regulatory reform in britain regulatory reform in britain john kay and john vickers major sectors of the british economy are currently undergoing far reaching regulatory reform deregulation removal of barriers to competition and the introduction of new methods of regulation are occurring notably in financial services some of the professions and in utility industries such as telecommunications gas and electricity this paper gives an economic assessment of these developments the authors examine the root causes of market failure that call for regulation externalities monopoly and information problems and the pros and cons of various regulatory responses a broad distinction is drawn between structural regulation the determination of which firms or types of firms can engage in which activities and conduct regulation the control of how firms behave in their chosen activities recent examples of deregulation plus re regulation in britain are seen in part as a shift from structural to conduct regulation the relative merits of the two modes of regulation are complex to assess but it is argued that some recent regulatory reforms are placing undue reliance on conduct regulation as well as assessing individual industries the authors draw general conclusions about the desirability of regulatory solutions that make full use of market forces

tradeoffs from integrating diagnosis and treatment in markets for health care anyone who has consulted a doctor plumber or auto mechanic has experienced the tradeoffs in consulting a single expert to both diagnose and treat a problem in the presence of asymmetric information on one hand integrated diagnosticians those who also sell treatments may have the incentive to give advice that is not in the buyer s best interests as the theoretical models in curtis r taylor 1995 and asher wolinsky 1993 point out because the buyer has imperfect information on the scope of the problem if he did not he would not have needed to consult a diagnostician in the first place the diagnostician inevitably has the incentive to recommend treatments that are more profitable even if they are more costly of lower quality or less appropriate on the other hand joint production of diagnosis and treatment may be more efficient the diagnostician may have better information about how to treat the problem than he could or would provide to an independent third party or the diagnostician may be able to treat the problem himself less expensively or more effectively half the cost is opening the engine block we examine an important special case of this problem the costs and quality of care of a random sample of medicare beneficiaries with coronary artery disease we compare patients who were diagnosed by an integrated cardiologist one who also provides surgical treatment to patients who were diagnosed by a nonintegrated cardiologist we decompose the total effect of diagnosis by an integrated cardiologist into the parts due to the change in the type of treatment and the parts due to the relative efficiency of each type of treatment with this information we quantify the potential upsides and downsides to diagnosis by an integrated expert we identify these effects based on differences across geographic areas in the number of integrated cardiologists per capita our estimates are consistent under the assumption that unobserved patient characteristics and other determinants of spending are similar across areas with many versus few integrated cardiologists we explore the validity of this assumption below the paper proceeds in four sections section i reviews the previous empirical literature on the problems of obtaining diagnosis and treatment from a single expert when that expert has better information than the buyer on the source of the buyer s problem section ii discusses the details of the problem that we study and presents our models section iii describes our data section iv presents our results and section v concludes with the implications of our results for economic theory and health policy

reputation effects in the market of certifiers evidence from the audit industry i introduction asymmetric information between seller and buyer can impede mutually beneficial transactions one of the solutions to this problem is to recruit an independent third party a certifier who verifies unobserved product characteristics for the buyer the certifier s independence is at the heart of the tripartite arrangement this independence however can be compromised when sellers pay for the certification for instance in the market of auditors and credit rating agencies cra it is not the investor i e the buyer of the security who pays for the certifier s services but the company which is to be impartially rated or audited in this business model companies can naturally manipulate their ratings audits furthermore investors only have a limited power to weed out dishonest certifiers simply because companies instead of investors choose auditors and cra ultimately these problems can pervert the certifier s mission to serve the investing community dranove and jin 2010 not surprisingly this conflict of interest has often been cited as a cause for accounting scandals and more recently for inflated credit ratings e g bis cfgs 2008 the economist 2004 2006 auditors and cra alike refute the criticism of their business model arguing that the threat of losing their reputation is a sufficient disciplinary device e g the economist 2005 1 however this claim has not yet been empirically substantiated a successful mechanism of reputation has three components in the presence of conflicts of interest consider the audit market 2 first investors have to punish companies which chose low quality auditors there is evidence that capital markets severely penalize companies whose audit reports are of dubious quality e g chaney philipich and kirk 2002 gao 2003a krishnamurthy zhou and zhou 2006 pacini and hillison 2003 second this negative capital market reaction should feed into companies auditor choice i e companies should choose high quality auditors third auditors then should have the incentive to provide high quality audits the second stage of this mechanism has not been empirically validated yet in particular it has not been analyzed whether the adverse capital market reaction to low audit quality feeds into companies auditor choice and if it does how a positive effect of adverse quality signals on audit demand means that firms prefer to engage lenient auditors in order to receive favorable reports suggesting that conflicts of interest overwhelm reputation concerns and clearly fail the disciplinary mechanism a negative effect on the other hand indicates that while investors do not pay for audit services they can exert discipline on auditors indirectly by forcing public companies to choose high quality auditors a success of reputation in this paper i exploit the natural experiment of arthur andersen s collapse and test the effects of audit quality signals on companies auditor choice in discrete choice models the quality signals in this study are auditors industry specific financial restatement histories i e the proportion of clients in an industry which restated financial statements in the past i find that auditors restatement histories are a crucial driving force in the subsequent auditor choice of deserting andersen clients there are compelling reasons why auditors financial restatement histories should forcibly feed into a company s auditor choice restatements are material corrections of published financial statements which cannot be relied upon anymore and have to be reissued since the very role of the independent auditor is to ensure that financial statements are fairly presented in all material respects it appears natural to think that the auditor has not done his job properly if a financial statement has to be restated later indeed there is ample evidence that capital markets receive restatements badly

