policy rivalry among industrial states what can we learn from models of strategic trade policy the economic theory of international trade has changed dramatically over the last decade by admitting into its mainstream a body of literature that focuses on the implications of monopolistic and oligopolistic elements in international markets by applying the tools of the new industrial organization in an international context two new classes of models have emerged models of intra industry trade and models of strategic trade policy the policy implications of models of strategic trade policy were quite disturbing for the economics profession since these models demonstrated that the classical harmony between national and cosmopolitan welfare maximization does not exist if one assumes opportunities for strategic manipulation of oligopolistic international industries this article reviews two prominent models of strategic trade policy the brander spencer model and the krugman model and relates them to more familiar earlier concepts such as stackelberg s asymmetrical duopoly solution and the venerable infant industry argument for government intervention the primary purpose of this article however is to provide a synopsis of the large literature addressing the question of whether models of strategic trade policy can give guidance for government policy

the growth of interorganizational systems in the presence of network externalities we develop a model of network growth in the presence of network externalities for the case where a buyer initiates an interorganizational system with its suppliers in our two stage model suppliers joining the network in the first stage can gain economic benefit from increased market share or higher price for the primary product suppliers encounter negative externalities since the economic benefit accruing to participating suppliers is less for increasingly larger networks in the first stage the buyer may experience initial supplier adoption of the network followed by a stalling problem due to negative externalities in order to overcome this stalling problem the buyer may find it optimal to subsidize some suppliers costs to join the network in the second stage we characterize the buyer s optimal second stage subsidy policy and show the conditions under which the buyer will find it optimal to offer a subsidy if the suppliers have some positive ex ante expectation of a second stage subsidy the growth of the network will be retarded in the first stage resulting in suboptimal profits for the buyer

optimal dynamic pricing for expanding networks this paper analyzes the dynamic pricing decision of a monopolist marketing a new product or service whose consumption value increases with the expansion of the network of adopters we characterize an optimal pricing strategy which maximizes the present value of the monopolist s profits subject to the dynamics of the demand for network access these dynamics depend among other factors on the current price and consumer anticipations about future network growth we examine the effects of changes in the growth anticipations and the discount rate on the optimal equilibrium access price and network size it is shown that higher growth anticipations and a lower discount rate result in a lower equilibrium price and a larger network

savings and stabilization policy in a pre post socialist economy a simple macroeconomic model of a reforming socialist economy is presented with queuing in period one but market clearing prices in period two if queues grow longer each household chooses to save more not because it is forced but to economize on queuing effort for the benchmark case perfect foresight immediate price liberalization is the government s optimal policy it raises welfare the more so the greater is the monetary overhang and in terms of full prices it is deflationary at least eventually the model then is modified to allow for indexation a resale market adaptive expectations and limited credibility copyright 1995 by ohio state university press

oligopolistic behavior by public agencies in international trade the world wheat market a model of the world wheat market is presented which treats public policies as endogenous the oligopolistic nature of international wheat trade is captured by assuming policy makers form conjectures on the slope of the excess demand function they face and use that information to determine domestic and trade policies the policies reflect differing influences of political interest groups a u s crop shortfall scenario illustrates the different results with endogenous policies compared to the traditional model

models and estimation of disequilibrium for centrally planned economies the planned level of output is an important variable in modelling centrally planned economies and the present paper discusses several disequilibrium models in which the plan level is an endogenous variable a key relationship in such a model is the plan adjustment equation which is the counterpart of the usual priceadjustment equation employed in models of free economies seemingly minor differences in assumptions lead to markedly different econometric models the coherency properties of these are studied and several likelihood functions are derived the most complex of the models includes both endogenous plan levels and endogenous prices

nonlinear pricing in markets with interdependent demand this paper provides a mathematical framework for modeling demand and determining optimal price schedules in markets which have demand externalities and can sustain nonlinear pricing these fundamental economic concepts appear in the marketplace in the form of mutual buyers benefits and quantity discounts the theory addressing these aspects is relevant to a wide variety of goods and services examples include tariffs for electronic communications services pricing of franchises and royalty fees for copyrighted material and patents this paper builds on several previous results from microeconomics and extends nonlinear pricing to markets with demand externalities the implications of this price structure are compared to results obtained for flat rates and two part tariffs in a similar context a case study is described in which the results were applied to planning the startup of a new electronic communications service

