efficient methods of measuring welfare change and compensated income in terms of ordinary demand functions a utility maximizing consumer with a completely known system of ordinary demand functions q h p c is considered let p qo and p q be two arbitrary equilibrium situations the problem is to evaluate in which of the situations the utility is higher without knowing the utility function revealed preference theory tells that the ordinary demand functions which are in principle observable contain enough information to solve the problem remaining difficulties are therefore mainly computational we present how the compensated income c i c p qo and the compensated demand h p cl1 are calculated with arbitrary accuracy using only the ordinary demand system our two efficient algorithms also have interesting interpretations in terms of index numbers and consumer surplus measures

contracts as a barrier to entry it is shown that an incumbent seller who faces a threat of entry into his or her market will sign long term contracts that prevent the entry of some lower cost producers even though they do not preclude entry completely moreover when a seller possesses superior information about the likelihood of entry it is shown that the length of the contract may act as a signal of the true probability of entry

exclusive contracts and protection of investments we consider the effect of a renegotiable exclusive contract restricting a buyer to purchase from only one seller on the levels of noncontractible investments undertaken in their relationship contrary to some informal claims in the literature we find that exclusivity has no effect when all investments are fully specific to the relationship i e are purely internal exclusivity does matter when investments affect the value of the buyer s trade with other sellers i e have external effects we examine the effects of exclusivity on investments and aggregate welfare and the private incentives of the buyer seller coalition to use it

no spurious welfare gains from taxation a further argument for the equivalent variation abstract among all measures based on money metric compensation functions solely the excess burden based on the equivalent variation always correctly identifies the excess burden of a specific tax to be positive this provides a new argument for the use of the equivalent variation when measuring the welfare effects of a price change

durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 on adverse selection this paper surveys durable goods theory starting with these three contributions where much of the focus is on recent literature and on models that explain real world phenomena in addition to the ideas found in the contributions of swan coase and akerlof topics covered include why producers sometimes practice planned obsolescence the role of adverse selection in new car leasing and reasons for aftermarket monopolization

a hedonic travel cost analysis for valuation of multiple components of site quality the recreation value of forest management abstract one benefit of managing forests is that one can alter the qualities of sites the value of changing site qualities however is generally not known this paper develops a formal hedonic travel cost model which can be used to estimate the value of both marginal and non marginal changes to sites the approach accommodates multiple simultaneous changes in site characteristics estimating this model using a set of permits from wilderness areas leads to revealed preference estimates of the recreational value of clear cuts old growth and nine other wilderness attributes

preemptive r d rent dissipation and the leverage theory this paper provides a new perspective on the validity of the so called leverage theory in a model of preemptive innovation in systems markets i examine the effect of bundling on r d incentives i find that bundling provides a channel through which monopoly slack in one component market can be shifted to another with the effect of mitigating rent dissipation in the systems market bundling can be profitable if this beneficial effect of reduced rent dissipation outweighs the negative effect of intensified price competition after demonstrating the private optimality of bundling its welfare implications are considered finally the results can be reinterpreted to analyze the relationship between compatibility decisions and r d incentives in mix and match models

exact welfare measurement for producers under uncertainty many useful results have been derived for different characterizations of uncertainty in the theory of the firm for example sandmo batra and ullah pope and kramer blair however the limited literature available on producer welfare measurement under uncertainty pope chavas and just pope and chavas just hueth and schmitz is pessimistic about the possibilities for deriving exact welfare measures from ex ante supply functions the only exception is pope and chavas who derive error bounds for the use of producer s surplus as an approximation for true welfare change that are analogous to willig s bounds for consumer s surplus as an approximation of compensating or equivalent variation however these results are presumably subject to the same shortcomings noted by hausman and amended by haveman gabay and andreoni for willig s error bounds even though compensating or equivalent variation is approximated well a poor approximation of deadweight loss may result pope chavas and just show that the ex ante supply function derived from an uncertainty model is generally not sufficient for determining true welfare change except in the special case of constant absolute risk aversion because decisions depend on the firm s wealth for nonneutral risk preferences a parameter price change induces a wealth effect in addition to an ordinary output effect thus for exact welfare measurement under price uncertainty the unobservable compensated constant expected utility supply function is needed newbery and stiglitz among others have shown that the area above an expected supply function is generally not a valid welfare measure