a feasible reform for the electricity supply industry in hong kong with the current scheme of control regulation for the hong kong electricity supply industry expiring in 2008 the government has sent out a consultation paper seeking views from the general public on its reform and possible future development this paper investigates the characteristics of the current agreement and the rationale for feasible reform of the hong kong esi it leads to a discussion on a proposed feasible reform using performance based regulation approach modeling and the associated implementation issues related to price capping risk analysis performance indices quality monitoring and governance

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

satisfaction guaranteed or money partially refunded efficient refunds under asymmetric information refunds are modelled as a competitive market response to asymmetric information firms have private information on their choice of product quality and compete by offering price and refund contracts consumers who care about quality draw inferences about the quality offered by the various firms from observed contracts conditions under which a revealing market equilibrium emerges are specified and the equilibrium quality and contract s characterized the model predicts that when product risk is not insurable consumers with higher incomes will pay higher prices for higher quality goods with higher refunds if the product fails

gratitude conscience and reciprocity models of supplier motivation when quality is non contractible abstract standard game theoretic models that apply principal agent problems to analyse buyer supplier relations have postulated that in a single period game the agent will not choose non contractible quality however evidence exists that suppliers or service providers choose costly quality in non contractible dimensions even in absence of reputation concern if they are offered a premium such actions violate the axiom of individual rationality and are not subgame perfect in standard game theory wherein only material payoffs are considered this paper builds three models of supplier behaviour in a single period stackelberg like buyer supplier game by using the framework of psychological game theory and explains supplier motivations to choose quality on non contractible dimensions in absence of any reputation effect if the buyer offers a price higher than the market price the supplier may be motivated to choose non contractible quality due to a sense of gratitude or because of his conscience or in order to reciprocate kindness the results show that maximum possible quality is chosen by the supplier only in the presence of a sufficiently strong sense of gratitude or a sufficiently strong conscience however the buyer is better off with a fair supplier who is motivated to reciprocate than a supplier having a very poor sense of gratitude or one having a weak conscience because the buyer can choose an optimal premium above market price to ensure that a fair and reciprocal supplier chooses an optimal quality

gift giving and the evolution of cooperation gift giving is a practice common to many societies in an evolutionary model the social custom of giving gifts at the beginning of a relationship can lead to trust and cooperation the evolutionary approach makes predictions about the character of the goods that can be used as gifts for example gift goods may have little use value even at low levels of consumption although the gifts themselves are useless the institution is not

visits to the client when competing for new consulting contracts sourcing information or influencing the client consulting firms cfs sell services on a project basis to many clients and must therefore continuously tender for new contracts one frequently used strategy by cfs is to visit the clients in connection to the tenders the reasons to the visits are 1 to influence the client in his decision making e g marketing bribing and or 2 to source information about the project so that a better proposal can be submitted using a unique database on individual export proposals submitted to emerging markets which of these two reasons is the most important is examined empirically the estimations show that influencing the client dominates as explanation to the visits although it is not possible to determine whether this influence takes the form of bribing or marketing all conditions necessary for bribes to occur are fulfilled

