competition under consumer loss aversion we address the effect of expectation based consumer loss aversion on firm strategy in imperfect competition consumers are fully informed about match value and price at the moment of purchase however some consumers are initially uninformed about their tastes and form a reference point consisting of an expected match value and price distribution whereas others are perfectly informed all the time we show that if firms have symmetric costs a larger share of informed consumers leads to a more competitive outcome the reverse holds if cost asymmetry in duopoly is sufficiently large

changing threat perceptions and the efficient provisioning of international security this paper proposes a mechanism for structuring international institutions to efficiently provision global security against the threat of a rogue nation the effects of security effort by an alliance member are assumed to be non rival and non excludable for other members specifically this effort has both positive and negative effects as security measures prevent attacks by the rogue nation but also involves loss of commercial and diplomatic benefits further the alliance members are assumed to have heterogeneous tastes regarding the desired security level the allies act strategically vis a vis one another with regard to security provision and the alliance a whole acts strategically with respect to the rogue nation which strategizes in turn importantly this paper investigates how the evolution of public opinion in the respective countries facing the rogue nation s threat impacts the proposed mechanism

economics of alliances the lessons for collective action this essay provides an up to date summary of the findings of the literature on the economics of alliances we show that the study of the economics of alliances has played a pivotal role in understanding and applying public good analysis to real world applications we establish that the manner in which alliances address burden sharing and allocative issues is related to strategic doctrines weapon technology perceived threats and membership composition past contributions are evaluated and areas needing further development are identified the theoretical and empirical knowledge gained from the study of alliances is shown to be directly applicable to a wide range of international collectives

economic models of nato abstract the seminal work of olson and zeckhauser 1966 on the economic theory of alliances in particular nato provides the theoretical background for this paper after restating their results on alliance allocation behavior in a formal framework we show that these results may fail in a context with decentralized production of the public defense commodity finally we introduce a simple mechanism which allows the implementation of an efficient allocation characterized by proportional burden sharing and cost monotonicity these results can also be applied to other public goods problems

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

alternative collective goods models of military alliances theory and empirics i introduction in a seminal article mancur olson and richard zeckhauser 1966 characterized the north atlantic treaty organization nato in the mid 1960s as a group of allies who shared a pure public good in the form of deterrence to qualify as a pure public good a good s benefits must be nonexcludable i e available to all group members once provided and nonrival in consumption i e consumption opportunities associated with a unit of the good do not decline with the number of users pure public goods are characterized by free riding behavior owing to non excludability which permits individuals to partake in the benefits of the good without expending their own scarce resources olson and zeckhauser also demonstrated that a pure public good such as deterrence is associated with an exploitation hypothesis whereby the large agents allies shoulder the payment burdens of the small agents allies using data from 1964 olson and zeckhauser 1966 274 77 established that defense burdens are positively correlated with the economic size of the allies as measured by gross national product gnp over the next twenty five years a large literature has generalized and extended the olson and zeckhauser collective goods theory of alliances van ypersele de strihou 1967 recognized that defense expenditures could generate country specific private benefits e g disaster relief protection of colonies management of domestic unrest along with purely public deterrence with the presence of ally specific benefits the strength of the exploitation hypothesis is attenuated since a small ally might willingly shoulder a relatively large burden provided that this ally views its defense expenditures as possessing a large share of nation specific benefits in a series of articles murdoch sandler and others 1 formulated a joint product model in which the military activity of an ally yields pure public impure public and or private jointly produced outputs or benefits if the benefits derived from the allies military expenditures were from a single purely public good then the joint product model would obviously degenerate to the model of olson and zeckhauser 1966 murdoch and sandler 1984 sandler and forbes 1980 and sandler and murdoch 1990 have shown that the joint product model outperforms the pure public good deterrence model for nato during various time periods in recent years a number of important contributions to the collective good analysis of alliances have appeared these include the inclusion of foreign trade considerations wong 1991 marginal cost differentials among allies mcguire 1990 weber and wiesmeth 1991 leader follower behavior bruce 1990 and median voter considerations dudley and montmarquette 1981 murdoch sandler and hansen 1991 and okamura 1991 mcguire and groth 1985 engineered an econometric procedure for distinguishing between allocative processes e g non cooperative and cooperative within an alliance while subsequent work by sandler and murdoch 1990 operationalized this econometric procedure until now collective good models of alliances have computed alliancewide defense levels by simply summing the allies expenditures however the appropriate manner for aggregating defense efforts among allies may depend on geographical strategic and technological determinants for example the defense efforts of the weakest ally or link along a front may determine the strength of the allies defenses since the enemy s ability to penetrate behind the front hinges on the weakest fortification hirshleifer 1983 in consequence the minimal defense level of the allies and not the sum determines alliance capabilities the purpose of this paper is fivefold first we intend to look at different methods of aggregating allies military expenditures to determine alliancewide defense levels three procedures summation weakest link and best shot are examined