backward bends quantity constraints and soviet labor supply evidence from the soviet interview project this study makes two contributions to the quantity constraint literature first it investigates the effects of consumer market shortage on labor supply second it considers the effects on hours of work of eliminating quantity constraints in a planned socialist economy the estimated model of soviet labor suppl y shows that the uncompensated wage elasticities of soviet workers are negative and that workers facing quantity constraints react more strongly to wage increases than workers who do not face quantity constraints the elimination of quantity constraints would therefore be expected to raise aggregate hours worked in the soviet economy copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the technology of decontrol some macroeconomic issues by the time east europe was being pressed into stalin s authoritarian mould as soviet troops took over the region at the end of the second world war there was little more to be said in western theorising about the subordination of markets to a central plan from barone s i908 ministry of production in a collectivist state to lerner s i944 economics of control the issue was the allocative efficiency of the state in maximising a social preference function by the late i 940s a communist party determined to assume that role was in power in nine european and three asian countries each having a long term objective to overtake and surpass the performance of capitalism but more immediately to use central planning as the economic expression of a political monopoly in i990 the east european parties have forfeited that monopoly and have patently failed in the competition with capitalism as successor governments turn to the market it is the economics of decontrol that must be formulated throughout the industrialised capitalist world during the i98os the state has been rolled back in favour of the market deregulation and privatisation took place within a well established environment of market clearing prices and profit seeking transactions not so in the ussr and eastern europe for four decades stretching to six for the soviet union administrative direction has eliminated or marginalised the market which now must be rebuilt virtually from scratch the history of the two countries which broke with stalin s form of control is of no help yugoslavia had too little of a central plan and hungary had too little of a market 1 when mikhail gorbachev launched perestroika in i985 hungary and china had begun to re establish market relations and to allow some private enterprise to compete with a dominant state there and elsewhere the process was impeded by the hold of the communist party2 on political and economic activity those countries in which by i990 that hold had been relaxed started the process of decontrol and the establishment of equilibria within which a normal market can operate section i of this paper describes the preconditions for dismantling the soviettype economy section ii sets out the institutional and structural characteristics of the economy which must be unmade the required changes are considered

financial control in the transition from classical socialism to a market economy the transition from socialism to capitalism poses severe problems of financial management that have yet to be resolved in principle let alone in practice one unfortunate consequence is continual financial turmoil as socialist economies of the soviet union and eastern europe attempt reform inflation either open or repressed first accompanies and then undermines attempts to decentralize decision making to dampen inflation and prevent economic chaos even reform governments may be provoked to reintervene by seizing the financial assets of enterprises reinstituting price controls or commandeering outputs through state orders and similar devices but why should the transition from central planning to a market economy be inflationary understanding the system of financial control in the preexisting regime of classical socialism is the key to understanding what might go wrong in the transition under classical socialism all the means of production industrial and agricultural are state owned output targets input levels wages and prices are all set by a stalinist system of central planning accordingly i shall first identify 1 how domestic fiscal and monetary processes interact with and complement central planning in the classical socialist economy and then discuss 2 why this mechanism for securing domestic financial control and avoiding inflation under classical socialism tends to break down when decentralization begins and central planning is weakened the discussion will then turn to 3 how in a more deliberate transition domestic tax and monetary arrangements might be managed to keep the average price level stable as the market prices of individual goods and services become free to fluctuate after sufficient domestic financial control is secured

russian voting and the initial economic shock of hyperinflation this paper addresses the issue of economicvoting in transitional democracies using data from the russianfederal elections it argues that the shock of inflation thatfollowed the fundamental economic reform has a lastinginfluence on voters specifically it shows that in russia where inflationary policy led to hyperinflation and thewidespread loss of personal savings the magnitude of savingslost at that time continues to explain a significant portionof the variation in the regional support for the communistparty in parliamentary and presidential elections

intertemporal speculation shortages and the political economy of price reform price controls often focus on commodities that are storable and can thus be used in intertemporal speculation second opposition to dismantling of controls is often based on claims of low supply response and greatly bolstered if a strong supply response fails to materialise this is especially relevant in eastern europe where experience with markets is limited we show the difficulties that these two factors create for gradual decontrol of prices we endogenise the probability of a collapse of the reform programme and show that such endogeneity in the presence of intertemporal speculation leads to a strong case against gradualism the smaller the initial price increase the lower the observed supply elasticity and the greater the probability that the programme of reform will be abandoned this implies that the policy that makes most sense from a microeconomic point of view decontrol immediately is also advisable from a macroeconomic point of view credibility problems which are at the core of the transitional output losses that characterise most stabilisation programmes will be much less under a cold turkey approach and so will therefore transitional unemployment

