit interest rates charged reflect the actual costs of operating in that market estimates of the resource costs incurred by informal lenders for screening pursuing delinquent loans overhead and cost of capital including unrecoverable loans suggest that lenders charges are equal to their average cost of lending but exceed their marginal cost this finding is consistent with the view that the informal credit market is characterized by excess capacity and monopolistic competition in the presence of imperfect information

non linearities in returns to participation in grameen bank programs abstract this paper studies the benefits of participation in micro finance programs where benefits are measured in terms of the ability to smooth the effect of seasonal shocks that cause consumption fluctuations it is shown that although membership in these programs is an effective instrument in combating inter seasonal consumption differences there is a threshold level of length of participation beyond which benefits begin to diminish returns from membership are modelled using an euler equation approach fixed effects non linear least squares estimation of parameters using data from 24 villages of the grameen bank suggests that returns to participation as measured by the ability to smooth seasonal shocks begin to decline after approximately two years of membership this implies that membership alone no longer has a mitigating marginal effect on seasonal shocks to per capita consumption after four years of participation such patterns suggest that the ability to smooth consumption as a function of l

outreach sustainability and leverage in monitored and peer monitored lending abstract i study the contract design problem facing microfinance lending organizations mfos that want to maximize the impact and outreach of their lending activities to a target population of poor borrowers while remaining financially sustainable tradeoffs between outreach sustainability and financial leverage are shaped by the endogenous monitoring and delegation costs that arise within a chain of agency relationships subject to moral hazard between borrowers loan staff mfo equity owners and outside investors all else equal sustainable mfos that target poorer borrowers must charge higher interest rates have higher staff costs per dollar loaned and are less leveraged analysis of data for 72 mfos tends to support the findings

group lending sequential financing lender monitoring and joint liability abstract we develop a simple model of group lending based on peer monitoring and moral hazard we find that in the absence of sequential financing or lender monitoring group lending schemes may involve under monitoring with the borrowers investing in undesirable projects moreover under certain parameter configurations group lending schemes involving either sequential financing or a combination of lender monitoring and joint liability are feasible in fact group lending schemes with sequential financing may succeed even in the absence of joint liability though the repayment rate will be lower in the absence of joint liability however group lending with lender monitoring is unlikely to be feasible

can social cohesion be harnessed to repair market failures evidence from group lending in guatemala the success of group lending in developing countries has been attributed to the ability of the institution to mitigate asymmetric information problems in credit markets previous research has offered a number of explanations for this phenomenon social ties between borrowing group members internal group pressure to repay loans and peer monitoring this research presents empirical tests on borrowing group data from guatemala which indicate that peer monitoring significantly effects borrowing group performance through stimulating intra group insurance group pressure is found to have a small effect in deterring moral hazard while the effect of social ties among members is statistically insignificant

peer monitoring and credit markets a major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced one partial solution is peer monitoring having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt peer monitoring is largely responsible for the successful financial performance of the grameen bank of bangladesh and of similar group lending programs elsewhere but peer monitoring has a cost it transfers risk from the bank which is in a better position to bear risk to the cosigner in a simple model of peer monitoring in a competitive credit market this article demonstrates that the transfer of risk leads to an improvement in borrowers welfare

newspaper differentiation and investments in journalism the role of tax policy many countries levy reduced rate indirect taxes on newspapers with proclaimed policy goals of stimulating investment in journalism and ensuring low newspaper prices however by taking into account the fact that the media industry operates in two sided markets we find the paradoxical result that the consequences of a low tax regime might be quite the opposite we also show that the low tax regime tends to increase newspaper differentiation if the advertising market is relatively small the newspapers might invest too little in journalism and be too differentiated from a social point of view in this case a tax increase will be welfare enhancing

repayment performance in group based credit programs in bangladesh an empirical analysis abstract this paper analyzes the repayment rates of 128 credit groups belonging to three group based credit programs in bangladesh the association for social advancement asa the bangladesh rural advancement committee brac and the rangpur dinajpur rural service rdrs using tobit analysis specific tests are performed on the following hypothesized determinants group size size of loans degree of loan rationing enterprise mix within groups demographic characteristics social ties and status and occurrence of idiosyncratic shocks the paper concludes that if basic principles of prudential banking are adhered to repayment rates can be good even in poor and remote communities the important thing for financial institutions is to tailor services such that it becomes worthwhile for the poor to establish a profitable long term association in addition more freedom to members in the process of group formation is recommended