advertising intensity and welfare in an equilibrium search model i analyze an equilibrium search model in a duopoly setting with bilateral heterogeneities in production and search costs in which firms can advertise by announcing price i compare the market advertising level to the socially optimal level where i find that costly search can improve welfare and that firms may under or over advertise relative to the social optimum depending on the costs of search the results suggest that in markets with sufficiently low search costs firms are likely over advertising relative to the socially optimal level and vice versa for markets with sufficiently high search costs

trade strategy and the dependency hypothesis a comparison of policy foreign investment and economic growth in latin america and east asia the role of state policy in the industrialization of third world nations has become the subject of increasing interest in recent years in the past the debate over economic development has either focused on the traditional modernization approach or the dependency theory of underdevelopment 2 dependency theorists base their model of development on the belief that foreign investment from core countries is harmful to developing nations long term economic growth economic relationships between the core and the periphery are structurally detrimental for the latter because of the inherent dynamics of international capitalism yet despite the claims of dependency theory the recent experience of the east asian newly industrialized countries suggests a wider range of development possibilities which include government policies specifically designed to attract foreign investment these countries appear to have structured their domestic economies in order to mitigate the pernicious effects of dependent relationships with core countries this raises new questions about the development process and the role of policy and foreign investment in the economic transactions between core and peripheral countries dependency theory a neo marxist predecessor of world systems research claims that first world nations become wealthy by extracting surplus labor and resources from the third world capitalism perpetuates a global division of labor which causes the distortion of developing countries domestic economies declining growth and increased income inequality 3 those countries on the periphery cannot become fully modernized as long as they remain in the capitalist world

semi nonparametric estimation of consumer search costs this paper studies the estimation of the distribution of non sequential search costs we show that the search cost distribution is identified by combining data from multiple markets with common search technology but varying consumer valuations firms costs and numbers of competitors to exploit such data optimally we provide a new method based on semi nonparametric estimation we apply our method to a dataset of online prices for memory chips and find that the search cost density is essentially bimodal such that a large fraction of consumers searches very little whereas a smaller fraction searches a relatively large number of stores copyright c 2012 john wiley sons ltd

the effect of group size and asymmetries on the incentive to reveal group specific information in this paper i examine how firms incentives to differentiate their products through the revelation of truthful information about product attributes varies with the distribution of consumer preferences for those attributes i show that information will tend to be provided for large groups even absent scale economies in producing that information in addition the relative sizes of the groups whose estimates of product quality change positively vs negatively i e the degree of asymmetry by the information is likewise an important determinant of its profitability

information in cournot signaling with incomplete control abstract we embed signaling in the classical cournot model in which several firms sell a homogeneous good the quality is known to all the firms but only to some buyers the quantity setting firms can manipulate the price to signal quality because there is only one price in a market for a homogeneous good each firm incompletely controls the price signal through the quantity decision we characterize the unique signaling cournot equilibrium in which the price signals quality to the uninformed buyers we then compare the signaling cournot equilibrium with the full information cournot equilibrium signaling is shown to increase the equilibrium price moreover under certain conditions regarding the composition of buyers the number of firms and the distribution of costs across firms the effects of signaling and market externality cancel each other in other words the profits under signaling cournot equal the profits of a cartel in a full information environment

