strategic export policy with foreign direct investment and import substitution abstract the paper examines discretionary and strategic foreign direct investment fdi incentives in the export sector relative to a non interventionist policy the analysis is based on a two country model with both countries seeking to attract fdi countries differ in cost levels and in their levels of tariff protection on intermediate inputs a shift in the trade policy regime toward the strategic promotion of exports results in a decrease in fdi allocated to the low cost country when it has a low level of protection on intermediate inputs and an increase in fdi when it has a high level of protection on intermediates inputs furthermore even if fdi increases with export policy activism relative to non intervention welfare may be lower

reputation in dynamic games abstract we analyze reputation in a game between a large player and a continuum of long lived small players in which state variables affect players payoffs the large player s type is private information we give conditions under which in every nash equilibrium a very patient large player will get almost the largest payoff consistent with the small players choosing a best response in a large finite truncation of the game while our results apply to the time inconsistency problem of optimal government policy we show that for the durable goods monopoly reputation may fail to improve the monopolist s payoff journal of economic literatureclassification numbers c72 c73

production with learning and forgetting in a competitive environment abstract it has been shown that learning by doing enables firms to reduce marginal production costs but that this effect weakens due to organizational forgetting in order to assess the impact of both learning and forgetting on long term competitiveness and a firm s profitability we model an experience accumulation process with depreciation and consider two competing firms that produce fully substitutable products in this model unit production costs decrease with the firm s experience due to the proprietary learning process as well as the spillover of experience from the competing firm firms can either share or hide from each other their information about the state of their respective experience throughout the game we found that in an equilibrium steady state if the organizational forgetting is sufficiently large larger than the spillover rate value then information sharing compared to information hiding results both in less competitiveness and increased profits for firms conversely if the organizational forgetting is small and the spillover opportunities are relatively large then information sharing promotes both long term competitiveness and firm profits accordingly firms are better off in the long term by deliberately limiting expanding their experience accumulation process whenever organizational forgetting is relatively large small a high ability of proprietary learning however can interfere in this relationship so that limiting the firms experience process will always be compatible with higher profitability

perfect equilibria in a trade liberalization game the credibility of temporary protection is examined in a simple infinite horizon perfect information game of timing in which the domestic government uses the threat of future liberalization to induce the domestic firm to invest all pure strategy subgame perfect equilibria are cyclical and surprisingly one of them implements optimal temporary protection however this equilibrium fails to pass another credibility criterion called renegotiation proof the game has a unique stationary subgame perfect equilibrium in mixed strategies copyright 1990 by american economic association

how should control theory be used to calculate a time consistent government policy we study different solutions to a simple one dimensional linear quadratic game with a large number of private agents and a government a time consistent solution is defined as a solution to the hamilton jacobi bellman equation i e as a policy for which the government has noprecommitment capability this solution is compared to a policy where the government has an instantaneous pre commitment i e an equilibrium in which the government has a period by period leadership in both cases we show how control theory should be applied to calculate the equilibrium and how to relate these equilibria to the differential game literature

differential games with nonconvexities and positive spillovers abstract this paper deals with differential games characterized by nonconvexities and increasing returns the objective function of the players is convex in the control variables and nonconvex in the state variables we employ the open loop nash equilibrium solution concept this framework enables us to handle games characterized by positive spillovers and strategic complementarities e g capital accumulation differential games with learning by doing where the knowledge available to a firm is given by the knowledge accumulated by the economy as a whole

dynamic game results of the acquisition of new technology open and closed loop nash strategies are derived and analyzed for a differential game in which two competing firms choose prices and productive capacity where new technology reduces a firm s unit operating cost using an open loop strategy a firm makes an irreversible commitment to a future course of action for example a contract with a labor union may force a firm to commit to maintaining its entire workforce regardless of its competitor s future realized behavior in contrast using a closed loop strategy a firm s decisions evolve over time continuously responding to the competitor s behavior the dynamic nash strategies obtained for the closed loop model exhibit a more restricted acquisition of new technology and a greater reduction of existing capacity relative to the open loop solutions in addition the dynamic nash price to be charged for output is higher in the closed as opposed to open loop competitive environment numerical solutions are presented to demonstrate that if both firms apply the closed loop approach each will earn higher profits than if one or both firms choose an open loop strategy