customs unions and the core abstract customs union formation is modeled as a two stage game in the first stage countries make coalitional choices according to core theory in the second stage optimal tariffs are determined this yields a theory that predicts which customs unions form an example shows that a customs union can be an equilibrium even when both member countries do better at free trade

goods diversion and repressed inflation notes on the political economy of price liberalization most analyses of parallel markets in centrally planned systems focus on queue rationing as the mechanism whereby state sector goods become available for second economy resale this article takes into account employee diversion of goods as a second channel through which merchandise can move to private markets diversion of goods tends to temper the adverse distributional consequences of price liberalization as repressed inflation increases more goods are diverted out of the state sector and the likelihood that an individual will be made worse off by a transition of free prices is diminished

free trade equilibria to multi country quota games abstract we consider a symmetric n country competitive general equilibrium endowment economy in which countries select quotas in a stsic nash game to maximize the welfare of representative citizens unlike tariffs quota revenues need not accrue solely to the quota setting country the only possible equilibrium outcome other than autarky is free trade free trade prevails unless the quota setting country receives a fraction of quota rents greater than n 1 n we conclude that the prevelance of binding quotas in contrast to tariffs cannot be explained within the accepted rubric in which countries maximize the welfare of representative citizens

tariff retaliation from a strategic viewpoint one of the most perplexing questions in international trade concerns the rationale for the existence of widespread barriers to trade in the current world economy 1 the numerous explanations that have been offered for the existence of tariffs are generally based on one of the following four arguments a the existence of market imperfections monopolies externalities etc invalidates the free trade theorem and thus free trade is not desirable or perhaps not obtainable b sluggish adjustment of the world economy to free trade implies that the existing tariffs are a temporary phase c non economic phenomena such as nationalism induce political or institutional tariff arrangements or d protectionist motives to improve the welfare of a country or a group of individuals in that country induce all countries to simultaneously impose tariffs while all of these factors can be important in the explanation of the existence of tariffs the purpose of this paper is to develop an extended analysis of the protectionist view the protectionist view is based on the optimal tariff theorem which states under very restrictive assumptions that a country can improve its welfare by imposing a tariff 5 12 a serious difficulty with this explanation is that the optimal tariff theorem assumes that no retaliation occurs as scitovsky 12 points out a country that could benefit from charging a tariff has monopoly power in trade surely a country sophisticated enough to exercise monopoly power in trade would expect its rivals to respond when tariffs are erected hence scitovsky argues that if protection is the monopolistic behavior of a collectivity two countries raising tariffs against each other are bilateral monopolists and we know that bilateral monopoly results in the two parties coming to some working agreement whose terms depend on their bargaining skill and are analytically indeterminate scitovsky concluded that a tariff war would result in an indeterminate solution with both countries worse off johnson 6 formalized scitovsky s agrument by allowing each country to adopt a cournot type assumption regarding its rival s reaction to a change in its own tariff thus

burgernomics the economics of the big mac standard abstract in the course of ppp research much of the debate over the validity has been over the choice of an appropriate basket for making purchasing power comparisons the different compositions of goods and services in these baskets across countries have resulted in arguments against their usefulness for ppp purposes this problem is augmented by the existence of productivity differentials in traded and non traded goods across countries therefore we consider the use of the big mac as the international monetary standard as being a more palatable alternative it is produced locally in over 80 countries around the world with only minor changes in recipe and thus has the flavour of the perfect universal commodity our results indicate that the big mac index is surprisingly accurate in tracking exchange rates over the long term which is consistent with previous ppp research findings we subsequently enhance our ppp comparisons by taking into account the productivity differentials between countries and excluding non traded goods from the big mac index to derive the no frills index

information transparency of business to business electronic markets a game theoretic analysis the abundance of transaction data available on the internet tends to make information more transparent in electronic marketplaces in such a transparent environment it becomes easier for suppliers to obtain information that may allow them to infer their rivals costs is this good news or bad news in this study we focus on theinformational effects of business to business b2b exchanges and explore firms incentives to join a b2b exchange that provides an online platform for information transmission we then study the equilibria by developing a game theoretic model under asymmetric information we examine whether the incentives to join a b2b exchange would be different under different competition modes quantity and price different information structures and by varying the nature of the products substitutes and complements our results challenge the information transparency hypothesis i e open sharing of information in electronic markets is beneficial to all participating firms in contrast to the popular belief we show that information transparency could be a double edged sword the individual rationality of participation in the online exchange reflects the tradeoff between information transparency and data confidentiality this may have important implications for the microstructure design e g data access rules of b2b electronic marketplaces