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

costly buyer search in a differentiated products model an experimental study this study examines whether the content of buyer information and the timing of its dissemination affects seller market power we construct laboratory markets with differentiated goods and costly buyer search in which sellers simultaneously post prices the experiment varies the information on price or product characteristics that buyers learn under different timing assumptions pre and postsearch generating four information treatments theory predicts that price information lowers the equilibrium price but information about product characteristics increases the equilibrium price that is contrary to intuition the presence of informed buyers may impart a negative externality on other uninformed buyers data support the model s negative externality result when sellers face a large number of robot buyers that are programmed to search optimally observed prices conform to the model s comparative statics and are broadly consistent with predicted levels with human buyers however excessive search instigates increased price competition and sellers post prices that are significantly lower than predicted

consumer information and firm pricing negative externalities from improved information we analyze the effect of consumer information on firm pricing in a model where consumers search for prices and matches with products we consider two types of consumers uninformed consumers do not know in advance their match values with firms whereas informed consumers do prices are lower the greater the proportion of uninformed consumers hence uninformed consumers exert a positive externality on the others in contrast to standard results this leads to socially excessive investment in gathering prior information when aggregate demand is price sensitive

dependence on foreign investment and economic growth in the third world estimates of the extent to which third world countries have experienced slower rates of growth than those in the industrialized west since i960 indicate a weak relation between initial wealth and subsequent economic growth that follows an inverted u shape pattern while the lowest growth rates are found among the poorest countries of the third world the highest growth rates are found not in the industrialized west but in the wealthiest third world countries drawing on contending arguments associated with modernization and dependency perspectives the relationship between foreign investment and growth within the third world is examined results undermine the idea that foreign investment inhibits growth suggesting instead that flows of foreign investment may facilitate growth especially among the initially wealthier countries of the third world

free riding and paid riding in the fight against terrorism overt terrorist acts and the specter of terrorism impose significant costs on the community of civilized nations these costs can be reduced by taking retaliatory action against terrorist organizations and the countries that sponsor them assuming a positive range over which retaliatory cost is less at the marginal than the resulting benefit from reduced terrorism there exists some positive level of retaliation which is efficient from the perspective of the victimized countries an obstacle to achieving the efficient level of retaliation against terrorists results from the fact that much of the benefit from retaliation is general and cannot be captured entirely by the retaliating country a fully efficient policy of retaliation will therefore require a cooperative response from all victimized countries achieving this cooperation however may confront the well known free rider or prisoner s dilemma problem while collectively the targets and potential targets of terrorism are better off retaliating each will likely see its advantage best served by not retaliating in this case it is quite possible that no one will retaliate when the best response is for everyone to retaliate a closer look at the problem of terrorism however suggests that the standard prisoner s dilemma may not be a significant obstacle to retaliation under plausible conditions it will pay one country to retaliate even if other countries choose to free ride indeed given the two options in the standard prisoner s dilemma setting cooperating retaliating or noncooperating nonretaliating it is very likely that all victimized countries will retaliate that no country will take a free ride but this does not mean that the prospects for genuine cooperation in confronting terrorism are good in the case of retaliation against terrorist free riding is only one way a country can increase the net benefit it receives from the public good provided by another it is possible for one country to in effect sell the public good of reduced terrorism that is generated by the retaliation of another country this paidrider possibility has important and obviously adverse implications for the prospects that retaliation will result from a cooperative effort on the part of those countries victimized by terrorists in section i the implication of free riding and paid riding for retaliation against terrorists will be investigated in a two country setting in section ii the circumstances that either encourage or discourage a country from being a paid rider on the retaliation of another country will be considered and some real world examples of paid riding will be discussed