credibility of protection and incentives to innovate in recent trade policy debates it is often argued that temporary protection stimulates innovation this paper shows that the validity of the argument depends on the perceived credibility of protection policy if it is suspected that temporary protection will be removed early should innovation occur before its terminal date the protected firm invests less in r d than it does under free trade if it is expected that protection will be extended should no innovation have occurred by its terminal date investment falls below the free trade level and eventually to zero as the terminal date is approached

capital accumulation games of infinite duration abstract consider a market in which firms accumulate capital according to the nerlove arrow capital accumulation equation each player chooses a path of investment and thus an induced path of capital to maximize his total discounted profits which depend on his own capital and the capital stocks of his rivals existence is proved for such a nonzero sum infinite horizon differential game and conditions under which the game converges to a particular stationary point regardless of the initial conditions are shown thus the game possesses the property of conditional global asymptotic stability

export restraints in a model of trade with capital accumulation abstract this paper examines the impact of voluntary export restraints vers in an international duopoly modeled as a differential game with a ramsey capital accumulation dynamics the game admits multiple steady states and a ver cannot be voluntarily employed by the foreign firm in case of cournot behavior in demand substitutes hence the dynamic framework confirms the results of the vers literature with static interaction in output levels in the case of price behavior the adoption of an export restraint may increase the profits of both firms if products are substitutes and the steady state is market driven however contrary to the acquired wisdom based upon the static approach the dynamic analysis also admits an equilibrium outcome identified by the ramsey golden rule where the incentive to adopt a ver is ruled out irrespective of whether firms are quantity or price setters

the political economy of declining industries senescent industry collapse revisited many observers have noted a strong tendency for protection once it is instituted to persist over time this paper first shows that persistent protection arises whenever lobbying is an alternative to costly adjustment with endogenous protection the level of tariffs is an increasing function of past tariffs the more an industry lobbies the greater the current protection it receives and the less it adjusts and the less the industry adjusts the more effective it is as a lobby in the future when the costs of lobbying and adjustment are fully variable declining industries contract more slowly over time and never fully adjust however the paper shows that adding a fixed cost of lobby formation or maintenance is sufficient to generate an endogenous collapse of protection such as that predicted by cassing and hillman 1986 american economic review 76 516 523 in which an industry abruptly terminates its lobbying and loses its protection finally the paper examines the well documented bias against growing industries in the lobbying process

imports as competitive discipline the role of the productivity gap abstract this paper addresses the impact of foreign competition on the competitive advantage of domestic firms and the role of trade policy in an endogenous growth framework it shows that the impact of foreign competition on r d and productivity depends on the industry s relative position trade liberalization promotes innovation and enhances welfare in mature industries but hinders growth and leads to market exit in infant industries with a large productivity gap in the latter case temporary protection promotes the survival of the firm and increases welfare at the margin hence we integrate the old argument for the temporary protection of infant industries with the notion that foreign competition fosters innovation and productivity

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

did us safeguards resuscitate harley davidson in the 1980s abstract this paper examines us safeguards applied to the motorcycle market in the 1980s after receiving temporary protection by means of a maximum tariff of over 45 harley davidson sales recovered dramatically simulations based on structural demand and supply estimates indicate that while safeguard tariffs did benefit harley davidson they only account for a fraction of its increased sales this is primarily because consumers perceived that harley davidson and japanese large motorcycles were poorly matched substitutes for each other our results provide little evidence that safeguard provisions triggered restructuring in harley davidson

interregional labour mobility inequality and wage convergence the objectives of the paper are to examine the determinants of interregional labour migration for german regions using the data on gross flows of labour movements across regions this is one of the few studies where data on labour migration is used there also was a wage convergence after reunification between regions of east and west germany and this to a certain extent provides an explanation for non linear relationship between wage differences among regions and migration as the study distinguishes the blue collar and white collar wage difference between regions different relationships between migration and blue and white collar workers wage differences can be assessed we also test the hypothesis whether highly skilled workers migrate to the regions where inequality is greater while less skilled workers tend to migrate to the regions where inequality is low

