estimating price elasticities with theory based priors the authors show how price elasticity estimates can be improved in demand systems that involve multiple brands and stores they treat these demand models in a hierarchical bayesian framework unlik

1 000 cash back the pass through of auto manufacturer promotions automobile manufacturers frequently use promotions involving cash incentives while payments are nominally directed to either customers or dealers the ultimate beneficiary of the promotion depends on the outcome of price negotiation we use program evaluation methods to compare the incidence of these two types of promotions customers obtain 70 to 90 percent of a customer rebate but only 30 to 40 percent of a dealer discount promotion a 500 difference for a typical promotion our leading hypothesis is that pass through rates differ because of information asymmetries customer rebates are well publicized to customers while dealer discount promotions are not

the proper scope of government theory and an application to prisons when should a government provide a service in house and when should it contract out provision we develop a model in which the provider can invest in improving the quality of service or reducing cost if contracts are incomplete the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee has however the private contractor s incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on noncontractible quality the model is applied to understanding the costs and benefits of prison privatization

incomplete contracts and privatization the paper offers a selective survey on the incomplete contracts approach to privatization furthermore a simple model of privatization to an owner manager is developed in which different allocations of ownership rights lead to different allocations of inside information about the firm which in turn affect allocative and productive efficiency in this model privatization is a commitment device of the government to credibly reward the manager for a successful cost reduction and to harden his budget constraint

endogeneity in brand choice models applications of random utility models to scanner data have been widely presented in marketing for the last 20 years one particular problem with these applications is that they have ignored possible correlations between the independent variables in the deterministic component of utility price promotion etc and the stochastic component or error term in fact marketing mix variables such as price not only affect brand purchasing probabilities but are themselves endogenously set by marketing managers this work tests whether these endogeneity problems are important enough to warrant consideration when estimating random utility models with scanner panel data our results show that not accounting for endogeneity may result in a substantial bias in the parameter estimates

effects of brand preference product attributes and marketing mix variables in technology product markets we develop a demand model for technology products that captures the effect of changes in the portfolio of models offered by a brand as well as the influence of the dynamics in its intrinsic preference on that brand s performance to account for the potential correlation in the preferences of models offered by a particular brand we use a nested logit model with the brand e g sony at the upper level and its various models e g mavica fd dsc etc at the lower level of the nest relative model preferences are captured via their attributes and prices we allow for heterogeneity across consumers in their preferences for these attributes and in their price sensitivities in addition to heterogeneity in consumers intrinsic brand preferences together with the nested logit assumption this allows for a flexible substitution pattern across models at the aggregate level the attractiveness of a brand s product line changes over time with entry and exit of new models and with changes in attribute and price levels to allow for time varying intrinsic brand preferences we use a state space model based on the kalman filter which captures the influence of marketing actions such as brand level advertising on the dynamics of intrinsic brand preferences hence the proposed model accounts for the effects of brand preferences model attributes and marketing mix variables on consumer choice first we carry out a simulation study to ensure that our estimation procedure is able to recover the true parameters generating the data then we estimate our model parameters on data for the u s digital camera market overall we find that the effect of dynamics in the intrinsic brand preference is greater than the corresponding effect of the dynamics in the brand s product line attractiveness assuming plausible profit margins we evaluate the effect of increasing the advertising expenditures for the largest and the smallest brands in this category and find that these brands can increase their profitability by increasing their advertising expenditures we also analyze the impact of modifying a camera model s attributes on its profits such an analysis could potentially be used to evaluate if product development efforts would be profitable

accounting for primary and secondary demand effects with aggregate data discrete choice models of aggregate demand such as the random coefficients logit can handle large differentiated products categories parsimoniously while still providing flexible substitution patterns however the discrete choice assumption may not be appropriate for many categories in which we expect consumers may purchase more than one unit of the selected item we derive the aggregate demand system corresponding to a discrete continuous household level model of demand we also propose a method of simulated moments procedure that provides consistent estimates of the structural parameters when only aggregate data are available the procedure also enables the researcher to control both for the potential endogeneity of marketing variables as well as potential heterogeneity in consumer tastes using our aggregate estimates we can measure the decomposition of price elasticities into incidence brand choice and purchase quantity components we also propose several empirical tests to assess the validity of the discrete continuous demand system versus that of the logit model in several simulation experiments we demonstrate the robustness of this model across datasets in which quantity choices may or may not be important our empirical calibration to store level data in the refrigerated orange juice category indicates a considerable improvement in fit of the observed aggregate sales using the discrete continuous model