strategic interaction among nations negotiable and non negotiable trade barriers trade policy is modelled as a two stage game between governments governments choose a negotiable trade barrier in the first stage of the game which is co operative the level of this barrier is treated as a binding commitment in the second stage of the game where the non negotiable trade barrier is chosen non co operatively hence governments choose trade barriers during negotiations with a view to influencing the equilibrium of the non co operative game to follow this proves to be a convenient framework in which to analyse the idea that trade agreements contain loopholes which can be exploited by protectionist governments trade negotiations induce substitution toward less efficient instruments of protection but are nevertheless welfare improving as long as the negotiations are relevant i e the negotiable barrier is actually in use and the two instruments are not perfect substitutes

a conjectural variation approach to strategic tariff equilibria abstract this paper examines tariff equilibria in a static two country trade model under a general class of conjectures regarding foreign retaliation we assume that each country chooses its optimum tariff given some conjecture in this class and derive the associated conjectural tariff equilibrium which can be thought of as a nash equilibrium conditional on each country s conjecture about how the foreign country will retaliate our main contribution is to show that when marginal propensities to consume imports are sufficiently small increased expectation of retaliation results in lower equilibrium tariffs for both countries since countries in general probably do expect some retaliation it therefore appears that the traditional cournot nash analysis probably overstates the trade restrictiveness of tariff wars

rationing queues and black markets several types of rationing and queue mechanisms are compared in a framework of general equilibrium type models under gross substitutability and normality assumptions about consumers walrasian demand during transition from rationing and queues to a market system a group of low income people loses the transition involves larger losses for this group if black markets prevail under rationing or queues while a group of high income consumers gains some other comparative statics results are developed for a queue model with black markets copyright 1993 by the econometric society

optimal tariffs in consistent conjectural variations equilibrium abstract this paper analyzes the determination of the optimal tariff under the assumption of consistent conjectural variations ccv a general characterization of the ccv equilibrium is given we show that i there are in general a multiplicity of each equilibria and ii under certain restrictions the cournot equilibrium which is based on the assumption of no retaliation can also be a ccv equilibrium by contrast free trade is never a ccv equilibrium finally the ccv equilibrium is solved explicitly in a simple example

country bashing tariffs do bilateral trade deficits matter abstract this paper investigates the impact of restricting bilateral trade imbalances in a three country three good model bilateral trade balances matter because in the nash equilibrium each country will impose tariffs on countries with whom they have bilateral deficits or promote trade with countries with whom they have bilateral surpluses all countries lose from a nash country bashing war each country loses from the unilateral elimination of its bilateral imbalances but a country can gain from a bilateral agreement with its deficit partner provided that country has a surplus with a country devoted to free trade

the ecological fallacy revisited aggregate versus individual level findings on economics and elections and sociotropic voting several aggregate level studies have found a relationship between macroeconomic conditions and election outcomes operating in intuitively plausible directions more recent survey based studies however have been unable to detect any comparable relationship operating at the individual voter level this persistent discrepancy is puzzling one recently proposed explanation for it is that voters actually behave in an altruistic or sociotropic fashion responding to economic events only as they affect the general welfare rather than in terms of self interested pocketbook considerations it is argued here that the discrepancies between the macro and micro level studies are a statistical artifact arising from the fact that observable changes in individual welfare actually consist of two unobservable components a government induced and politically relevant component and an exogenous component caused by life cycle and other politically irrelevant factors it is shown that because of this individual level cross sectional estimates of the effects of welfare changes on voting are badly biased and are essentially unrelated to the true values of the behavioral parameters of interest they will generally be considerable underestimates and may even be of the wrong sign an aggregate level time series analysis on the other hand will often yield reasonably good if somewhat attenuated estimates of the underlying individual level effects of interest thus in this case individual behavior is best investigated with aggregate rather than individual level data it is also shown that the evidence for sociotropic voting is artifactual in the sense that the various findings and evidence which ostensibly show sociotropic behavior are all perfectly compatible with the null hypothesis of self interested pocketbook voting