technical efficiency of french nuclear energy plants this article analyses the efficiency of french nuclear energy plants belonging to edf electricity of france from 2004 to 2008 with a dea data envelopment analysis model the convexity model is used to investigate the technical efficiency of a representative sample of nuclear plants the results indicated that some plants have undergone an improvement in technical efficiency while others have regressed in terms of technical efficiency policy implications related to the results are discussed

estimating monetary policy effects when interest rates are close to zero abstract using a nonlinear structural var approach we estimate the effects of exogenous monetary policy shocks in the presence of a zero lower bound constraint on nominal interest rates and examine the impact of such a constraint on the effectiveness of counter cyclical monetary policies based on the data from japan we find that when interest rates are at zero the output effect of exogenous shocks to monetary policy is cut in half if the central bank continues to target the interest rate the conditional impulse response functions allow us to isolate the effect of monetary policy shocks operating through the interest rate channel when other possible channels of monetary transmission are present

monetary policy when interest rates are bounded at zero this paper assesses the importance of the zero lower bound on nominal interest rates for the interest rate channel of monetary policy we simulate several interest rate setting policy rules with ei

why corporations insure corporations insure to reduce the shirking information problem of joint production insurance encourages specialization in ownership increasing the returns to monitoring and lowering shareholders demand for a more diversified portfolio it enhances the credibility of specific capital as a performance bond and it lowers the cost to shareholders of compensating other members of the team for investing in firm specific assets tax and other factors may further encourage individual corporations to insure

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

is antitrust enforcement effective in a paper in this journal block nold and sidak 1981 tried to determine the impact of antitrust enforcement on horizontal price fixing after examining data on white bread markups in 20 u s cities they concluded that the enforcement activity of the department of justice against wholesale bakers had both remedial and deterrent effects in this paper i question the authors empirical results for three reasons they used bureau of labor statistics bls retail prices in computing bread markups however the white bread priced by the bureau changed quality over the sample period when a proxy for this quality change is included in the authors specification one deterrent effect disappears second the bread markups are sensitive to the pricing decisions made by grocery retailers when a proxy for retail pricing decisions is included in the model the deterrent effects are weaker finally the significance of the remedial effect depends on a single observation and this observation was affected by the two problems just stated

a literature study for dea applied to energy and environment abstract this study systematically summarizes previous research efforts on data envelopment analysis dea applied to energy and environment in the past four decades including concepts and methodologies on dea environmental assessment industrial developments are very important for all nations in terms of their economic prosperities a problem is that the development produces various pollutions on air water and other types of contaminations all of which are usually associated with our health problems and climate changes thus it is necessary for us to consider how to make a balance between economic success and pollution mitigation to maintain a high level of social sustainability in the world it is widely considered that dea is one of the methodologies to examine the level of sustainability this study examines a recent research trend on dea applications from 1980s to 2010s nowadays many researchers have paid serious attention on how to combat various difficulties in the areas of energy and environment as a result the number of articles on dea applications on energy and environment has dramatically increased particularly after 2000s however it is true that dea has strengths and drawbacks in the applications therefore it is very important for us to carefully use dea for guiding large policy issues and business strategies such as the global warming and climate change an underlying premise of this study is that technology innovation in engineering and natural science may solve various problems by linking it with political and managerial efforts the use of dea provides a methodological linkage among them so enhancing the practicality in mitigating problems due to climate change and environmental pollutions this literature study along with a summary on conceptual and methodological developments provides us with guidelines for our future research works on dea on energy and environment issues

are there differences in the effectiveness of quantitative easing at the zero lower bound in japan over time using a time varying parameter vector autoregression tvp var framework with a new set of sign restrictions we study the changing effectiveness of the bank of japan s quantitative easing policies over time we specifically analyse the so called zero interest rate policy from 1999 to 2000 the quantitative easing policy from 2001 to 2006 and most recently the so called abenomics strategy our results indicate important differences of the quantitative easing qe shocks on the japanese economy over time more specifically we find important time variation in the responses of core cpi and real gdp with regard to the different monetary policy episodes in japan we find somewhat more pronounced effects on core cpi during abenomics the responses of the price level are generally found to be stronger and more significant than those of real gdp this holds particularly for the abenomics period these results are mirrored by our variance decomposition analysis