nationalization vs regulation of monopolies abstract this paper compares the effects of government ownership and regulation under private ownership on the production decisions of a monopoly firm it analyzes an optimal mechanism design problem in which the owners of the firm either the government or shareholders contract with a manager who has private information about the firm s cost function and takes an unobservable action that affects the firm s costs the model predicts that the privately owned regulated firm will use relatively more capital and the publicly owned firm will use relatively more labor than the second best efficient solution to the private information problem

a political economy theory of the soft budget constraint why do soft budget constraints exist and persist in this paper we argue that the prevalence of soft budget constraints can be best explained by the political desirability of softness we develop an infinite horizon political economy model where neither democratic nor autocratic politicians can commit to policies that are not ex post optimal we show that because of the dynamic commitment problem inherent in the soft budget constraint politicians can in essence commit to make transfers to entrepreneurs which otherwise they would not be able to do this encourages such entrepreneurs to support them politically though the soft budget constraint may induce economic inefficiency it may be politically rational because it influences the probability of political survival in consequence even when information is complete politicians may fund bad projects which they anticipate they will have to bail out in the future we show that maybe somewhat surprisingly dictators who are less likely to lose power are more likely to use the soft budget constraint as a strategy to gain political support

competitive pricing behavior in the auto market a structural analysis in a competitive marketplace the effectiveness of any element of the marketing mix is determined not only by its absolute value but also by its relative value with respect to the competition for example the effectiveness of a price cut in increasing demand is critically related to competitors reaction to the price change managers therefore need to know the nature of competitive interactions among firms in this paper we take a theory driven empirical approach to gain a deeper understanding of the competitive pricing behavior in the u s auto market the ability motivation paradigm posits that a firm needs both the ability and the motivation to succeed in implementing a strategy boulding and staelin 1995 we use arguments from the game theoretic literature to understand firm motivation and abilities in different segments of the auto market we then combine these insights from the game theoretic literature and the ability motivation paradigm to develop hypotheses about competition in different segments of the u s auto market to test our hypotheses of competitive behavior we estimate a structural model that disentangles the competition effect from the demand and cost effects on prices the theory of repeated games predicts that firms with a long run profitability objective will try to sustain cooperative pricing behavior as a stable equilibrium when conditions permit for example markets with high concentration and stable market environments are favorable for sustaining cooperative behavior and therefore provide firms with the ability to cooperate the theory of switching costs suggests that in markets in which a firm s current customers tend to be loyal firms have a motivation to compete very aggressively for new customers recognizing the positive benefits of loyalty from the customer base in the long run as consumer loyalty in the market increases the gains from increasing market share by means of aggressive competitive behavior are more than offset by losses in profit margins firms therefore have the motivation to price cooperatively empirically we find aggressive behavior in the minicom pact and subcompact segments cooperative behavior in the compact and midsize segments and bertrand behavior in the full size segment these findings are consistent with our theory based hypotheses about competition in different segments in estimating a structural model of the auto market we address several methodological issues a particular difficulty is the large number of car models in the u s auto market existing studies have inferred competitive behavior only in markets with two to four products they also use relatively simple functional forms of demand to facilitate easy estimation functional forms of demand however impose structure on cross elasticities between products such structure when inappropriate can bias the estimates of competitive interaction we therefore use the random coefficients logit demand model to allow flexibility in cross elasticities we also use recent advances in new empirical industrial organization neio to extend structural estimation of competitive behavior to markets with a large number of products we use the simulation based estimation approach developed by berry et al 1995 to estimate our model a frequent criticism of the neio approach is that its focus on industry specific studies limits the generalizability of its findings in this study we retain the advantages of neio methods but partially address the issue of generalizability by analyzing competitive behavior in multiple segments within the auto industry to see whether there is a consistent pattern that can be explained by theory theoretical modelers can use our results to judge the appropriateness of their models in predicting competitive outcomes for the markets that they analyze a by product of our analysis is that we also get estimates of demand and cost apart from competitive interactions for the market managers can use these estimates to perform what if analysis they can answer questions about what prices to charge when a new product is introduced or when an existing product s characteristics are changed