time consistent taxation by a government with redistributive goals abstract in a dynamic economy whose government is interested in both equity and efficiency time consistency problems arise even if the government has access to nondistortionary tax instruments moral hazard in production leads to a nondegenerate distribution of income which the government would like to flatten ex post self enforcing social agreements can mitigate the tendency toward excessive redistribution we investigate the nature of the distortions caused by the time consistency problem and show that in the constrained optimal equilibrium usually a linear tax schedule is imposed this remains true if renegotiation of the social agreement is possible journal of economic literature classification numbers c7 c73 e6 h21

a transaction cost analysis of the land development process the production of our built environment involves many transaction costs we want to avoid unnecessary transaction costs nevertheless we hardly take account of transaction costs when considering different ways of organising the development process the most important reason is probably the difficulty in identifying them this paper shows why transaction costs are important and offers a method for identifying them with this method it is possible to compare the efficiency of different institutional arrangements

common interest development and the changing roles of government and market in planning world wide common interest development cid and its governance homeowners associations hoas are developing rapidly however numerous conflicts have given rise to the need to redefine govern

an equilibrium selection theory of monopolization we develop a duopoly model in which firms compete for the market e g investing in process innovation or product development as well as in the market e g setting quantities or prices competition for the market generates multiple equilibria that differ in the firms investment levels relative size and profitability we show that monopolization that affects competition in the market can act as an equilibrium selection device in competition for the market in particular it eliminates equilibria that are undesirable for the monopolizing firm while not generating new equilibria this result complicates the task of determining whether a firm s dominance in a given market is the result of fair competition or unlawful monopolization we discuss a number of implications for antitrust policy and litigation and illustrate these by means of two well known antitrust cases

labor adjustment and gradual reform when is commitment important we analyze a model in which a government uses a second best policy to affect the reallocation of labor following a change in relative prices we consider two extreme cases in which the government has either unlimited or negligible ability to commit to future actions we discuss the factors that determine the importance of commitment ability and provide numerical examples the degree of commitment ability can alter the equilibrium policy both quantitatively and qualitatively in both extreme cases the dying sector is protected during the transition to a free market in order to decrease the amount of unemployment

time consistent protection with learning by doing abstract can a government induce efficiency gains in his domestic industry by protecting it against foreign competition would such trade protection be time consistent the present paper builds a dynamic equilibrium model that accounts for learning by doing effects that link firms strategies over time the model shows that the existence of dynamic economies of scale suffices to overcome the traditional government s lack of commitment of its tariff policy this paper compares the infinite horizon markov perfect equilibrium of this game with the dynamic equilibrium under commitment as well as the static nash equilibrium equilibrium strategies are derived in closed form by solving a linear quadratic differential game optimal trade policy involves higher tariff levels than in the static setup in order to account for future gains in efficiency under reasonable assumptions the unique stable mpe is characterized by a domestic price and tariff that decrease as experience accumulates thus supporting the future liberalization of trade as an equilibrium feature of this dynamic game

strategic investment and conjectural variations abstract this paper analyzes investment decisions under the alternative assumptions of competitive collusive open loop non cooperative and feedback non cooperative behavior steady state capital stocks prices and outputs are obtained and compared the paper shows that one of the linear feedback equilibrium decision rule coefficients is a dynamic version of a contemporaneous conjectural variation the same decision rule coefficients are shown to imply a particular value for the contemporaneous conjecture the implied conjecture embodies subgame perfection and approaches the competitive value as the number of firms in the industry increases

an analysis of the housing redevelopment process in korea through the lens of the transaction cost framework this paper applies the transaction cost framework to the analysis of the housing redevelopment process in korea the housing redevelopment process involves various identifiable transactions and cos

dumping and dynamic competition abstract when the current output level affects future production costs domestic and foreign profit maximizing firms may set prices below current costs to gain experience antidumping enforcement which poses a barrier to below cost sales by foreign rivals changes the payoff structure of competition and alters the equilibrium decisions of both foreign and domestic firms a comparison of the nash equilibria with and without antidumping rules shows that these rules change market outcomes even when they do not appear to be binding ex post this positive analysis of antidumping enforcement complements previous studies that have considered the motivation for dumping