two part pricing for experience goods in the presence of adverse selection abstract because customers learn something when they purchase an experience good for the first time a firm selling experience goods may face different demand curves from new and repeat customers the firm can exploit these differences by using a two part pricing strategy to price discriminate between new and repeat customers the firm may also use a two part pricing strategy to mitigate the information problems of adverse selection when its quality is uncertain the analysis is particularly applicable to service markets where customers and firms seek long term relationships and firms maintain customer records which facilitate price discrimination

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

ethical spillovers in firms evidence from vehicle emissions testing in this paper we explore how organizations influence the unethical behavior of their employees using a unique data set of over three million vehicle emissions tests we find strong evidence of ethical spillovers from firms to individuals when inspectors work across different organizations they adjust the rate at which they pass vehicles to the norms of those with whom they work these spillovers are strongest at large facilities and corporate chains and weakest for the large volume inspectors these results are consistent with the economics literature on productivity spillovers from organizations and peers and suggest that managers can influence the ethics of employee behavior through both formal norms and incentives the results also suggest that employees have persistent ethics that limit the magnitude of this influence these results imply that if ethical conformity is important to the financial and legal health of the organization managers must be vigilant in their hiring training and monitoring to ensure that employee behavior is consistent with firm objectives

physician price fixing under the sherman act an indirect test of the maricopa issues the expression price fixing usually indicates an attempt by competitors to put a floor under the minimum price they will charge but a recent decision of the supreme court arizona v maricopa county suggests that attempts to fix maximum prices are equally economically objectionable in this paper i propose an explanation of simultaneous minimum and maximum price fixing i also investigate empirically the distribution of physicians fees in a closely related instance of alleged physician price fixing the data reject any inference of successful price fixing and instead conform to the usual predictions of the economics of costly market information

the economics of breakdowns checkups and cures a market in which the owner of a durable good x contracts with an expert for diagnostic and treatment services is studied good x may be in one of three states health disease or failure only experts can determine whether x is healthy or diseased and perform treatment the owner cannot tell whether recommended treatment is really needed this creates an information based demand for health insurance by risk neutral consumers imperfections in the market for spot insurance may give rise to free diagnostic checks strategic procrastination and long term health maintenance agreements

physician ownership of complementary medical services abstract when physicians own complementary medical service facilities such as laboratories and imaging centers they gain financially by referring patients to these entities this creates an incentive for the physician to exploit patients trust by recommending more services than necessary using data from taiwan which introduced a separating policy that restricts physician ownership of pharmacies we estimate that where the policy was binding eliminating this incentive caused physicians to prescribe 7 1 less in drugs taking into account increases in complementary diagnostic services and that drugs are only a part of overall primary care spending the policy reduced total expenditures by 1 8 however a large number of clinics exploited a loophole in the law and either had at baseline or integrated pharmacies into their practices post policy making them exempt from the policy as a result the policy only reduced total drug expenditures by 2 1 and total primary care cost by 0 5

relational incentive contracts standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced this paper studies the design of self enforced relational contracts i show that optimal contracts often can take a simple stationary form but that self enforcement restricts promised compensation and affects incentive provision with hidden information it may be optimal for an agent to supply the same inefficient effort regardless of cost conditions with moral hazard optimal contracts involve just two levels of compensation this is true even if performance measures are subjective in which case optimal contracts terminate following poor performance jel c73 d82 l14

estimation of residential electricity demand in hong kong under electricity charge subsidies abstract over the past decade the hong kong hk government provided electricity charges subsidies for residential accounts to alleviate the burden of inflation and later the burden of economic downturn in this study we estimate an econometric model of residential electricity demand and test the existence of a stable long run relationship for the period 1980 2016 while accounting for the relief measures set out by the hk government since 2008 empirical results suggest that there exists a long run relationship among residential electricity consumption electricity price income per capita and weather variables temperature or cooling degree days in the absence of electricity charge subsidies the demand is found to be both price and income inelastic on the other hand hk s residential electricity consumers are unresponsive to price and income changes when electricity subsidies are in place following its new carbon reduction plan hk is gradually phasing out coal for electricity generation to replace it mainly with natural gas our results suggest that new residential electricity charge subsidies can lessen the effectiveness of6 climate policies aimed at reducing electricity consumption through increases in the electricity price