using multimarket data to predict brand performance in markets for which no or poor data exist abstract the authors show how multimarket data can be used to make predictions about brand performance in markets for which no or poor data exist to obtain these predictions the authors propose a model for market similarity that incorporates the structure of the u s retailing industry and the geographic location of markets the model makes use of the idea that if two markets have the same retailers or are located close to each other then branded goods in these markets should have similar sales performance other factors being held constant in holdout samples the proposed spatial prediction method improves greatly on naive predictors such as global market averages nearest neighbor predictors or local averages in addition the authors show that the spatial model gives more plausible estimates of price elasticities it does so for two reasons first the spatial model helps solve an omitted variables problem by allowing for unobserved factors with a cross market structure an example of such unobse

measuring the impact of promotions on brand switching when consumers are forward looking abstract logit choice models have been used extensively to study promotion response this article examines whether brand switching elasticities derived from these models are overestimated as a result of rational consumer adjustment of purchase timing to coincide with promotion schedules and whether a dynamic structural model can address this bias using simulated data the authors first show that if the structural model is correct brand switching elasticities are overestimated by stand alone logit models a nested logit model improves the estimates but not completely second the authors estimate the models on real data the results indicate that the structural model fits better and produces sensible coefficient estimates the authors then observe the same pattern in switching elasticities as they do in the simulation third the authors predict sales assuming a 50 increase in promotion frequency the reduced form models predict much higher sales levels than does the dynamic structural model the autho

monopoly and soft budget constraint a benevolent government may decide to subsidize an unprofitable monopoly whose profits do not capture all the social surplus from its production anticipating this the firm may underinvest in order to become unprofitable and extract state subsidies the resulting welfare loss may exceed by many times the deadweight cost of monopoly pricing committing the firm to a price ceiling may soften its budget constraint and thus reduce welfare competition can harden budget constraints in industries in which free entry is socially excessive

the effect of promotion on consumption buying more and consuming it faster the authors empirically demonstrate the existence of flexible consumption rates in packaged goods products how this phenomenon can be modeled and its importance in assessing the effectiveness of

practice prize reports the practice prize reports consist of one article with two parts as follows sinha ashish j jeffrey inman yantao wang joonwook park attribute drivers a factor analytic choice map approach for understanding choices among skus and tellis gerard j rajesh k chandy deborah macinnis pattana thaivanich modeling the microeffects of television advertising which ad works when where for how long and why

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

estimating the effects of consumer incentive programs on domestic automobile sales we investigate the effects of consumer sales promotion on automobile sales the largest dollar volume durable goods category in retailing between 1985 and 1987 the domestic automakers offered major year end promotions on automobiles using low rate financing and cash rebates to stimulate sales this article uses time series techniques to evaluate the sales patterns for general motors ford and chrysler between 1983 and 1987 explicitly estimating the effects of the incentive programs the analysis indicates that the 1985 and 1986 promotional campaigns were quite successful but that the 1987 campaign was largely ineffective the 1986 and 1987 promotions were also followed by large post promotion drops in sales the analysis contains two notable findings that are in contrast with the considerable body of empirical evidence about the effects of promotion on nondurable goods

an empirical model of optimal dynamic product launch and exit under demand uncertainty this paper considers the decision problem of a firm that is uncertain about the demand and hence profitability of a new product we develop a model of a decision maker who sequentially learns about the true product profitability from observed product sales based on the current information the decision maker decides whether to scrap the product central to this decision problem are sequential information gathering and the option value of scrapping the product at any point in time the model predicts the optimal demand for information e g in the form of test marketing and it predicts how the launch or exit policy depends on the firm s demand uncertainty furthermore it predicts what fraction of newly developed products should be launched on average and what fraction of these products will fail i e exit the model is solved using numerical dynamic programming techniques we present an application of the model to the case of the u s ready to eat breakfast cereal industry simulations show that the value of reducing uncertainty can be large and that under higher uncertainty firms should strongly increase the fraction of all new product opportunities launched even if their point estimate of profits is negative alternative simpler decision rules are shown to lead to large profit losses compared to our method finally we find that the high observed exit rate in the u s ready to eat cereal industry is optimal and to be expected based on our model