the effects of third degree price discrimination in oligopoly retail firms and restaurants commonly offer senior citizen discounts i suspect this practice is not motivated by altruism rather the behavior can be better explained as profit maximizing price discrimination these firms are setting a low price in a market which probably has high elasticity of demand but why should the demand of senior citizens be more elastic than average one possibility is that elderly people have below average income and they would not eat out if restaurant prices were high perhaps a more plausible explanation is that retired people simply have more time on their hands to spend commuting across town to take advantage of discounts the purpose of these discounts may then be to lure senior citizens away from other restaurants rather than to get them out of the house the analysis of third degree price discrimination has a long history a c pigou 1920 joan robinson 1933 and two articles on the subject have recently appeared in this review richard schmalensee 1981 hal varian 1985 the industry structure in these analyses is monopoly but an explicit model of some form of competition is obviously needed to study discriminatory discounts meant to attract customers from rival firms and even discounts meant to get people out of the house may have an oligopoly analysis which is qualitatively different from their monopoly anlysis in this paper i present a simple duopoly model of a differentiated products industry i show that a firm s price elasticity of demand in a market can be expressed as the sum of two parts the industry demand elasticity and the cross price elasticity the first measures the tendency of consumers in a market to stay home when the price goes up the second the tendency to switch suppliers in the monopoly case in which the crossprice elasticity is zero and the collusive case in which the cross price elasticity is irrelevant discrimination between markets is due to differences in industry demand elasticity in the noncooperative oligopoly case equilibrium price differentials can be accounted for both by differences in cross price elasticity as well as differences in industry demand elasticity total industry output when the firms can discriminate between two markets is compared to what it would be if discrimination were impossible which regime has larger output depends on the sum of the adjustedconcavity condition and the elasticity ratio condition the first predominates when the rival products are poor substitutes and the firms have approximate monopoly power while the second predominates at the other extreme where the products are close substitutes and the firms have almost no market power the adjusted concavity condition compares the relative curvature of demands in the two markets and was originally discovered by robinson 1933 in her analysis of monopoly price discrimination the elasticity ratio condition compares the relative difference in industry demand elasticity between the two markets with the relative difference in cross price elasticity according to the elasticity ratio condition a discriminatory discount due to high industry elasticity of demand would be more likely to increase total output than one due to high cross price elasticity the effect of discrimination on profit is also discussed the distinction made here department of economics university of wisconsin madison madison wi 53706 this paper is a revision of part of my doctoral dissertation i am grateful to steve matthews ken judd and john panzar for guidance in this research i also thank seminar participants at wisconsin the justice department and the 1986 econometric society meetings in new orleans and the discussant martin perry the excellent comments of the referees improved the exposition of the paper

risk matching behavior in microcredit group formation evidence from northern ethiopia theoretical models on group lending assume the formation of groups of homogenous risk types recent theoretical and empirical findings challenge this view arguing that when markets for insurance are missing risk homogeneity may not hold any more and risk heterogeneity can be the optimal outcome using data from an mfi in tigray ethiopia this article examines the homogeneity hypothesis and reflects on implications for repayment no evidence is found that supports risk homogeneity even accounting for matching frictions however we also do not find an explicit link between the presence of risk heterogeneity and side payments due to missing insurance as suggested in the literature instead other trust based social networks seem to underlie heterogeneity such social networks are often synchronized with credit groups and influence the probability of repayment under heterogeneity the implication is that successful repayment rates in group lending need not arise only under risk homogeneity but can also arise under risk heterogeneity heterogeneity may also serve to bridge missing insurance markets in poor rural environments mfis therefore need to consider such local conditions when designing their lending schemes

reform and urban bias in china income inequalities between urban and rural areas remain high in china but the gap has begun to narrow peasant incomes have increased dramatically since the post mao reforms rural areas have new power but this is a consequence not a cause of the reforms the improvement in rural conditions reflects a change in the central state s development strategy and ideology and the local response to incentives embedded in china s reforms the impetus for these changes is self preservation of the state and the chinese communist party the failure to close decisively the income disparities between the urban and rural areas similarly stems from concerns of regime stability and preservation of the party state