a cluster analysis study based on profitability and financial indicators in the italian gas retail market in the european union the natural gas market is increasingly being liberalized the liberalization process is aimed at leading to lower prices and higher volumes and hence higher consumer welfare this paper focuses on the changes in performance in the natural gas retail market by analyzing the profit and financial position of the companies concerned over the first three years following the market liberalization the balance sheets of 105 italian companies in this sector are analyzed after which a cluster analysis is performed employing the most significant performance indexes the companies are then analyzed within each cluster with respect to age size geographical location and business diversification the results of our analysis show that the majority of companies attained a high level of performance although this positive outcome was mitigated by the gradual decrease of the average values of performance indicators during the period concerned the companies that achieve the best performances belong to longstanding business groups are medium large sized and are located in the north of the country regarding business diversification in the first two years the specialised companies outperformed the diversified companies

productivity change technical progress and relative efficiency change in the public accounting industry we present evidence on components of productivity change in the public accounting industry toward the end of the 20th century using revenue and human resource data from 64 of the 100 largest public accounting firms in the united states for the 1995 1999 period we analyze productivity change technical progress and relative efficiency change over time the average public accounting firm experienced a productivity growth of 9 5 between 1995 and 1999 we find support for the hypothesis that technical progress rather than an improvement in relative efficiency was the reason for this productivity growth firms that were early movers into management advisory services mas and those that emphasized growth in mas over growth in the traditional audit and tax services enjoyed significantly higher productivity growth than their peers these firms also contributed significantly more to the industry s technical progress

the monetary transmission mechanism an empirical framework this paper provides an overview of the monetary transmission mechanism describing the impact of changes in monetary policy on real gdp changes in financial market prices including long term interest rates and exchange rates are the main vehicle for the transmission of policy the framework incorporates rational expectations and policy rules it is empirical and appears to fit the facts well

price quality and reputation evidence from an online field experiment we examine the link between price quality seller claims and seller reputation in internet auctions after purchasing actual baseball cards and having them professionally graded we find that some buyers in the online graded market are misled by incredible claims of quality they pay higher prices but do not receive better quality and in fact are defrauded more often online seller reputation is effective for identifying good faith sellers but conditional on completed auctions reputable sellers do not provide better quality evidence also suggests that high claim sellers target less experienced buyers we attribute these patterns to two loopholes in the ebay rating system we benefited from the comments of austan goolsbee raphael thomadsen john shea dan vincent david reiley larry ausubel peter cramton v joseph hotz jeff smith jimmy chan vincent crawford mark duggan and attendees at numerous seminars and conferences we are particularly grateful to seth sanders and john list for their constructive advice at the early stage of the research to timothy bresnahan rachel kranton and thomas hubbard for their detailed suggestions in reshaping earlier versions and to editor ariel pakes and two anonymous referees for their careful readings special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets and to numerous sports card store owners who shared their insights on the sportscard industry excellent research assistance from randy alexander moore and krzysztof fizyta is gratefully acknowledged any remaining errors are ours

electricity regulation and electricity market reforms in china the electricity industry of china has been in a process of reforms since the 1980s this paper gives a review on the three main stages of reforms in china so as to trace out key features of various reform measures including those for power investment financing the separation between government and power enterprises and the division between power generation firms and power grids the findings suggest that further regulatory change in china s electricity market reform is necessary when integration of the electricity markets and increased competition are paving the way ahead for a market oriented structure prospective electricity regulation in the form of a strong legal system and effective institutions that protect market competition and promote appropriate incentives for efficiency are suggested in the paper

short term contracts and long term agency relationships abstract long term contracts are valuable only if optimal contracting requires commitment to a plan today that would not otherwise be adopted tomorrow we show that commitments are unnecessary and hence short term contracts are sufficient if 1 all public information can be used in contracting 2 the agent can acess a bank on equal terms with the principal 3 recontracting takes place with common knowledge about technology and preferences and 4 the frontier of expected utility payoffs generated by the set of incentive compatible contracts is downward sloping at all times