determining firm level it investments to facilitate value chain activities should spillovers accruing to value chain members be incorporated abstract in recent years the relationship between intermediaries in a value chain has undergone significant changes in which information technology it has played a critical role of importance is the formation of alliances between channel members and the effect of it investments on these evolving relationships a critical aspect of a firm s it investment is that it not only provides gains for the investing firm but also creates positive spillovers for value chain members these spillovers are attributable to the fact that firm level it investments result in the automation and or reengineering of internal processes downstream in this paper we address the issue as to how a firm should determine its investment in an it system which is primarily designed to facilitate value chain activities under the assumptions of perfect information in terms of potential gains for value chain members from this it investment and the fact that each member may need to be guaranteed some minimum gain i e a reservation utility to adopt the it we model the it investment decision under two alternative strategies the first strategy referred to as the myopic strategy is where the firm simply makes the it investment decision by maximizing its own gains and ignoring those of the value chain under an alternative strategy referred to as the global strategy the firm decides to make the it investment decision by simultaneously maximizing not only its own gains but also the gains accruing to the entire value chain in this case the firm could make a sub optimum decision regarding the it investment from its own perspective however under the latter strategy the firm could also structure a simultaneous one time charge for each value chain member which could compensate for this sub optimum decision after modeling both these strategies we then proceed to characterize conditions under which each strategy is the preferred choice for the firm through an illustration of our framework we show that the global strategy dominates the myopic strategy in a number of situations

optimum tariffs north south abstract this paper investigates optimum north south tariffs by taking into consideration the fact that tariffs serve mainly as trade policy in the north but serve as revenue policy as well as trade policy in the south a statically and endogenously determined conjectural variation is devised to approach the problem we show that among other things there are many possibilities for the north optimally to choose the zero tariff other than only in the case where the elasticity of the south s supply of export is infinite

electronic data interchange competitive externalities and strategic implementation policies electronic data interchange edi is an emerging type of standardized inter organizational information system we analyze the impact of edi on the upstream suppliers competitive position in a simple two level hierarchical market structure where the buyer faces a linear demand curve and the competing heterogeneous suppliers have an upward sloping marginal cost function we show that a suppliers adoption of edi can generate positive externalities for the buyer and negative or competitive externalities for other suppliers as a result the buyer provides a price premium to those suppliers who adopt edi and increases their sales volume and market share moreover when the benefits that the buyer can derive from implementing edi are substantial and the suppliers edi adoption costs are high it may be in the buyer s best interest to subsidize the suppliers so as to encourage them to adopt edi instead of mandating them to do so regardless of whether the buyer employs a mandatory or a subsidizing policy the buyer and the end consumers may be the only ones who gain from this new technology consequently a partial adoption by the supplier base may be optimal for the buyer when the suppliers adoption costs are sufficiently high we also show that while edi reduces the transaction costs of the buyer the upstream market tends to become more concentrated as a result of increased cost differentials these results provide one economic explanation of the fact that many companies have actually reduced their supplier base after implementing edi despite a significant reduction in their market transaction costs

when higher incomes reduce welfare queues labor supply and macro equilibrium in socialist economies starting from a micro model of consumer behavior under rationing by queuing that utilizes gary becker s allocation of time framework we develop a simple macroeconomic model of a socialist economy the length of the queue is the key endogenous variable that equilibrates aggregate supply and aggregate demand comparative statics analysis shows that an increase in wages over money prices brings about longer queues that reduce labor supply output and welfare when shortages grow beyond a certain critical level queues fail to sustain aggregate equilibrium in the economy

a model of market power and efficiency in private electronic exchanges we investigate how private electronic markets pems can be used as a strategic tool by a large producer to compete against a consortium of smaller producers we model the competition between a large producer and consortium of producers in a two tier supply chain as a game and characterize the resulting subgame perfect nash equilibrium our results demonstrate that as the costs of inputs to production increase there are greater returns to ownership of a private exchange further we demonstrate strong welfare enhancing effects of the pem as the production efficiency of upstream suppliers declines finally from a policy standpoint we show that when upstream suppliers are highly efficient the creation of a private electronic exchange by the large producer will result in significant welfare loss

network effects on strategic interactions a laboratory approach abstract we examine the effect of interaction structure network on two classes of collective activities herding and shirking respectively referring to the situation where a player s incentive to take a certain action increases and decreases if more of her network neighbors follow the same action in our experiment we find that subjects do not act according to theoretical equilibrium and their frequencies of making the socially beneficial choice in herding and shirking games are inversely influenced by the number of network neighbors they have moreover the observed local network effect is stronger in shirking games while the global network effect is more significantly present in herding games we explain the behavioral regularities through a hybrid learning model which extends sewa learning into a network context as such our learning model provides a foundation for the observed dynamics disequilibrium behavior as well as the local and global network effects