quality adjusted cost functions and policy evaluation in the nursing home industry proper evaluation of cost quality trade offs inherent in regulatory policy requires identifying the structure of production from the behavioral response of quality to the policy change however estimating the structure of production with endogenous quality is difficult because of both measurement problems and data availability we develop a simple method for identifying and estimating cost functions in the presence of endogenous and unobserved quality using this method we estimate that a quality adjusted cost function for nursing homes treating quality as exogenous yields seriously misleading estimates of marginal cost and economies of scale we then used the parameter estimates to evaluate the cost quality trade off in nursing home regulatory policy

quality as a substitute for quantity abstract increased product reliability shifts down the inverse demand schedule if reliability is treated as a substitute and not as a complement for quantity for quasilinear preferences price inelastic demand is sufficient for reliability to be viewed as a substitute for quantity

the effect of unit fees on the consumption of quality a law of demand explanation to the alchian allen or shipping the good apples out proposition rests on a change in the relative price of quality when a unit fee is introduced however the manner in which quality is consumed is crucial in some cases for instance there is no substitution between the quality attribute and the priced quantity measured attribute this paper shows that in these cases the relative price of quality is unchanged by a unit fee nevertheless while the unit fee proposition fails to obtain for individual choice it does hold in aggregate

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

a threshold in inflation dynamics evidence from emerging countries using monthly data over the period january 1976 november 2002 the present paper detects significant threshold non linearities in the inflation rates of three emerging countries namely india singapore and south africa a two regime self exciting threshold autoregressive setar model of inflation constituting a significant improvement over the corresponding linear ar model is estimated for these countries singapore is shown to have a much lower implied equilibrium inflation rate than india while there is a possibility of seasonal inflation equilibria for south africa

the import of hospital rate setting programs on hospital and health care expenditures 1975 85 to reduce hospital expenditures many jurisdictions now regulate hospital rates prior theoretical work has demonstrated however that the effect of rate regulation on total expenditures is a priori unclear empirical research has found that hospital rate setting programs have reduced expenditures per diem and per admission but not necessarily hospital expenditures or total health care expenditure per capita this study extends this empirical research it employs pooled cross section time series data on state level expenditure regulatory and demographic variables obrserved annually for 1975 85 the analysis provides little evidence that hospital rate setting programs have reduced hospital expenditures some rate setting programs actually are positively and significantly related to hospital expenditures overall this study does not suggest that regulatory programs will reduce hospital expenditures

a latent structure approach to measuring reputation the present study provides estimates of reputation as a dynamic latent variable that is determined by price premiums and market data further it analyzes the effect of extrinsic factors on reputation specifically this study seeks to i quantify the reputation of washington apples over time ii study the dynamic nature of reputation and iii analyze the effect of the label washington apple the model adopted in this study is the dynamic multiple indicator multiple cause dymimic modeling approach which is a special case of the general latent variable modeling scheme called state space models both dymimic and hedonic approaches are applied to the data on washington apples and results from the two approaches are compared reputation plays an important role in assuring product quality in markets where consumers can only imperfectly judge the product quality until after consumption if reputation effects are absent in these types of markets there is an incentive for producers to reduce quality and take short run gains before buyers catch on in order to avoid such quality cutting products with good reputations will sell for premium prices shapiro 1983 showed theoretically that price premiums are necessary for producers to invest in quality and reputation there is an extensive theoretical literature on reputation but empirical studies are limited empirical studies on the impact of firm reputation on shareholder wealth or product demand include jarrell and peltzman 1985 borenstein and zimmerman 1988 and karpoff and lott 1993 caves and green 1996 showed that factors that may affect a firm s reputation influence the relationship between price and quality gorton 1996 analyzed how a bank s reputation for default affects the discount rate on its debt the measurement of the value of reputation to producers in terms of price premiums and how a reputation can be built up and destroyed are important issues that have not been empirically analyzed the current study provides estimates of reputation as a dynamic latent variable that is determined by price premiums and market data further it analyzes the effect of extrinsic factors on reputation steenkamp 1990 points out that consumers observe at the moment of purchase the intrinsic and extrinsic product quality cues but not the quality attributes intrinsic cues are characteristics of the product such as color freshness texture and flavor while extrinsic