prices as signals of product quality this paper is concerned with the provision of quality in markets in which consumers have only imperfect information the analysis focuses on a market for a product that can be produced at different quality levels all consumers prefer higher to lower quality but they may differ in their willingness to pay for quality producers can produce any quality they like but higher qualities are more costly to produce the information in this market is imperfect in the sense that the exact quality chosen by a firm is known only to the firm itself some information about the quality of a firm s product will however reach its potential customers even if they do not make any special effort to acquire it within the framework suggested here two conclusions are drawn first prices may serve as signals which exactly differentiate the available quality levels that is there exists a fulfilledexpectations equilibrium at which each price signals a unique quality level second the pricesignals are not arbitrary each price signal exceeds the marginal cost of producing the quality it signals such a mark up depends on the nature of the product specific information received by consumers the poorer the information the higher the mark up

effects of the us monetary policy shocks during financial crises a threshold vector autoregression approach abstractthis article analyzes the impact of monetary policy during periods of low and high financial stress in the us economy using a threshold vector autoregression model there is evidence that expansionary monetary policy is effective during periods of high financial stress with larger responses having a higher proportionate effect on output the existence of a cost channel effect during periods of high financial stress implies the existence of a short run output inflation trade off during financial crises large expansionary monetary shocks also increase the likelihood of moving the economy out of a high financial stress regime

investing to cooperate theory and experiment we study theoretically and in a lab experiment investment decisions in environments where property rights are absent in our setting a player chooses an investment level before interacting repeatedly with a given set of agents the investment stochastically affects the payoffs of the game in every subsequent period we show that more volatile returns make investment more difficult in the absence of legal protection and might force the investor to invest more to guarantee cooperation experimental results are broadly consistent with the theoretical findings

competition and the incentive to produce high quality previous literature indicates that when quality is a choice variable firms have an incentive to produce high quality to maintain their reputations with consumers the strategic interaction among firms and competition for market share is not considered this paper finds that when firms compete for market share perfect equilibria in which firms produce high quality goods need not exist competition for customers can eliminate the price premium needed to induce firms to maintain a reputation for high quality production in this case economists and policy analysts should pay greater attention to the interaction among firms and the institutions such as professional associations that structure interfirm relations when considering whether firms have an incentive to produce high quality goods

how do consumers motivate experts reputational incentives in an auto repair market abstract moral hazard exists in expert service markets because sellers have an incentive to shade their reports of the buyer s condition to increase the short run demand for their services the california vehicle emission inspection market offers a rare opportunity to examine how reputational incentives work in such a market i show that consumers are 30 percent more likely to return to a firm at which they previously passed than to one at which they previously failed and that demand is sensitive to a firm s failure rate across all consumers these and other results suggest that demand incentives are strong in this market because consumers believe that firms differ greatly in their consumer friendliness and are skeptical even about those they choose weak demand incentives in other expert service markets are not a direct consequence of moral hazard but rather of its interaction with switching costs and consumers belief that firms are relatively homogeneous

what s in a name reputation as a tradeable asset the author develops a model in which a firm s only asset is its name which summarizes its reputation and studies the forces that cause names to be valuable tradable assets an adverse selection model in which shifts of ownership are not observable guarantees an active market for names with either finite or infinite horizons no equilibrium exists in which only good types buy good names the reputational dynamics that emerge from the model are more realistic than those in standard game theoretic reputation models and suggest that adverse selection plays a crucial role in understanding firm reputation

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

the dynamics of seller reputation evidence from ebay we construct a panel of ebay seller histories and examine the importance of ebay s reputation mechanism we find that when a seller first receives negative feedback his weekly sales rate drops from a positive 7 to a negative 7 subsequent negative feedback ratings arrive 25 more rapidly than the first one and don t have nearly as much impact as the first one we also find that a seller is more likely to exit the lower his reputation is and that just before exiting sellers receive more negative feedback than their lifetime average we consider a series of theoretical models and measure them against these empirical results regardless of which theoretical model best explains the data an important conclusion of our paper is that ebay s reputation system gives way to noticeable strategic responses from both buyers and sellers