estimating cannibalization rates for pioneering innovations to evaluate the success of a new product managers need to determine how much of its new demand is due to cannibalizing the firm s other products rather than drawing from competition or generating primary demand we introduce a time varying vector error correction model to decompose the base sales of a new product into its constituent sources the model allows managers to estimate cannibalization effects and calculate the new product s net demand which may be considerably less than its total demand we apply our methodology to the introduction of the lexus rx300 using detailed car transaction data this case is especially interesting because the lexus rx300 was the first crossover sport utility vehicle suv implying that its demand could come from both the luxury suv and the luxury sedan categories because lexus was active in both categories there was a double cannibalization potential we show how the contribution of the different demand sources varies over time and discuss the managerial implications for both the focal brand and its competitors

a decision support system for planning manufacturers sales promotion calendars a common event in the consumer packaged goods industry is the negotiation between a manufacturer and a retailer ofthe sales promotion calendar determining the promotion calendar involves a large number of decisions regarding levels of temporary price reductions feature ads and in store displays each executed at the level of individual retail accounts and brand skus over several months or a year though manufacturers spend much of their marketing budget on trade promotions they lack decision support systems to address the complexity and dynamics of promotion planning previous research has produced insights into how to evaluate the effectiveness of promotional events but has not addressed the planning problem in a dynamic environment this paper develops a disaggregate level econometric model to capture the dynamics and heterogeneity of consumer response by modeling the purchase incidence timing choice and quantity decisions of consumers we decompose total sales into incremental and nonincremental baseline plus borrowed the response model forms the basis of a market simulator that permits us to search for the manufacturer s optimal promotion calendar subject to a set of constraints some of them imposed by the retailer via the simulated annealing algorithm calendar profits are the net result of the contribution from incremental sales minus the opportunity cost from giving away discounts to nonincremental sales and the fixed costs associated with implementing promotional events e g retagging features displays incremental sales result from promotion induced switching the acceleration and quantity promotion effects on those switchers increased consumption and the carryover effect from purchase event feedback we applied our approach to the promotion planning problem of a large consumer packaged goods company in a nonperishable staple product category suggested by company executives canned tomato sauce subject to a retailer pass through constant rate of 80 provided to us by the collaborating firm the optimal promotion calendar produced by the modeling system followed a pattern of frequent and shallow temporary price reductions with no feature or display activity we also analyze how that result would change under different retailer pass through scenarios our findings indicated that the manufacturer could substantially improve the profitability of its sales promotion activity and that there would be a concurrent positive effect on retailer profit and volume levels management reported to us that the insights from the use of the system were implemented in their promotion planning process and produced positive results a validation analysis on follow up data for one market showed that promotion activity could be significantly reduced as recommended with no adverse effect on the brand s market share as predicted to generalize the model beyond the specific category where it was implemented we conducted a sensitivity analysis on the profile of the calendar i e frequency depth and duration of deals with respect to changes in market response competitive activity and retailer pass through first we found that the optimal depth frequency and timing of discounts is stable for price elasticities ranging from near zero to around four in absolute magnitude we also found no systematic impact of competitive promotions on the profile of the optimal calendar for example variation in competitive activity did not affect the optimal depth or frequency of discounts lastly we found changes in retailer pass through to have a significant effect on the optimal depth and number of weeks of trade promotion that a manufacturer should offer this emphasizes the importance to manufacturers of having accurate estimates of pass through for purposes of promotion budgeting and planning

ownership versus competition efficiency in public enterprise certainly the introduction of product market competition into potentially competitive or at least contestable markets can improve performance to take just one example morrison and whinston 1986 1986 estimate that even in the imperfectly contestable u s airline industry the annual u s welfare gains from deregulation have been around 6 billion