turnpike properties in a finite horizon differential game dynamic duopoly with sticky prices the authors study the equilibrium price paths of a finite horizon dynamic duopoly model in which the market price does not have to adjust instantaneously in response to changes in the quantity supplied a complete analysis of the feedback nash equilibrium of a finite horizon linear quadratic differential game with a control constraint is presented two equilibrium price paths are identified and it is shown that they both remain close to the infinite horizon globally asymptotically stable stationary equilibrium except for some initial and final time copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

sustaining cooperation in a differential game of advertising goodwill accumulation abstract the paper suggests a differential game of advertising competition among three symmetric firms played over an infinite horizon the objective of the research is to see if a cooperative agreement among the firms can be sustained over time for this purpose the paper determines the characteristic functions value functions of individual players and all possible coalitions we identify an imputation that belongs to the core using this imputation guarantees that in any subgame starting out on the cooperative state trajectory no coalition has an incentive to deviate from what was prescribed by the solution of the grand coalition s optimization problem

insider power unemployment dynamics and multiple inflation equilibria this paper incorporates employment dynamics due to insider power into the barro gordon theory of inflation unlike in the static barro gordon case and even though our infinitehorizon model is linear quadratic there can be two markov perfect equilibria so that the same unemployment may correspond to either low or high inflation both equilibrium inflation rates measured per unit of the gap between the insiders and government s employment targets are higher than the corresponding rate in the static case the low inflation equilibrium has intuitive comparative statics properties in that inflation is increasing in insider power and the discount factor but the high inflation equilibrium behaves in the opposite way the highinflation equilibrium can be eliminated by a future precommitment to a fixed inflation regime e g erm but only if this precommitment can be made with certainty contrary to the static model inflation may be lower when the union puts a positive weight on a wage target than when it cares only about employment even when this wage target is consistent with a lower employment level than the employment target

dynamic duopoly with adjustment costs a differential game approach abstract this paper develops a differential game model of duopoly in which firms incur costs associated with how fast they change their level of output the analysis solves for a subgame perfect equilibrium to the model in which the steady state level of output lies strictly between the static cournot and perfect competition solutions furthermore we demonstrate that the limit game in which the speed of adjustment parameter approaches zero does not tend toward the static cournot equilibrium

factors that influence transaction costs in development offsets who bears what and why abstract environmental policy instruments generate transaction costs to public and private parties there is a growing literature reporting on the size of transaction costs produced by environmental policy instruments this paper extends that literature through an analysis of the factors that influence transaction costs in environmental policy and how this influence occurs the theory based factors that influence transaction costs are categorised as 1 transaction characteristics 2 transactor characteristics 3 nature of the institutional environment and 4 nature of the institutional arrangements we examined how these factors influenced transaction costs through the analysis of two australian based development offset schemes with different policy designs we found evidence of all four theory based categories of influence in the policy case studies the degree of influence and how each factor influenced transaction costs varies across the two policies and between parties policy design as a component of the institutional environment had a particularly large bearing on transaction costs of offset buyers and the policy administrator an important contribution to transaction cost theory assumes the institutional environment as given

incentives to create jobs regional subsidies national trade policy and foreign direct investment a national authority wishes to attract foreign direct investment fdi to create local jobs we analyse the optimal national trade policy when local authorities might offer subsidies to convince a multi national enterprise mne to invest in their jurisdiction with centralised decision making or with allocation of investment to particular localities the central authority s optimal policy is to use a high tariff to avoid payment of any subsidy to the mne despite this some socially undesirable but locally desirable fdi cannot be avoided if local authorities compete to offer subsidies to attract local investment then the central government s optimal policy is to try to discourage fdi by choosing a low tariff despite this some socially undesirable and even locally undesirable fdi prevails we conduct our analysis both assuming an upper bound on tariffs as would be consistent with trade liberalisation and allowing tariffs to vary freely the effect of increasing trade liberalisation depends heavily on the system of granting local subsidies if the system is centralised trade liberalisation decreases the range of parameters for which fdi occurs if the system is decentralised and competitive it increases this range

credibility of trade policy reform and investment the mexican experience abstract this paper assesses whether the program of trade liberalization undertaken by mexico after 1985 was undermined by lack of credibility it provides an empirical counterpart to some of the credibility issues that have been discussed elsewhere in the literature and proposes a methodology based on the estimation of a probit model to measure the probability of trade policy reversal due to the likelihood of occurrence of a balance of payments crisis it is shown that the probability of trade policy reversal reduced indeed the rate of capital accumulation during the first years of the reform