the dual structure of incomplete demand systems integrability of incomplete demand systems is discussed the concepts of weak integrability quasi expenditure function quasi indirect utility function and quasi utility function are defined their relationships to the expenditure function indirect utility function and utility function are developed the dual structure of the quasi functions permits exact welfare analysis and reveals the conditional preference structure for the commodities of interest new results relating the uniqueness and exactness of consumer s surplus to the structure of the expenditure and indirect utility functions are obtained

modeling the demand for sicilian regional parks a compound poisson approach this analysis examines the demand for a system of regional parks in sicily italy the analysis utilizes conventional count data methods that do not account for correlation across parks as well as a new model that allows for cross site correlation and dispersion in this model the degree of dispersion and cross site correlation is shown to evolve as individual grow older older individuals exhibit less dispersion and or cross site correlation

currency swaps and long term covered interest parity abstract the present study employs daily data as opposed to weekly data used in previous studies to examine whether long term covered interest parity holds when a currency swap is used as a hedging instrument we find that large deviations were not rare during the late 1980s but such deviations have diminished in recent years

modeling recreation demand in a poisson system of equations an analysis of the impact of international exchange rates we extend count data travel cost modeling by developing a utility theoretic system of semilogarithmic recreation demand equations the restrictions required to make the system utility theoretic are applied during estimation the model is applied to individual wilderness recreation trips in a system of four canadian wilderness parks the resulting demand system is used to examine the impacts of changing u s canadian currency exchange rates on participation and welfare of u s recreationists

exclusivity and tying in u s v microsoft what we know and don t know research on capital structure attempts to explain how corporations finance real investment with particular emphasis on the proportions of debt vs equity financing there is no universal theory of the debt equity choice and no reason to expect one but three useful conditional theories are reviewed in this paper the tradeoff theory says that firms seek debt levels that balance the tax advantages of additional debt against the costs of possible financial distress the pecking order theory says that the firm will borrow rather than issuing equity when internal cash flow is not sufficient to fund capital expenditures thus the amount of debt will reflect the firm s cumulative need for external funds the free cash flow theory says that dangerously high debt levels will increase value despite the threat of financial distress each of these theories works for some firms in some circumstances more general theories will require a deeper understanding of the financial objectives of corporate managers

on the microeconomic foundations of linear demand for differentiated products abstract this paper provides a thorough exploration of the microeconomic foundations for the multi variate linear demand function for differentiated products which is widely used in industrial organization the setting is the standard representative consumer with a quasi linear utility function a key finding is that strict concavity of the quadratic utility function is critical for the demand system to be well defined otherwise the true demand function may be quite complex multi valued non linear and income dependent we uncover failures of duality relationships between substitute products and complementary products as well as the incompatibility between high levels of complementarity and concavity the two good case emerges as a special case with strong but non robust properties a key implication is that all conclusions derived in applied economic models via the use of linear demand that does not satisfy the law of demand ought to be regarded with some suspicion

long term covered interest parity evidence from currency swaps abstract this paper constructs long term arbitrage conditions using a now well developed mechanism for hedging long term currency positions the currency swap using the arbitrage conditions bond yields denominated in different currencies are compared across the onshore markets of canada japan germany switzerland the united kingdom and the united states and within the euromarket the evidence indicates that long term financial capital is as mobile across these markets as is short term capital this appears to be the case both within the euromarket and across political jurisdictions

non price equilibria for non marketed goods abstract as part of the resources for the future frontiers of environmental economics collection of papers we consider the problem of general equilibrium feedback effects in non price space as they relate to non market valuation our overall objective is to examine the extent to which non price equilibria arising from both simple and complex sorting behavior can be empirically modeled and the resulting differences in partial and general equilibrium welfare measures quantified after motivating the problem in general we consider the specific context of congestion in recreation demand applications which we classify as the outcome of a simple sorting equilibrium using both econometric and computable general equilibrium cge models we examine the conceptual and computational challenges associated with this class of problems and present findings on promising solution avenues we demonstrate the relevance of accounting for congestion effects in recreation demand with an application to lake visits in iowa our econometric and cge results confirm that for some plausible counterfactual scenarios substantial differences exist between partial and general equilibrium welfare estimates we conclude the paper by describing tasks that are needed to move forward research in this area