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

estimating the interdependence of television program viewership between spouses a bayesian simultaneous equation model when making product choices consumers are influenced by the preferences of other consumers such as family members friends neighbors and colleagues preference interdependence among family members is likely to be significant because of cohabitation and strong emotional ties to estimate the preference interdependence we specify a simultaneous equation model and propose a bayesian estimation approach unlike existing models that use a spatial autoregressive structure to capture the interdependence of consumer preferences we are able to estimate the potential asymmetry in the preference interdependence among family members in a more flexible way in a simulation study we show that models that ignore interdependence of preferences yield biased estimates of consumers sensitivity to observed attribute preferences in an empirical application we estimate the interdependence of the viewership of television programs between husbands and wives in 481 households we find that wives viewing behavior depends more strongly on their husbands viewing behavior than husbands viewing behavior depends on their wives viewing behavior there exist significant differences in parameter estimates of dependence across categories of television programs differences in levels of spousal interdependence across households are partially explained by the age and the education level of the spouses

privatization and efficiency from principals and agents to political economy ad i pavia abstract we survey the theoretical literature on privatization and efficiency by tracing its evolution from the applications of agency theory to recent contributions in the field of political economy the former extend the theory of regulation with incomplete information to address privatization issues comparing state owned enterprises with private regulated firms the benefits of privatization may derive either from the constraints it places on malevolent agents or from the impossibility of commitment by a benevolent government because of incomplete contracts contributions dealing with political economy issues separate privatization from restructuring decisions they either explore bargaining between managers and politicians or analyse the impact of privatization shaped by political preferences on efficiency the theoretical results regarding the relation between privatization and efficiency do not lead to any definitive conclusion privatization may increase productive efficiency when restructuring takes place whereas its effects on allocative efficiency still remain uncertain

modeling movie life cycles and market share we examine box office sales in the context of a market share model this is accomplished by developing a combination of a sliding window logit model and a gamma diffusion pattern in a hierarchical bayes framework we show that accounting for the full choice set available every week not only increases the fit of weekly movie sales but also leads to parameter estimates that depict a richer picture of the movie industry we show that movie studios appear to have a good understanding of the products they produce knowing when to support them and when not to we also show that the effect of the number of opening week screens is overestimated in traditional models our research indicates that actors have a direct and directors an indirect effect on consumers movie choice releasing a movie contemporaneously with other movies of the same genre adversely affects box office performance all around releasing a movie against movies of the same motion picture association of america mpaa rating hurts its sales in the beginning but there is a displacement effect which leads to a less severe sales loss in the long run

a theory of privatisation public enterprises around the world have proved to be highly inefficient primarily because they pursue strategies such as excess employment that satisfy the political objectives of politicians who control them privatization of public enterprises can raise the cost to politicians of influencing them since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms in this way privatization leads to efficient restructuring of firms moreover privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors rather than their employees or even managers copyright 1996 by royal economic society

practice prize winner a nested logit model of product and transaction type choice for planning automakers pricing and promotions we develop a consumer response model to evaluate and plan pricing and promotions in durable good markets we discuss its implementation in the u s automotive industry which spends about 45 billion each year in price promotions the approach is based on a random effects multinomial nested logit model of product e g a vehicle model such as hyundai tucson and transaction type choice transaction types include combinations of acquisition types e g purchase versus lease and pricing instruments cash rebates reduced apr financing lease payment discounts we estimate the model using hierarchical bayes methods to capture response heterogeneity at the local market level we find key characteristics unique to durable good markets first consumers are heterogeneous in both their brand and transaction type preferences second consumers differ in their overall price sensitivity as well as in their relative sensitivity to alternative pricing instruments e g cash discounts reduced monthly payments third the most effective pricing programs tend to be those in which automakers offer consumers a menu of options to choose from e g a choice among a cash discount reduced interest rate financing or a lease payment discount we illustrate the model through an empirical application to a sample of data drawn from j d power transaction records in the entry suv segment and discuss examples of actual implementations