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

the impact of lead time on capital investments abstract we study equilibrium investment strategies of firms competing in stochastic dynamic market settings and facing two types of investment structures investment with significant lead time or time to build and investment without or minor lead time we investigate how investment behavior changes when investment is subject to time to build versus when it is not we characterize equilibrium investment strategies under several information structures and compare results to the social optimum we offer some new results the model predicts that controlling for demand and production and investment costs investments and outputs can be higher in progressive industries which often exhibit time to build than in fast paced industries where time to build is insignificant furthermore for both investment types investment with or without time to build we offer a novel equilibrium in which firms incrementally invest this behavior is driven by demand uncertainty and capacity constraints also expected outputs are lower than cournot outputs as firms face uncertainty moreover the amount of uncertainty has different effects over investment types

institutions in theories of land markets illustrated by the dutch market for agricultural land theories of land markets should be intellectually sound and should be able to explain and predict market outcomes such as price and volume of transactions changes in these and locations of different land uses theories based on neo classical economics which largely ignore the role of institutions are not intellectually sound because it is known that markets cannot work without institutions nor do these theories predict outcomes satisfactorily moreover they assume market mechanisms and do not investigate them critically this paper explores how institutions may be taken into account in theories of land markets and whether that leads to better theories both of market outcomes and of market processes new institutional economics provides the tools to investigate how the interactions between market actors are influenced by institutions and the old institutional economics emphasises how institutions influence the motivations and preferences of those actors the conclusion is that there cannot be a general theory of land markets only theories with a limited applicability and scope such theories can be used to explain the effects of small changes and to predict the effects of marginal changes in institutions in that latter use these theories can be used for designing land policy how institutions can be incorporated into theory is illustrated by analysing the dutch market for agricultural land this shows how institutions affect the outcomes in that market and the consequences for the transformation of land from agriculture to urban use

opportunity cost trade policies and the efficiency of firms abstract this paper analyzes the effects of trade policies on the technological effort of a firm entering a new market in the context of a developing country we depart from previous literature by bringing into focus the opportunity cost of technological effort a firm that spends time in acquiring a more efficient technology delays the commercialization of its products thus incurring an opportunity cost in terms of profits forgone protection increases both the opportunity cost and the benefits from technological effort in the case of linear demand function and constant returns to scale technology protection is shown to unambiguously reduce the protected firm s technological effort export subsidy is also shown to reduce technological effort when the potential level of exports under free trade is high

inefficient foreign borrowing a dual and common agency perspective studying the implications of uncoordinated borrowing the paper first looks at whether and when countries borrow too much in the aggregate it then revisits the original sin debate analyzing whether and when equity portfolio investment international portfolio diversification domestic currency denomination and longer maturities enhance borrowing countries access to international lending the paper thereby relates a country s level and quality of access to international capital markets to a variety of institutional features such as the level of domestic savings their location the extent of control rights held by political authorities and the interests of dominant domestic political forces

infant industry tariff protection with pressure groups abstract this paper analyzes the increasing tariff protection in the spanish iron and steel industry over the first third of the 20th century learning effects are explicitly included to model a dynamic game of trade liberalization the government chooses the tariff level while firms decide how much to produce each period firms production decisions determine their future cost levels assuming that learning reduces only fixed costs the dynamic game may be solved in closed form so that the optimality and time consistency of the actual policy can be evaluated furthermore the model is used to measure the relative importance of producers and consumers on the government s equilibrium tariff strategy the model is calibrated for year 1913 and it is shown that the existence of important unexploited dynamic economies of scale may have justified high tariff levels at that time in addition the results also show that the spanish iron and steel producers behaved more competitively than what is commonly assumed and that the government s protection policy was not significantly conditioned by steel producers