evaluation of nonmarket goods recovering unconditional preferences a new approach is proposed for the evaluation of nonmarket goods starting from a complete or incomplete conditional demand system for market goods which is observable and depends on nonmarket goods this information is not sufficient to recover the underlying preference ordering of the representative consumer the central idea is to employ additional marginal willingness to pay functions for the nonmarket goods since they can be estimated either together with the demand system or in a separate step they are less arbitrary than the assumptions or hypotheses usually made if the entire system is weakly integrable the underlying ordering and appropriate welfare measures can be derived in this article i investigate the relationship between conditional and unconditional demand systems present sufficient conditions for weak integrability and demonstrate the practicability of the procedure proposed by means of three examples

a note on estimating nested constant elasticity of substitution preferences for outdoor recreation a generalized version of a well known statistical result is used to suggest an alternative strategy for estimating nested constant elasticity of substitution preferences for recreation demand parameter and welfare estimates from nested constant elasticity of substitution count data demand system models are presented and compared to estimates from the multinomial approaches developed previously a significant advantage of the count data estimation strategy over the multinomial based approaches is that the analyst avoids the difficulties associated with choice occasion specification and interpretation copyright 2003 oxford university press

antitrust issues in schumpeterian industries a half century ago joseph schumpeter 1950 chapters 5 8 presented a vision of modern capitalism in which monopolies are common but frequently swept aside by a perennial gale of creative destruction p 84 this gale is driven not by price competition but by competition from the new commodity the new technology competition which strikes not at the margins of the profits of the existing firms but at their foundations and their very lives p 84 i focus here on the personal computer pc software hereafter simply software industry which resembles this vision i discuss some important issues this industry poses for antitrust policy and in the final section illustrate with examples from the microsoft case

duality theory for variable costs in joint production duality methods for incomplete systems of consumer demand equations are adapted to the dual structure of variable cost functions in joint production this allows identification of necessary and sufficient restrictions on technology and cost so that con ditional factor demands can be written as functions of input prices fixed inputs and cost these are observable when variable inputs are chosen and committed to production hence the identified restrictions allow ex ante conditional demands to be studied using observable data this class of production technologies is consistent with all von neu mann morgenstern utility functions when ex post production and or output prices are un certain

naked exclusion efficient breach and downstream competition previous papers by eric b rasmusen j mark ramseyer and john s wiley jr 1991 and ilya r segal and michael d whinston 2000 argue that exclusive contracts can inefficiently deter entry in the presence of scale economies and multiple buyers we first show that these results no longer hold when buyers are final consumers who can breach these contracts and pay expectation damages we then show however that exclusive contracts can inefficiently deter entry if buyers are downstream competitors even in the absence of scale economies and even if breach is possible

rebates as incentives to exclusivity we show how rebates or fidelity discounts that take the form of lump sum payments made to retailers can be used by an incumbent manufacturer to achieve exclusivity and to deter the entry of a more efficient rival the results which hold whatever the degree of differentiation between retailers and whatever the cost advantage of the entrant are found despite minimizing asymmetries that may favour the incumbent as such there is no need to introduce buyers disorganization discriminatory offers economies of scale non coincident markets or liquidated damages to find that exclusivity can lead to anti competitive effects

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

antitrust in innovative industries we study the effects of antitrust policy in industries with continual innovation antitrust policies that restrict incumbent behavior toward new entrants may have conflicting effects on innovation incentives raising the profits of new entrants but lowering those of continuing incumbents we show that the direction of the net effect can be determined by analyzing shifts in innovation benefit and supply holding the innovation rate fixed we apply this framework to analyze several specific antitrust policies we also show that in some cases the tension does not arise and policies that protect entrants necessarily raise the rate of innovation

the structure of constant elasticity demand models the demand model with constant price and income elasticities has been used extensively in applied agricultural economics this paper analyzes the structure of incomplete systems of constant elasticity demand functions it is demonstrated that there is a duality theory for incomplete demand systems that is analogous to the duality theory for complete systems this theory permits the recovery of that portion of the direct and indirect preferences pertaining to the goods of interest and we can calculate exact welfare measures for changes in income and in the prices of these goods for an incomplete system of constant elasticity demands the slutsky symmetry restrictions for integrability are presented and the implied structure of the direct and indirect preferences with respect to the prices and goods of interest is derived