group lending local information and peer selection this paper analyzes how group lending programs use joint liability to utilize local information that borrowers have about each other s projects through self selection of group members in the group formation stage these schemes are shown to lead to positive assortative matching in group formation faced with the same contract this makes the effective cost of borrowing lower to safer borrowers because they have safer partners conditional on success their expected dues to the lender are lower than that of riskier borrowers the resulting improvement in the pool of borrowers is shown to increase repayment rates and welfare q 1999 elsevier science b v all rights reserved

liability structure in small scale finance evidence from a natural experiment microfinance the provision of small individual and business loans has witnessed dramatic growth reaching over 150 million borrowers worldwide much of its success has been attributed to overcoming the challenges of information asymmetries in uncollateralized lending yet very little is known about the optimal contract structure of such loans there is substantial variation across lenders even within a particular setting this paper exploits a plausibly exogenous change in the liability structure offered by a microfinance program in india which shifted from individual to group liability lending the analysis finds compelling evidence that contract structure matters for the same borrower required monthly loan installments are 6 percent less likely to be missed under the group liability setting relative to individual liability in addition compulsory savings deposits are 19 percent less likely to be missed under group liability contracts

rural credit markets and institutions in developing countries lessons for policy analysis from practice and modern theory this article presents evidence of the failure of government intervention in rural credit markets of ldcs in the past three decades it then shows how lessons for policy analysis can be drawn from modern theory particularly those theories focussing on credit rationing in competitive markets and interlinking of credit contracts with labor and land contracts the article outlines the policy implications of these theories and finds them insufficient to account for the empirical evidence it contends that a more systematic and rigorous analysis of institutions and institutional environments is essential for understanding and implementing effective policy reforms of rural credit markets it presents suggestions for undertaking such an analysis

product differentiation with consumer arbitrage abstract we determine the equilibrium to a game where two firms set delivered price schedules and consumers simultaneously declare where they want to take delivery of the product equilibrium pricing policies provide incentives for consumers not to demand their preferred varieties but rather to purchase more standard varieties this behavior may decrease market diversity the demanded varieties tend to agglomerate around the market center we also show that it is efficient for the cost of adapting the product to consumers to be shared through arbitrage but oligopoly gives rise to an inefficient level of personal arbitrage

strategic behavior downstream and the incentive to integrate a spatial model with delivered pricing abstract this paper highlights not previously examined incentives for vertical integration in a spatial model a downstream monopoly that serves customers on a unit line segment and purchases an input from an upstream monopoly will strategically increase its transport costs such strategic behavior by the downstream firm forces the upstream firm to lower its input price rather than suffer an unacceptable decrease in sales while the lower input price increases downstream profit the unnecessary costs lower overall profit and welfare generating both private and social incentives for vertical integration this incentive is independent of others identified in the literature

elite opportunity in transitional economies command economies gave communist era elites administrative control and material privilege but severely restricted money income and private wealth markets and privatization have injected new value into public assets and create unprecedented opportunities for elite insiders these opportunities depend on the extent of regime change and barriers to asset appropriation regime change varies from the survival of the entire party hierarchy to its rapid collapse and defeat in competitive elections barriers to asset appropriation vary with the extent pace and form of privatization and the concentration and liquidity of assets different combinations of such circumstances jointly affect the extent to which prior elites obtain ownership or control of privatized assets use political office to extract larger incomes move into salaried elite occupations or fall out of the elite altogether regime change and barriers to asset appropriation affect change at the national level but outcomes vary across economic sectors because of characteristics of organizations elite positions and assets this elementary theory serves to integrate varied findings from recent research on central europe china and russia and yields predictions for other regions

the performance of village intermediaries in rural credit delivery under changing penalty regimes evidence from senegal this article concerns the use of village intermediaries to mitigate asymmetric information problems in rural credit delivery we consider an example from senegal and examine the intermediaries screening of loan applicants the results show that when the intermediaries expected to incur a substantial penalty in the event of borrower default they engaged in appropriate screening allocating credit to borrowers likely to repay their loans when the default penalty was lowered however the intermediaries engaged in opportunistic screening emphasising political affiliation and consanguinity in their lending decisions these results reveal both the potential efficacy of village intermediaries in allocating credit and their extreme sensitivy to penalty regimes