informational benefits of international treaties international treaties allow a minister in one country to learn about the beliefs held by a minister in another country so allowing each to make better decisions when the net benefits of environmental policy are uncertain a country which participates in negotiating an environmental treaty or which supports strong environmental action thereby provides information to another country that such action can be worthwhile this dimension of international environmental agreements helps explain why countries negotiate treaties why these treaties often implement the nash non cooperative equilibrium why agreement to a treaty by a country deemed not particularly favorable to it can strengthen environmental action and why treaties may invoke a minimum participation clause the informational mechanism we discuss holds even if physical spillovers are absent and even if monitoring and enforcement are infeasible our approach can explain additional phenomena how requirements for approval by several bodies within a country can increase support for a policy and why simultaneous action can lead to better outcomes than sequential action

markov puppy dogs and related animals abstract it is shown that steady state markov perfect equilibria of discrete time infinite horizon quadratic adjustment cost games differ from equilibria of their infinitely repeated counterpart games with zero adjustment costs even though no adjustment costs are paid in the steady state in contrast to continuous time games the limit of these equilibria as adjustment costs approach zero is the same as the equilibria of their static counterpart games a classification scheme is presented and it is shown that the taxonomy is identical to that of analogous two stage games such as those analyzed by fudenberg and tirole american economic review papers and proceedings 1984 74 361 366 this classification is useful in that it implies that steady state equilibria need not be explicitly calculated to analyze qualitatively the effects of adjustment costs in strategic environments it is also argued that estimated conjectural variations parameters may capture a well defined property of strategic interaction in a dynamic game

policy designs in a dynamic model of infant industry protection abstract this paper takes the neoclassical infant industry model allows agents to respond to future expectations and reveals previously unexplained relationships between protection and outcome policy which projects to protect the industry until international competitiveness may not necessarily succeed consistent to the mixed empirical evaluations to guarantee success protection has to last longer however for success to be an equilibrium protection can last shorter decline after take off is also an equilibrium when adjustment speed is bounded increasing the protection rate is not isomorphic to decreasing its duration in policy design adjustment speed critical industry scale and policy duration are all relevant

green industrial policy green growth requires green technologies production techniques that economize on exhaustible resources and emit fewer greenhouse gases the availability of green technologies both lowers social costs in the transition to a green growth path and helps achieve a satisfactory rate of material progress under that path the theoretical case in favour of using industrial policy to facilitate green growth is quite strong economists traditional scepticism on industrial policy is grounded instead on pragmatic considerations having to do with the difficulty of achieving well targeted and effective interventions in practice while these objections deserve serious attention i argue that they are not insurmountable a key objective of this paper is to show how the practice of industrial policy can be improved by designing institutional frameworks that counter both informational and political risks

self selection and the earnings of immigrants this paper analyzes the way in which the earnings of the immigrant population may be expected to differ from the earnings of the native population because of the endogeneity of the decision to migrate the empirical study shows that differences in the u s earnings of immigrants with the same measured skills but from different home countries are attributable to variations in political and economic conditions in the countries of origin at the time of migration excerpt

semiparametric analysis of german east west migration intentions facts and theory east west migration in germany peaked at the beginning of the 1990s although the average wage gap between eastern and western germany continues to average about 25 we analyse the propensity to migrate using microdata from the german socioeconomic panel fitting a parametric generalized linear model glm yields non linear residual behavior this finding is not compatible with classical marshallian theory of migration and motivates the semiparametric analysis we estimate a generalized partial linear model gplm where some components of the index of explanatory variables enter non parametrically we find the estimate of the non parametric influence in concordance with a number of alternative migration theories including the recently proposed option value of waiting theory 1998 john wiley sons ltd

n firm oligopolies with production adjustment costs best responses and equilibrium abstract n firm single product oligopolies will be examined without product differentiation and with production adjustment costs the best response functions of the firms will be first determined in terms of the outputs of the rest of the industry and the firm s own outputs of the previous time period this function is always decreasing not necessarily continuous and might have two different values then the best response will be determined when the output of the rest of the industry is replaced by the output of the entire industry we will show that this function might have infinitely many values leading to infinitely many equilibria a complete description of the equilibrium set will also be given the theoretical findings will be illustrated with the case of linear price and linear cost functions

the determinants of east west german migration some first results determinants of the propensity to migrate are explored using data collected in a survey of east german residents following german reunification in 1991 the author notes that in the period 1989 1992 some 870000 individuals migrated to west germany representing about 5 of the total east german population and 10 of the work force he suggests that recent developments in the literature on the option value of waiting may yield important insights into these determinants excerpt