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

the calibration of incomplete demand systems in quantitative analysis an easily implemented and flexible calibration technique for partial demand systems is introduced combining recent developments in incomplete demand systems and a set of restrictions conditioned on the available elasticity estimates the technique accommodates various degrees of knowledge on cross price elasticities satisfies curvature restrictions and allows the recovery of an exact welfare measure for policy analysis the technique is illustrated with a partial demand system for food consumption in korea for different states of knowledge on cross price effects the consumer welfare impact of food and agricultural trade liberalization is measured

compensating variation consumer s surplus and welfare the compensating variation was defined by j r hicks 1942 as the amount one would have to deduct from a person s income to make him just as well off after a change in prices and income as he had been in the initial situation if the compensating variation is positive the individual is better off under the new situation since the compensating variation furnishes a uniquely defined numerical cardinal indicator of welfare improvement it provides an implicit ranking of alternative prospective situations not only relative to the initial situation but also relative to each other in practice this appears to be how this and other tools of cost benefit analysis are actually used one is interested in knowing not only whether a particular bridge or a particular excise tax will lead to an improvement in welfare but which out of a set of alternative bridges or alternative tax systems will improve welfare the most 1 in this paper we analyze conditions under which the compensating variation can be validly used in this generalized sense these turn out to be precisely the same as conditions previously derived see our 1976 paper for the valid use of consumer s surplus as a welfare measure in our final section we analyze the problem of deriving the generalized equivalent and compensating variations either exactly or approximately from observable demand functions by means of generalizations of or alternatives to consumer s surplus

non joint technologies the hypothesis of non jointness in input quantities separate production functions is well known and it plays an important role in many areas of economics in this paper we define three additional forms of non jointness which have received little or no attention in the literature and which might be relevant for the firm as well as for the representation of the aggregate technology we characterize all forms of non jointness in terms of variable profit and joint cost functions this yields a number of restrictions which are all testable empirically the assumption that production is non joint in input quantities separate production functions inputs allocated between the different production processes plays a crucial role in many areas of economic theory we need only think of international trade theory public finance macroeconomics growth theory or traded non traded good models of international finance in fact it is safe to say that more often than not production is assumed non joint in input quantities in multiple output models little work has been done to test the empirical validity of the assumption of non jointness in input quantities samuelson 1966 studies the characterization of non joint technologies in terms of the transformation function as pointed out by hall 1973 however samuelson s results do not seem very useful for econometric work hall studies the characterization of non jointness in input quantities in terms of the joint cost function this leads to a number of restrictions which can easily be imposed or tested for and which were used in empirical work by burgess 1976 and by kohli 1981 lau 1972 1978 finally characterizes non jointness in input quantities in terms of the profit function besides non jointness in input quantities lau also examines the case of non jointness in output quantities when an input can be cracked into several outputs in this paper we define two additional cases of non jointness and we characterize them in terms of the joint cost function and the variable or normalized restricted profit function the new forms of non jointness that we define may be useful to describe technologies at the level of the firm and may be even more so at the aggregate level some may be useful concepts in other areas of economics as well such as consumer theory by distinguishing between the various forms of non jointness one obtains a number of testable restrictions on the corresponding joint cost or variable profit functions

measuring recreation values with multiple destination trips traditional travel cost analysis has either ignored multiple destination trips or arbitrarily allocated trip costs across visited sites in this paper combinations of multiple destinations are treated as unique sites and incorporated into a demand system empirical demand functions for multiple destination trips that include bryce national park are estimated consumer surplus calculations for single destination and multiple destination trips are compared

supply demand and technology in a multiproduct industry texas field crops the purpose of this paper is to examine the structure of agricultural production for six texas field crops cotton grain sorghum wheat corn rice and hay which account for nearly 95 of recent field crop value specific objectives are to a test the structure of technology to determine i if output and input utilization choices for individual products are independent of production decisions about other outputs and ii if products and or inputs can be consistently aggregated b estimate a coherent set of interrelated supply functions for the six commodities and input demand functions for fertilizer and hired labor because the empirical focus of this paper is specific to one state the results will be of limited value for interpreting specific production relationships elsewhere however the problem is of common interest in production agriculture and the techniques used demonstrate an important application of dual modeling