commercial use of upc scanner data industry and academic perspectives the authors report the findings from an exploratory investigation of the use of upc scanner data in the consumer packaged goods industry in the u s the study examines the practitioner community s view of the use of scanner data and compares these views with academic research forty one executives from ten data suppliers packaged goods manufacturers and consulting firms participated in wide ranging in person interviews conducted by the authors the interviews sought to uncover key questions practitioners would like to answer with scanner data how scanner data is applied to these questions and the industry s perspective regarding the success that the use of scanner data has had in each area the authors then compare and contrast practitioners views regarding the resolution of each issue with academic research this produces a 2 2 classification of each question as resolved or unresolved from the perspectives of industry and academia along the diagonal of the 2 2 issues viewed as unresolved by both groups are important topics for future research issues deemed resolved by both groups are correspondingly of lower priority in the off diagonal cells industry and academics disagree these topics should be given priority for discussion information exchange and possible further research practitioners reported that scanner data analysis has had the most success and been most widely adopted for decision making in consumer promotions i e coupons trade promotions and pricing for example logit and regression models applied to scanner data have revealed very low average consumer response to coupons which has directly led to reduced couponing activity managers also reported high levels of comfort with and impact from analyses of trade promotions and price elasticities while industry views most of the issues in these areas to be resolved academic research raises concerns about a number of practices in common commercial use these include price threshold analysis and trade promotion evaluation using baseline and incremental sales in product strategy advertising and distribution management practitioners reported that the use of scanner data has had more limited development success and impact in the case of new product decisions scanner data use has been slow to develop due to the inherent limitations of historicaldata for these decisions and a heavy reliance on traditional primary research methods in advertising scanner data is widely analyzed with models but confusion among practitioners is very high due to controversies about methods e g what level of data aggregation is best and conflicting results in distribution and retail management scanner data use has tremendous potential but a mixed track record to date thus practitioners view the use of scanner data as unresolved for most issues in product strategy advertising and distribution this view is largely though not entirely consistent with academic research which has only begun to address many of the key questions raised by practitioners in light of the large number of unresolved issues and mixed record of scanner data use to date the authors offer aseries of specific recommendations for immediate and long term research priorities that are likely to have the greatest impact on commercial utilization of upc scanner data topics of immediate priority include price thresholds and gaps baseline and incremental sales base price elasticity competitive reactions measurement of advertising effects management of brand equity rationalization of product assortments and category management long term priorities include a greater emphasis on profitability versus sales or market share developing prescriptive models versus descriptive models and the need for industry standards

investigating purchase incidence brand choice and purchase quantity decisions of households we develop a comprehensive utility maximizing framework to study the impact of marketing variables on the category purchase brand choice and purchase quantity decisions of households for frequently purchased packaged goods the model allows for dependence among the three decisions while ensuring that these decisions provide in combination the greatest possible utility to the household by accounting for variations in reservation prices and intrinsic brand preferences across households the modeling framework explicitly captures the effects of unobserved heterogeneity on all three purchase decisions the principal empirical finding from analyzing the a c nielsen data for the yogurt product category is that the substantive implications for the effects of marketing variables are sensitive to whether these effects are determined conditional or unconditional on a product category purchase our results show that reservation prices and intrinsic brand preferences vary across households and not accounting for these variations in the estimation could lead to biased estimates for the coefficients of the marketing variables a comparison of our results to those obtained from a nested logit model of purchase incidence and brand choice reveals that our proposed model performs better using both a formal statistical test as well as the criterion of predictive validity in a holdout sample of panelists further the purchase quantity model compares favorably with two alternative models of quantity choice in the validation sample

resistance redistribution and investor friendliness abstract poor communities sometimes resist private investment and destroy economic surplus even if the government has the willingness and ability to redistribute we interpret such acts of resistance as demands for redistribution destruction contains credible information about how the affected group values surplus and such information is used by the government in implementing the optimal redistribution policy the extent of destruction is increasing in the extent of political marginalization of the affected group resistance not only destroys economic surplus it also mutes the investor s incentives to create surplus the government uses a tax subsidy on the investor to maximize weighted social surplus and we show that the possibility of destruction may force the government to be too soft in its negotiations with the investor we discuss several policy instruments that have the potential to improve welfare these include compensation floor for the affected group legal or financial protection for the investor and licensing fees for the investor