open loop equilibria and perfect competition in option exercise games the investment boundaries defined by grenadier 2002 for an oligopoly investment game determine equilibria in open loop strategies as closed loop strategies they are not equilibria because any firm by investing sooner can preempt the investments of other firms and expropriate the growth options the perfectly competitive outcome is produced by closed loop strategies that are mutually best responses in this equilibrium the option to delay investment has zero value and the simple npv rule is followed by all firms the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

collusion and dynamic under investment in quality in a dynamic game of investment in product quality i investigate whether collusive underinvestment equilibria can be supported by the threat of escalation in investment outlays when there are no spillovers underinvestment equilibria exist even though by deviating a firm can gain a persistent strategic advantage when there are strong spillovers underinvestment equilibria fail to exist a weakening of patent protection can thus lead to more investment in equilibrium a nonfragmentation result is shown to hold in all free entry equilibria industry concentration is bounded away from zero no matter how large the market and despite the existence of underinvestment equilibria

political influence and the dynamic consistency of policy garfinkel department of economics university of fornia 3151 social science plaza irvine ca 92697 lee artment of economics university of california 3151 soscience plaza irvine ca 92697 and international monfund 700 19th street nw washington dc 20431 we k without implicating avinash dixit amihai glazer chel grossman luisa lambertini stergios skaperdas an ymous referee and seminar participants at the university alifornia los angeles california state universityerton and the 1998 winter meetings of the econometociety for helpful comments on previous drafts of this r which had been circulated under the title political ipline and the dynamic consistency of policy the s expressed in this paper are those of the authors and ld not be attributed to the international monetary fund see torsten persson and guido tabellini 1990 for a ul survey of this literature

capacity investment preemption and commitment in an infinite horizon model the commitment value of capacity is analyzed in an infinite horizon duopoly model the paper focuses on the role of alternative behavioral assumptions about the ability of firms to commit to investment paths each firm s investment strategy in a feedback nash equilibrium is shown to be a decreasing function of its rival s current capacity this creates an incentive for a firm to expand its capacity to preempt subsequent rival investment in a precommitment equilibrium there are no incentives to invest preemptively as a consequence steady state capacity levels are greater in a feedback nash equilibrium than in a precommitment equilibrium copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the investment behaviour of firms in an oligopolistic setting industrial organization theory has identified strategic investment in capacity as an important element in competition in oligopolistic markets in the paper we specify a model of oligopolistic investment behaviour and test it with panel data for 114 firms in 15 narrowly defined uk manufacturing industries in the 1970s and 1980s the industries are distinguished according to their market characteristics as fragmented dominant firm and dominant group sectors the results indicate behaviour which is noncooperative in fragmented sectors cooperative in dominant group sectors and competitive in dominant firm sectors

markets and regulatory hold up problems abstract many regulatory programs such as environmental regulation are effective only if firms make irreversible investments that reduce the cost of compliance a firm potentially subject to regulation may therefore behave strategically by not investing thereby forcing the regulator to void the proposed regulation we show that such incentives which resemble a hold up problem may not be overcome when government s only tool is the imposition of an emissions tax the hold up problem can be overcome by the issuance of tradeable permits a time consistent equilibrium exists with all firms investing and the government imposing regulations even if no permits are traded and their market price is low indeed an observation of no trade may indicate that pollution abatement is great

dynamic oligopoly with capacity adjustment costs abstract the literature on strategic investment emphasized the case of completely irreversible investment this paper considers an oligopoly model in which investment is reversible and capacity is subject to adjustment costs an n player linear quadratic differential game is analyzed existence and characterization results for perfect equilibrium feedback strategies are provided feedback strategies provide incentives for each player to invest strategically so as to preempt subsequent expansion by rivals a larger set of perfect equilibria is constructed by using memory dependent trigger strategies equilibria of this type are shown to support joint value maximization for some initial states and asymmetric steady states

do credible domestic institutions promote credible international agreements we examine the relationship between international policy coordination and domestic policy reputation when both are self sustaining we show that domestic policy commitment does not necessarily facilitate international cooperation rather efficient policies may be most easily sustained when governments are unable to pre commit to policy domestically moreover the lack of domestic commitment is more likely to facilitate international cooperation the larger the international spillovers of domestic policies are