estimating social welfare using count data models an application to long run recreation demand under conditions of endogenous stratification and truncation this paper develops a negative binomial model of recreation demand that corrects for both truncation and endogenous stratification this approach recovers the demand associated with the general population not just the users of the site this model demonstrates the importance of the joint nature of the population s latent demand for trips and the consumer surplus associated with those trips the empirical results provide an estimate of the willingness to pay by washington state residents for hiking opportunities in the cascade mountain range these results are used to forecast total trips and willingness to pay over the next forty years copyright 1995 by mit press

estimation of a composite food demand system for the united states this study develops statistical procedures for computing the parameters of a complete demand system a constrained maximum likelihood method has been applied and parametric restrictions derived from classical demand theory are introduced by a substitution approach the procedures are then applied to u s data for estimating a composite food demand system covering 12 food categories and one nonfood sector

tying compatibility and planned obsolescence according to the hypothesis of planned obsolescence a durable goods monopolist without commitment power has an excessive incentive to introduce new products that make old units obsolete and this reduces its overall profitability in this paper i reconsider the above hypothesis by examining the role of competition in a monopolist s upgrade decision i find that when a system add on is competitively supplied a monopolist chooses to tie the add on to a new system that is only backward compatible even if a commitment of not introducing the new system is available and socially optimal tying facilitates a price squeeze

exclusive contracts and demand foreclosure a firm may induce some customers to sign exclusive contracts in order to deprive a rival of the minimum viable size exclude it from the market and enjoy increased market power this strategy may result in socially inefficient exclusion even if the excluded firm is present at the contracting stage and can make counteroffers in addition allowing for breach penalty clauses decreases firms incentives to exclude rivals because such clauses allow a firm to use customers as a conduit for the transfer of another firm s profits

a cost approach to economic analysis under state contingent production uncertainty this article explores the economics of input decision under production uncertainty the article develops a methodology to specify and estimate cost minimizing input decisions under a state contingent technology the analysis is applied to time series data on u s agriculture it finds strong empirical evidence that expected output alone does not provide an appropriate representation of production uncertainty the results provide empirical support for an output cubical technology this indicates that an ex post analysis of stochastic technology appears appropriate the analysis also provides evidence that the cost of facing production risk has declined in u s agriculture over the last few decades copyright 2008 oxford university press

tying foreclosure and exclusion in recent years the leverage theory of tied good sales has faced heavy and influential criticism in an important sense though the models used by its critics are actually incapable of addressing the leverage theory s central concerns here the author reconsiders the leverage hypothesis and argues that tying can indeed serve as a mechanism for leveraging market power the mechanism through which this leverage occurs its profitability and its welfare implications are discussed in detail copyright 1990 by american economic association

hedonic markets and sorting equilibria bid function envelopes for public services and neighborhood amenities abstract hedonic regressions with house value as the dependent variable are widely used to study public services and neighborhood amenities this paper builds on the theory of household bidding and sorting across communities to derive bid function envelopes which provide a form for these regressions this approach allows for household heterogeneity and multiple amenities yields estimates of the price elasticity of amenity demand directly from the hedonic without a rosen two step procedure and provides tests of hypotheses about sorting an application to cleveland area data from 2000 yields price elasticities for school quality and neighborhood ethnic composition and supports the sorting hypotheses

on measuring the value of a nonmarket good using market data we use line integral theory to lay out in a more general theoretical framework the conditions under which it is possible to measure with market data the welfare effects of a change in a nonmarket good we present in detail a numerical method of measuring the value of nonmarket goods using market data under either weak neutrality or weak complementarity our numerical method is more flexible than the existing analytical method because it can be used with any well behaved marshallian demand function and can be used even when the willig condition does not hold

estimation of multicrop production functions this paper considers whether separability or nonjointness is the better approach for attaining tractability for multicrop production function estimation characteristics of agricultural production associated with allocated inputs physical constraints and output determination imply sufficient nonjointness for estimation whereas separability is less plausible the paper also addresses estimation of production functions with allocated inputs where allocations are not observed and demonstrates a proposed approach by way of example