how efficient are african electricity companies evidence from the southern african countries this paper is a first attempt at documenting efficiency levels in africa s electricity firms their evolution and the sources of this evolution the analysis is based on a sample of 12 operators providing services in the 12 country members of the southern africa power pool we focus on the changes in total factor productivity tfp of the largest operators in each country between 1998 and 2005 we then rely on a data envelopment analysis dea decomposition to identify the sources of the changes in tfp the results suggest fairly comparable levels of efficiency in the region and performance levels and evolution quite independent of the degree of vertical integration the presence of a private actor or the main sources of energy supply the analysis suggest that although the companies have not made significant improvements during the period of analysis in using their capital and human assets they have done much better in adopting better technologies and better commercial practices no clear correlation could be associated with the adoption of reforms during the last decade and data limitations impede a more refined assessment of the impact of reforms on efficiency at this stage

the market value of rarity abstract most theories of demand assume that consumers value the characteristics of products but are unconcerned with how many other consumers also consume the product however several theories of demand argue that consumers can value the exclusivity of possessing a rare object we test this implication on a particular collectible rare coins our paper examines the case of coins of a given type and identical quality that have mintages in different quantities this allows us to exclude the common case in which rarity or price itself is an indicator of quality for our sample rarer coins command higher prices rarity in the form of original mintage more strongly influences the market price than does collectibility as represented by the rarest coins of each mint mark or year we also point out that here may be other goods such as automobiles for which rarity may influence market demand

imperfect competition and reputational commitment abstract competition can both aid and hinder reputational commitments for quality these are self sustaining depending on future profits after maintaining or deviating from the commitment and on current costs of sustaining it competition can affect these three elements at different rates

community enforcement of trust with bounded memory we examine how trust is sustained in large societies with random matching when records of past transgressions are retained for a finite length of time to incentivize trustworthiness defaulters should be punished by temporary exclusion however it is profitable to trust defaulters who are on the verge of rehabilitation with perfect bounded information defaulter exclusion unravels and trust cannot be sustained in any purifiable equilibrium a coarse information structure that pools recent defaulters with those nearing rehabilitation endogenously generates adverse selection sustaining punishments equilibria where defaulters are trusted with positive probability improve efficiency by raising the proportion of likely re offenders in the pool of defaulters

quality disclosure and certification theory and practice this essay reviews the theoretical and empirical literature on quality disclosure and certification after comparing quality disclosure with other quality assurance mechanisms and describing a brief history of quality disclosure we address two sets of theoretical issues first why don t sellers voluntarily disclose through a process of unraveling and given the lack of unraveling is it desirable to mandate seller disclosure second when we rely on certifiers to act as the intermediary of quality disclosure do certifiers necessarily report unbiased and accurate information we further review empirical evidence on these issues with a particular focus on healthcare education and finance the empirical review covers quality measurement the effect of third party disclosure on consumer choice and seller behavior as well as the economics of certifiers jel d18 k32 l15 m31

marital division of labor with risk of divorce the role of voice enforcement of contracts it is assumed that emotional ties can be relied on to enforce implicit marital contracts by voice therefore in the present model divorce has economic consequences not only because the economies of scale from living together are destroyed but also because the scope for such voice enforcement is weakened moreover perhaps surprisingly i find that it is ambiguous how an increase in the probability of divorce influences predivorce allocation of time even when preferences are assumed to be homothetic

career concerns of mutual fund managers we examine the labor market for mutual fund managers using data from 1992 1994 we find that termination is more performance sensitive for younger managers we identify possible implicit incentives created by the termination performance relationship the shape of the termination performance relationship may give younger managers an incentive to avoid unsystematic risk direct effects of portfolio composition may also give younger managers an incentive to herd into popular sectors consistent with these incentives we find that younger managers hold less unsystematic risk and have more conventional portfolios promotion incentives and market responses to managerial turnover are also studied

the antecedents and performance implications of cooperative exchange norms our study investigates the antecedents and performance implications of cooperative exchange norms we argue that in early relationships the level of expected cooperative norms in an exchange is the result of a calculative process facilitated by transaction attributes joint transaction specific investments and observability the greater the level of these two exchange attributes the greater the level of cooperative exchange norms all else being equal we further argue that the realized level of cooperative exchange norms can deviate from the expected level because the development of such norms is the result of social processes that management cannot directly and fully control this gap between realized and expected norms affects exchange performance performance suffers when the realized level of cooperative exchange norms falls below the expected level but overshooting expectations lays a critical groundwork for repeat transactions the analysis of a survey of 182 collaborative r d alliances provides initial support for our theory