the value of purchase history data in target marketing an important aspect of marketing practice is the targeting of consumer segments for differential promotional activity the premise of this activity is that there exist distinct segments of homogeneous consumers who can be identified by readily available demographic information the increased availability of individual consumer panel data open the possibility of direct targeting of individual households the goal of this paper is to assess the information content of various information sets available for direct marketing purposes information on the consumer is obtained from the current and past purchase history as well as demographic characteristics we consider the situation in which the marketer may have access to a reasonably long purchase history which includes both the products purchased and information on the causal environment short of this complete purchase history we also consider more limited information sets which consist of only the current purchase occasion or only information on past product choice without causal variables proper evaluation of this information requires a flexible model of heterogeneity which can accommodate observable and unobservable heterogeneity as well as produce household level inferences for targeting purposes we develop new econometric methods to implement a random coefficient choice model in which the heterogeneity distribution is related to observable demographics we couple this approach to modeling heterogeneity with a target couponing problem in which coupons are customized to specific households on the basis of various information sets the couponing problem allows us to place a monetary value on the information sets our results indicate there exists a tremendous potential for improving the profitability of direct marketing efforts by more fully utilizing household purchase histories even rather short purchase histories can produce a net gain in revenue from target couponing which is 2 5 times the gain from blanket couponing the most popular current electronic couponing trigger strategy uses only one observation to customize the delivery of coupons surprisingly even the information contained in observing one purchase occasion boasts net couponing revenue by 50 more than that which would be gained by the blanket strategy this result coupled with increased competitive pressures will force targeted marketing strategies to become much more prevalent in the future than they are today

on the virtues of privatization when government is benevolent abstract this paper shows that privatizing a public firm can be welfare improving even if the government is a welfare maximizer we consider a setup where the firm s owner a profit maximizing entrepreneur or a benevolent government employs a manager who can invent and implement an innovative production technology wage arrangements are optimal given the verifiable information all parties behave rationally and the information structure is the same in both governance modes nevertheless privatization turns out to be preferable in a wide variety of situations government ownership yields the first best if producing under the old technology is not viable

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

privatization financial development property rights and growth abstract this study analyzes how prevailing institutional arrangements i e property rights contracting rights political institutions and corporate governance practices affect privatized firms performance capital markets development and economic growth most of the studies surveyed show that privatization enhances privatized firms performance efficiency and profitability which percolates to economic growth privatized firms performed better in countries with better regulatory and legal frameworks partial privatization may be beneficial in countries with weak institutions namely the french civil law countries the stronger the economic and the governing institutions the easier it is for privatized firms to thrive and contribute to economic growth overall privatization allows firms to achieve improved efficiency while driving the development of the financial sector

on the proportionality of eu spatial ex ante coexistence regulations reply desquilbet and bullock 2010 criticize some aspects of our analysis of the european union s eu spatial ex ante coexistence regulations seacers of genetically modified gm and non gm crops presented in demont et al 2009 we argue that besides misinterpreting some of our original arguments the authors propose a policy analysis framework which is inconsistent with the main goal of the eu s seacers their example incorrectly suggests that seacers play an additional role of regulating non gm crop supply on the market this would be inefficient from a policy economics perspective especially in an open economy where global trade is taken into account therefore we argue that analyzing flexibility of seacers in a market framework could lead to erroneous conclusions and in that case a simple farm level analysis such as presented in demont et al 2009 is preferred

demand customer base line and demand response in the electricity market a survey the increasing use of demand side management as a tool to reliably meet electricity demands at peak time has stimulated interest among researchers consumers and producer organiza tions managers regulators and policymakers this research reviews the growing literature on models which are used to study demand customer base line cbl and demand response in the electricity market after characterizing the general demand models the cbl based on which the demand response models are studied is reviewed given the experience gained from the review and existing conditions the study combines an appropriate model for each case for a possible application to the electricity market moreover it discusses the implications of the results in the literature these aspects are studied independently the main contribution of this survey is attributed to the treatment of the three issues as sequentially interdependent the review is expected to enhance the understanding of the demand cbl and demand response in the electricity market and their relationships the objective is conducted through a combination of demand and supply side managements in order to reduce demand through different demand response programs during peak times this enables electricity suppliers to save costly electricity generation and at the same time reduce energy vulnerability