measuring angling quality in count data models of recreational fishing a non nested test of three approaches this paper develops a methodology for investigating different specifications of angling quality in recreational demand models the methodology is used to compare three alternative specifications of the relationship between angling demand and site quality the site quality alternatives include chemical concentrations biological stress indices based on the chemicals and catch per unit effort the three alternatives are differentiated using a likelihood ratio non nested testing procedure

tying investment and the dynamic leverage theory the idea that an incumbent supplier may tie two complementary products to fend off potential entrants is popular among practitioners yet is not fully understood in formal economic theory this article makes sense of the argument by formally deriving a dynamic version of the old leverage doctrine we show that when an incumbent monopolist faces the threat of entry in all complementary components tying may make the prospects of successful entry less certain discouraging rivals from investing and innovating tie in sales may reduce consumer and total economic welfare copyright 2001 by the rand corporation

when and how us dollar shortages evolved into the full crisis evidence from the cross currency swap market abstract this paper investigates when and how the us dollar shortages evolved into the full crisis in the cross currency swap market between major european currencies and the us dollar during the turmoil of 2007 2009 using the dynamic factor model with regime switching coefficients of each swap price with respect to the latent common factor the 1 year market entered the high crisis regime soon after the onset of the subprime problem in august 2007 the 10 year market entered that regime following the collapse of bear sterns in mid march 2008 financial credit spreads have significant predictive power for switches between high and low regimes

welfare and distribution effects of water pricing policies in this paper distribution and welfare effects of changes in block price systems are evaluated a method is discussed to determine for a marshallian demand function equivalent variation in case of a block price system the method is applied to compare for the metropolitan region of sao paulo alternative pricing policies on the basis of their demand welfare and distribution effects of changing water prices results show that there is a trade off between average welfare and income distribution a pro poor price system may result in lower average welfare than a flat price system but in higher individual welfare for the poor moreover there is a trade off between revenues for the water company and income distribution even though pro poor price systems may not be as good for average welfare as flat price systems their direct effects on poverty are important introducing pro poor price systems however may have financial consequences for the water companies

a non parametric analysis of covered interest parity in long date capital markets abstract the financially innovative currency swap has elevated the international mobility of long term assets of interest is whether the covered interest parity condition now holds in these markets with the currency swap as the forward exchange risk hedge the empirical conclusions presented in the paper suggest that deviations from covered interest parity in excess of transactions costs are not rare yet while profit opportunities are not always short lived an analysis of the deviations in excess of transactions costs reveals that they diminish over time and eventually disappear jel f32

estimating recreation preferences using hedonic travel cost and random utility models over the last decade several authors have questioned the validity of the hedonic travel cost model arguing instead that the random utility model is a superior method for valuing recrea tional site attributes this paper demonstrates that the two methods emanate from a similar utility theoretic framework yet in practice these methods differ in the assumptions made in their appli cation constraining the underlying utility functions to be consistent both models are applied to the valuation of recreational site attributes in the southeastern united states the way in which each method estimates preferences for site attributes is shown to depend critically on the method and the functional form of the underlying utility function micro economic theory began as an attempt to describe predict and value the demand and supply of consumption goods quality was largely ignored in initial theoretical treatises goods were assumed to be homogeneous over the last two decades however economists have started to address quality within the theory of demand environmental economists have extended the theory further to value the quality of recreational sites an important component of land management two distinct approaches for incorporating quality into recreational analyses have emerged the hedonic travel cost method htc and the discrete choice random utility methods rum the hedonic method views site attributes as though they were individual goods which are bundled together in a single purchase the random utility model treats quality as an index which is estimated by examining a discrete choice of alternative sites facing a consumer because the mathematical derivations for the hedonic rosen 1974 and random utility models mcfadden 1978 are quite different many practitioners do not recognize that both models are based on a common utility theoretic foundation in the first section of this paper we show how the hedonic and random utility methods are consistent with the same utility framework

a latent class approach to modeling endogenous spatial sorting in zonal recreation demand models a method for incorporating unobserved heterogeneity into aggregate count data frameworks is presented and used to control for endogenous spatial sorting in zonal recreation models the method is based on latent class analysis which has become a popular tool for analyzing heterogeneous preferences with individual data but has not yet been applied to aggregate count data the method is tested using data on backcountry hikers for a southern california study site and performs well for relatively small numbers of classes the latent class model produces substantially smaller welfare estimates compared to a constrained version that assumes homogeneity throughout the population