time inconsistency of protectionist programs protectionist trade policies have long been advocated as second best instruments to achieve certain national objectives in situations where there is a market imperfection in essence protection provides time and resources for firms to undertake cost reducing investments recently there has been an emergence of new arguments to justify the implementation of a national industrial policy to encourage investment and to ensure the competitiveness of targeted industries also at the theoretical level a new argument known as strategic trade policy has emerged according to this argument protectionism gives domestic firms strategic advantage against foreign firms to capture a greater share of export markets where rents are not competed away actually the performance of protectionist programs has been grim industries have not adapted and protection has had to be renewed again and again arguments justifying protection have avoided this issue by implicitly assuming that authorities can credibly precommit to eliminate protection this is a very strong assumption in fact government actions are not exogenous but they are rather the result of an optimization process or they are best responses to political pressures as stressed in the public choice literature 2 therefore if authorities capitulate to protectionist pressures in the present they are unlikely to resist them in the future in the event that the targeted firm would not have adapted the inability of authorities to precommit to the unconditional elimination of protection generates a trade off for the firm if during the program the firm does not invest sufficiently in cost

oligopoly extraction of a common property natural resource the importance of the period of commitment in dynamic games the theory of noncooperative dynamic games has provided an extremely powerful framework for studying many of the classic questions in industrial organization for example questions about resource extraction advertising research and development investment in new capacity and barriers to entry where interactions over time among few firms are involved however an important methodological issue arises when economic competition over time is modeled as a dynamic game the issue is the appropriate formulation of the players strategy spaces

competition in a duopoly with sticky price and advertising abstract this paper develops a differential duopolistic game where price is sticky and firms can invest in market enlarging promotional activities which have a public good nature one finding indicates that advertising and not output as in fershtman and kamien econometrica 55 1987 1151 1164 is responsible for the higher stationary price found in the open loop equilibrium relative to the linear feedback one that is free riding is more intense when firms play linear markov feedback strategies however the collusive outcome can be approximated and opportunism eliminated if firms can engage in preplay negotiations where they select a nonlinear markov perfect strategy for output and advertising achieving the collusive outcome requires as in the folk theorem for infinitely repeated games the discount rate to be sufficiently small

do safeguard tariffs and antidumping duties open or close technology gaps abstract this paper examines how the country breadth of tariff protection can affect the technology adoption decisions of both domestic import competing and foreign exporting firms the contribution of the analysis is to show how firm level technology adoption changes under tariffs of different country breadth i show that a country specific tariff like an antidumping duty induces both domestic import competing firms and foreign exporting firms to adopt a new technology earlier than they would under free trade in contrast a broadly applied tariff like a safeguard can accelerate technology adoption by a domestic import competing firm but will slow down technology adoption by foreign exporting firms because safeguard tariffs can delay the foreign firm s adoption of new technology the worldwide welfare costs associated with using them may be larger than is generally believed

a dynamic game of r and d patent protection and competitive behavior a theory of dynamic optimal resource allocation to r and d in an n firm industry is developed using differential games this technique represents a synthesis of the analytic methods previously applied to the problem static game theory and optimal control the use of particular functional forms allows the computation and detailed discussion of the nash equilibrium in investment rules this paper addresses the problem of resource allocation to research and development among the important issues that a firm engaging in r and d must evaluate are uncertainty regarding the feasibility and profitability of a particular innovation the possibility of a protracted development period the possibility that a rival firm may innovate first capturing either a patent or a significant share of the new market the possibility that a rival firm may imitate the innovation and appropriate some of the profits in the new market in what follows we will develop a theory of optimal resource allocation to research and development which incorporates the aspects of r and d enumerated above we will use a dynamic game theoretic analysis determining the nash equilibrium strategies for n identical firms the availability of perfect patent protection is shown to accelerate development of the innovation and the effect of increasing rivalry is addressed the impact of increasing rivalry on nash equilibrium investment in r and d depends upon the degree of appropriability of rewards if patent protection is perfect then increasing the number of nash rivals results in increased r and d effort however when imitation is rewarded the opposite may be true finally some notions of competitive and perfectly competitive equilibrium are examined in the context of the model developed below