aggregation and imperfect competition on the existence of equilibrium we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result provides general conditions under which there exists a pure strategy price equilibrium for any number of firms producing any set of products this includes products with multi dimen sional attributes in addition to the proof of existence we provide conditions for uniqueness our analysis covers location models the characteristics approach and probabilistic choice together in a unified framework to prove existence we employ aggregation theorems due to prekopa 1971 and borell 1975 our companion paper caplin and nalebuff 1991 introduces these theorems and develops the application to super majority voting rules we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result is that there exists a pure strategy price equilibrium for any number of firms producing any set of products in addition to the proof of existence we provide conditions for uniqueness our model both unites diverse strands of the earlier literature and opens up uncharted areas for future analysis in particular we expand the traditional one dimensional framework to allow for multi dimen sional product differentiation our approach involves twin restrictions on consumer preferences one on individuals preferences the other on the distribution of preferences across society these are generalizations of the restrictions supporting 64 majority rule presented in caplin and nalebuff 1988 to prove existence we apply a new technique of aggregation this technique is valuable in a variety of other problems in the companion paper we use the aggregation result to generalize our earlier work on 64 majority rule and to characterize the relationship between the distribution of human capital and the distribution of income caplin and nalebuff 1991 there are additional applications in statistics and in search theory we begin with a brief review of the early literature on imperfect competition describing in more detail the existence problem and previous solutions section 3 presents our twin assumptions and shows that they cover many standard cases in section 4 we introduce the aggregation theorem and use it in the analysis of demand functions the proof of existence of equilibrium is in section

microenterprise clusters in rural indonesia industrial seedbed and policy target abstract this paper shows the importance of clustering at early stages of development when clustering is still largely a rural phenomenon and may serve as a survival strategy it argues first that dismally poor but clustered rural microenterprises may have a seedbed function for industrial development and second that clustering policy has brought about some success in indonesia data on more than 4 000 rural clusters provide insights in the various forces behind cluster gestation prosperity and dissolution it is argued that social capital is crucial for the achievement of transaction cost reductions which attract traders to the clustered enterprises ubiquitous search and reach advantages in marketing trigger clustering processes but these advantages diminish with overcrowding further external economies arise from specialization and technical indivisibilities but vary significantly by subsector consequently only specific clusters might benefit from public intervention in technology and organization

efficient spatial competition abstract game theoretic models of spatial competition usually assume that firms set prices after their choices of locations rather than make this assumption this paper uses the core to model the competition between the firms two conditions are shown to be sufficient for efficient spatial competition the first is that the firms location choices satisfy a no externalities condition the second is that the second stage game satisfy a separable value condition namely that the value gains from trade can be created on a buyer by buyer basis this approach yields two further benefits first efficient location can be stable in situations with arbitrary distributions of buyers arbitrary willingness to pay functions and completely general location spaces second efficiency in location games can be shown to be related to the second welfare theorem

equilibrium credit rationing of small farm agriculture it is often argued that externally imposed contractual restrictions lead to inequitable credit rationing this paper argues that unrestricted laissez faire markets may also inequitably ration credit a formal model which grants borrowers autonomy in credit application and use demonstrates that adverse incentive and selection effects may cause banks to endogenously impose interest rate restrictions and ration small farms out of the credit market consequently liberalization of financial markets may be insufficient to guarantee small farms access to credit

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing

indirect taxation and cournot equilibrium we analyse a cournot model of oligopoly in an industry which is subject to indirect taxation we consider value added as well as excise taxes we allow for various types of demand and cost conditions as well as cost differences across firms as the tax is raised two types of outcomes can prevail on the one hand the net price can increase which is shown to lead to an increase in market share of high cost firms on the other hand the net price can fall in which case efficiency is rewarded in that low cost firms gain market share this latter outcome which accords with intuition will obtain in most instances it is more likely to occur i with vat rather than with an excise tax ii with concave rather than convex demand and iii with decreasing rather than increasing marginal cost finally we show that an increase in vat can lead to higher profits for low cost firms provided cost differences across firms are large enough

on the existence of cournot equilibrium this paper examines the existence of n firm cournot equilibrium in a market for a single homogeneous commodity it proves that if each firm s marginal revenue declines as the aggregate output of other firms increases which is implied by concave inverse demand then a cournot equilibrium exists without assuming that firms have nondecreasing marginal cost or identical technologies also if the marginal revenue condition fails at a potential optimal point there is a set of firms such that no cournot equilibrium exists the paper also contains an example of nonexistence with two nonidentical firms each with constant returns to scale production