services as experience goods an empirical examination of consumer learning in automobile insurance accurate is information at initial purchase how rapidly do consumers learn from product experiences and how much impact does learning have on purchase decisions i answer these questions for the case of automobile insurance using a panel of 18 595 consumers from one firm my principal findings are patterns of consumer departures following claims point to learning consumers enter the firm overly optimistic about its quality and are generally disappointed by experience and the impact of learning is mitigated by the slow arrival of claims and the development of lock in jel d12 d83 g22 l15

bayesian analysis of latent threshold dynamic models we discuss a general approach to dynamic sparsity modeling in multivariate time series analysis time varying parameters are linked to latent processes that are thresholded to induce zero values adaptively providing natural mechanisms for dynamic variable inclusion selection we discuss bayesian model specification analysis and prediction in dynamic regressions time varying vector autoregressions and multivariate volatility models using latent thresholding application to a topical macroeconomic time series problem illustrates some of the benefits of the approach in terms of statistical and economic interpretations as well as improved predictions supplementary materials for this article are available online

does it pay to change your company s name a stock market perspective a company s name is commonly considered to be an integral part of its image just like the quality of its products or the quality of its technical services changing a company s name is a major policy decision contemplated by many firms and actually implemented by some each year this paper attempts to examine albeit indirectly whether a name change can improve the profit performance of a firm and what type of firm is more likely to succeed in doing so we use the event study methodology developed in finance to examine the above questions with respect to 58 corporations that changed their names in 1981 1985 our findings are that for most of the firms name changes are associated with improved performance and that the greatest improvement tends to occur in firms that produce industrial goods and whose performance prior to the change was relatively poor evidence that industrial good producers are also heavy users of corporate advertising lends further credence to this finding our findings do not support however the contention that the new name per se will enhance demand for the firm s products rather it seems that the act of a name change serves as a signal that other measures to improve performance such as changes in product offerings and organizational changes will be seriously and successfully undertaken the rationale behind why such a signal is sent and why it is believed is discussed

performance based regulation of the electricity supply industry in hong kong an empirical efficiency analysis approach this paper presents an empirical efficiency analysis approach to analyze the efficiency and performance of utilities and its effects on prices under the price cap performance based regulation pbr model a data envelopment analysis dea like frontier based method is used to compute the total factor productivity with the malmquist productivity index results of case studies support the use of the approach to account for the relation of the x factor and the pbr model on the two power utilities in hong kong s electricity supply industry

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through

interest group competition and the organization of congress theory and evidence from financial services political action committees we develop a positive theory of how interest group competition shapes the organization of congress and use it to explain campaign contribution patterns in financial services since interest groups cannot enforce fee for service contracts with legislators legislators have an incentive to create specialized standing committees which foster repeated dealing between interests and committee members the resulting reputational equilibrium supports high contributions and high legislative effort for the interests contribution patterns by competing interests in the congressional battle over whether banks can enter new businesses support the theory which also has implications for term limits and campaign reform

predatory reputation in us airline markets abstract despite its long history in antitrust policy predation remains a poorly understood phenomenon the main difficulty is in empirically identifying predatory intent i propose a method for measuring the effect of reputation whose significance would enable us to infer predatory intents maximum likelihood estimation using simulated annealing algorithm is conducted with a sample of us airline markets the results provide some support for the presence of entrants learning and reputation effect as an application i discuss how the outcomes of my empirical model could help analyze such antitrust cases as the american airlines case

earning through learning in legislatures this inquiry applies gary becker s theoretical notions of general and specific training to the experiential learning that occurs within political institutions in particular the u s congress in the process we isolate economic facets of these legislative experiences that influence the rental value of human capital derived from congressional training we identify four factors that structure legislators post elective wages pre congressional salary year of entry tenure and variables closely related to general training in congress specifically assignment to powerful legislative committees acquisition of broad skill packages investment in expanding skill set proficiencies and to a lesser extent life cycle driven declines in such investments