naked exclusion comment the ability of an incumbent firm to deter entry by writing exclusionary contracts with customers has been a subject of contention in the antitrust literature the courts concern with such exclusionary contracts has been challenged by those who argue that an incumbent faced with buyers whose interest is to promote entry and competition would have to pay buyers more for the inclusion of exclusionary provisions than it could possibly gain from exclusion in a provocative article eric b rasmusen et al 1991 henceforth rrw have argued that an incumbent may in fact be able to exclude rivals profitably using such contractual provisions because it can exploit buyers lack of coordination in essence if buyers expect other buyers to sign such provisions then they may see little reason not to do so themselves the rrw argument is potentially an important one because most alleged instances of entry deterrence through exclusionary contracts with customers occur in situations with multiple buyers unfortunately however rrw s two main results contain errors in this note we reconsider the rrw model providing correct characterizations of the likelihood and cost of exclusion for an incumbent firm our results indicate that while the intuition suggested by rrw is valid the equilibrium likelihood and cost of exclusion differ from what rrw derive moreover our analysis illuminates some further aspects of exclusionary contracting with multiple buyers among these issues we focus on how an incumbent can use discriminatory offers to exploit the externalities that exist among buyers in the provision of competition in section i we review the basic assumptions of the rrw model in sections ii and iii we then consider in turn the cases of simultaneous and sequential offers studied by rrw for the simultaneous model we distinguish between settings in which the incumbent can and cannot discriminate in its offers to different buyers this distinction is the source of the problem in rrw s analysis their simultaneous offer model assumes no discrimination but the proof of their proposition 2 assumes at times that discrimination is feasible we show that absent the ability to discriminate the incumbent can exclude profitably only when buyers fail to coordinate on their most preferred continuation equilibrium in contrast we show that when discrimination is possible the incumbent need not rely on a lack of buyer coordination to segal department of economics landau building stanford university stanford ca 94305 e mail ilya segal stanford edu whinston department of economics northwestern university 2003 sheridan road evanston il 60208 e mail mwhinston nwu edu we thank eric rasmusen john wiley and participants in the berkeley stanford iofest the university of copenhagen vertical restraints conference and a seminar at the antitrust division of the u s department of justice for helpful comments we thank federico echenique for excellent research assistance 1 for example a recent department of justice investigation concerned the use of exclusive contracts by the leading provider of computerized ticketing services ticketmaster most major cities have several large concert sports venues in many cities ticketmaster has exclusive contracts with a very large share of these venues 2 the other leading response to the argument that contracts with buyers cannot be a profitable method of exclusion is given in philippe aghion and patrick bolton 1987 section i one factor limiting the applicability of the aghion and bolton theory however is that it involves partial exclusion the contracts signed are not fully exclusionary they involve finite stipulated damages and the profitability of the strategy arises from extracting rents from an entrant when entry occurs indeed in the aghion and bolton model contracts that fully exclude offer no benefits over writing no contract at all in section iii of their paper aghion and bolton also discuss a two buyer version of their model in which externalities arise across buyers in contrast to the analysis here and in rrw they allow the incumbent to make an offer to a buyer i that is conditional on the acceptance decision of the other buyer 3 r innes and r j sexton 1994 also discuss the use of discriminatory offers in the context of a model in which buyers can form coalitions with the entrant

alternative models of recreational off highway vehicle site demand a controversial recreation activity is off highway vehicle use off highway vehicle use is controversial because it is incompatible with most other activities and is extremely hard on natural eco systems this study estimates utility theoretic incomplete demand systems for four off highway vehicle sites since two sets of restrictions are equally consistent with utility theory both are imposed and the best fitting restrictions are identified using voung s non nested testing scheme the demand system is modeled using both poisson and negative binomial ii distributions data are provided by a survey conducted at four recreational off highway vehicle ohv sites in western north carolina

cost functions under production uncertainty we characterize the cost functions which would be consistent with expected utility maximization when production is uncertain it is not generally possible assuming risk aversion to use only expected output as the constraint in a cost minimization problem in some leading cases cost functions consistent with expected utility maximization are particularly useful because they are devoid of risk preferences