structuring international institutions for the efficient provisioning of global security this paper analyzes the issue of security provision by an alliance against the threat of a rogue nation proactive security effort by an alliance member is assumed to be non rival and non excludable so the results of the effort jointly accrue to every other member this effort has both positive and negative effects as security measures mitigate the threat but also involve loss of commercial benefits collateral damages and infringement on human rights in this paper i suggest an institutional structure for the alliance which would lead to the achievement of the efficient level of world security through multilateral participation

comparative advertising disclosing horizontal match information improved consumer information about horizontal aspects of products of similar quality leads to better consumer matching but also to higher prices so consumer surplus can go up or down while profits rise with enough quality asymmetry though the higher quality and hence larger firm s price falls with more information so both effects benefit consumers this occurs when comparative advertising is used against a large firm by a small one comparative advertising as it imparts more information therefore helps consumers although it also improves the profitability of the small firm overall welfare goes down because of the large loss to the attacked firm

global terrorism deterrence versus pre emption this paper analyses two anti terrorism policies when a targeted nation s people and property are in jeopardy at home and abroad a country s deterrence decision involves both external benefits and costs as the terrorist threat is deflected while its preemption decision typically gives external benefits when the threat is reduced for all potential targets with damages limited to home interests a country will overdeter while for globalized terror a country will underdeter pre emption is usually undersupplied leader follower behaviour is apt to lessen inefficiency for deterrence but worsen inefficiency for pre emption compared with simultaneous choice equilibrium allocations targeted nations can never achieve the proper counterterrorism policy through leadership ce memoire analyse deux politiques anti terrorisme quand la population et la propriete des nations visees sont en danger tant au pays qu a l etranger la decision de dissuasion d un pays entraine des avantages et des couts externes a proportion que la menace terroriste est evitee alors que la decision de preemption produit typiquement des avantages externes quand la menace est reduite pour toutes les cibles potentielles dans le cas de dommages limites aux cibles dans le pays un pays va etre portea sur dissuader alors que dans le cas de terreur globalisee un pays va etre portea sous dissuader la preemption est generalement sous offerte le comportement leader suiveur est susceptible de reduire l inefficacite de la dissuasion mais d empirer l inefficacite de la preemption par rapport a ce qui se passe quand les choix sont simultanes les nations visees ne peuvent jamais en arriver a la politique d anti terrorisme appropriee par la voie du leadership

terrorist backlash terrorism mitigation and policy delegation abstract this paper presents a three stage proactive game involving terrorists elected policymakers and voters in each of two targeted countries a representative voter chooses an elected policymaker charged with deciding proactive countermeasures to ameliorate a transnational terrorist threat two primary considerations drive the voters strategic choice free riding on the other countries countermeasures and limiting a reprisal terrorist attack the resulting low proactive countermeasures benefit the terrorists whose attacks successfully exploit voters strategic actions this finding stems from a delegation problem where leadership by voters has a detrimental consequence on the well being of targeted countries domestic politics add another layer of concern when addressing a common terrorist threat

the elementary economics of social dilemmas a social dilemma is in essence a prisoners dilemma in a continuous strategy space i discuss a number of social dilemmas that have caught my attention offer an elementary diagrammatic synthesis of them and discuss some of the economic insights that the diagrams capture including incentives for pre commitment finally i model pre commitment via delegation and link results to the literature on the evolution of preferences l economie elementaire des dilemmes sociaux un dilemme social est essentiellement un dilemme du prisonnier dans un espace continu de strategie l auteur discute d un certain nombre de dilemmes sociaux qui ont retenu son attention il en propose une synthese graphique elementaire et discute certaines des suggestions economiques qui decoulent de ces diagrammes comme par exemple les incitations a se pre engager finalement l auteur construit un modele de pre engagement par delegation et relie ses resultats a la litterature sur l evolution des references

can prominence matter even in an almost frictionless market consumer search on the internet is rarely random sponsored links appear higher up a webpage and consumers often click them firms also bid aggressively for these prominent positions at the top of the page but why should prominence matter when visiting an additional website is almost costless i present a model in which consumers know their valuations for the products offered in the market but do not know which retailer sells which product i show that a prominent retailer earns significantly more profit than other firms even when the cost of searching websites and comparing products is essentially zero