further results on willingness to pay for nonmarket goods abstract some implications of substitution relationships between private and public goods for measuring the value of changes in nonmarket goods such as environmental quality are explored if a market good is hicks neutral to quality for some price vector the total value of discrete changes in quality consisting of both use and nonuse value can be measured from empirical demand coefficients a plausible motivation for neutrality is developed in the contexts of specifying incomplete demand systems for weak complements to quality and measuring nonuse value when the consumption of weak complements is held at zero previous results on bounding marginal willingness to pay for nonmarket goods are also strengthened

a reconsideration of the sugar sweetened beverage tax in a household production model abstract we study the impact of a hypothetical tax on sugar sweetened beverages ssbs on the u s households nutrients purchase welfare change and health benefit differently from the traditional approach food at home fah is here defined as a home good instead of a market good and consumers demands derived under the assumption that households maximize utility subject to both a money and a time constraint the model is estimated by using an incomplete approximate exact affine stone index easi demand system on a data set built by merging the u s consumer expenditure and time use surveys results show that a ssb tax would be much more effective in decreasing household nutrients purchase than it would appear by estimating a model neglecting time costs in home food production due to a lesser compensation of calories from increasing fah consumption a tax induced 38 increase in ssb price is predicted to decrease the per capita energy purchase by 41 kcal day

entry deterrence and innovation in durable goods monopoly this paper investigates the efficiency of innovation investments in a durable goods monopoly when a potential entrant threatens to innovate as well we show that the durability of the good endows the monopolist with the power to discourage rival innovation since current sales alter the demand for a new generation of the good the equilibrium is therefore determined not only by competitive pressure due to time inconsistency but also by the incumbent s concern for maintaining the technological leadership we demonstrate that entry deterrence followed by no innovation always implies underinvestment in innovation

empirical specification requirements for two constraint models of recreation choice two constraint models are common in recreation demand analysis because of the important role time can play in consumer choices two versions of roy s identity hold for these models and imply coefficient restrictions on empirical demand functions the two constraint restrictions are fully observable and can be expressed in a form analogous to the slutsky hicks equations in single constraint consumer models empirical specifications that use full prices and full budgets can be consistent with the two constraint models when the marginal value of time is either exogenous or endogenous but models with full prices and money income alone are not copyright 2001 oxford university press

upgrades switching costs and the leverage theory of tying this article investigates the role of product upgrades and consumer switching costs in the tying of complementary products previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential where essential means that all uses of the complementary good require the initial monopolised product we show that this is not true in settings characterised by product upgrades and consumer switching costs we also discuss various extensions including the role of the reversibility of tying

multiproduct cost relationships for retail fertilizer plants volume cost relationships developed from the statistical analysis of accounting data have long provided useful information for evaluating firm efficiency french previous descriptive and statistical analyses of accounting data as well as economic engineering cost studies of retail fertilizer firms have focused on a single product line anderson and miller raikes and heubrock williams foster and simpson service o rourke or have simply summarized industry accounting data akridge and downey problems associated with using accounting data to estimate statistical cost functions include a the failure to handle satisfactorily multiproduct firm cost relationships

linear demand functions in theory and practice abstract integrability conditions for an incomplete system of linear demand functions are considered the parameter restrictions consistent with integrability are identified and the structure of the conditional preference map is obtained it is found that the conditional preferences for a set of linear demand functions are either quadratic or leontief from a translated origin welfare analysis with linear demand models is also considered

integrability of incomplete systems of demand functions the problem of integrating back from an incomplete set of demand functions to a utility function is considered conditions permitting local integrability are analogous to those which arise in local integrability theorems for complete systems but the analysis of the global integrability of incomplete systems differs markedly from that of complete systems

structural change in the demand for meat economists have long thought that shocks in the economy sometimes lead to permanent changes in behavioral relationships hence supply or demand elasticities estimated from econometric models may change over time the source of such structural change may be technological adoption a shift in consumer preferences or an institutional change one way to handle this problem in linear models is to allow the parameters to change as the situation changes so that the model provides a local approximation of the behavioral relationship this approach is an attractive way to deal with structural change problems econometricians have extended the classical