stock market returns and inflation evidence from other countries this paper investigates the relation between common stock returns and inflation in twenty six countries for the postwar period our results do not support the fisher hypothesis which states that real rates of return on common stocks and expected inflation rates are independent and that nominal stock returns vary in one to one correspondence with expected inflation there is a consistent lack of positive relation between stock returns and inflation in most of the countries

the economics of voluntary export restraint agreements the three substantive sections of this survey deal with the economic consequences of voluntary export restraint agreements vers e g the multi fibre arrangement and vers on japanese auto exports section 2 focuses on the disposition of quota rents under the assumptions of perfectly competitive markets and the absence of substitute suppliers section 3 considers imperfect competition and the role of vers as cartelization instruments facilitating collusion section 4 analyzes the discriminatory effects of vers when there are third country suppliers a broad conclusion is that the economic consequences of vers are more complex than the standard trade policy analysis based on tariffs because of the issues discussed in sections 3 and 4 copyright 1989 by blackwell publishers ltd

a theory of political transitions we develop a theory of political transitions inspired by the experiences of western europe and latin america nondemocratic societies are controlled by a rich elite the initially disenfranchised poor can contest power by threatening revolution especially when the opportunity cost is low for example during recessions the threat of revolution may force the elite to democratize democracy may not consolidate because it is redistributive and so gives the elite an incentive to mount a coup highly unequal societies are less likely to consolidate democracy and may end up oscillating between regimes and suffer substantial fiscal volatility

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

market incentives for safe commercial airline operation using a sample of nearly all fatal u s airline accidents between 1960 and 1985 this paper attempts to quantify the costs that airlines incur due to crashes the potential costs include those due to loss of life and equipment tort liability increased regulatory oversight and loss of demand as consumers turn away from products perceived to be unsafe examination of the deviations from expected demand following accidents reveals little or no effect prior to airline deregulation and weak indication of a response to recent crashes these results are consistent with the changes in an airline s equity value following an accident which are statistically significant but quite small relative to the total social cost of the accident

arming as a strategic investment in a cooperative equilibrium to develop a positive economic theory of military spending this analysis focuses on a game theoretic general equilibrium model of international conflict in which consumption peaceful investment and military spending are endogenously determined the analysis illustrates that when there is repeated interaction between nations a game of threats and punishments generally will not support a disarmament outcome and that fluctuations in military spending can be an endogenous result of fluctuations in aggregate economic activity furthermore the analysis shows how the relation between aggregate economic activity and military spending qualitatively depends on whether governments are acting opportunistically or cooperatively copyright 1990 by american economic association

collective reputation and quality firms who sell regional or specialty products often share a collective reputation based on aggregate quality collective reputation can be approached as a dynamic common property resource problem we show that for an experience good without firm traceability individual firms have the incentive to choose quality levels that are sub optimal for the group these results support minimum quality standards trigger strategies are analyzed as an alternative solution to this problem finally the implications of these results are discussed as they relate to the case study of washington apples specialty regional authentic and local food products have become a more important part of consumer purchases in recent years firms have responded by marketing food products that come from specific geographic areas this trend in consumers preferences has led the european union to introduce protected designations of origin labels and protected geographical identification labels which provide protection of food names on a geographical or traditional basis ranging from parmesan cheese to such lesser known items such as galician veal in the united states there are popular state products that carry labels such as washington apples idaho potatoes

a latent variable model of quality determination because of data difficulties there has been little empirical work analyzing the determination of the quality of a firm s output this article constructs a latent variable model for this problem that uses easily obtainable data the model is developed from the relationship between the firm s input demand functions and reduced form output functions and it has a novel multiple indicator multiple cause mimic interpretation the model also allows identification of an intercept implying that an index of quality that is comparable across samples can be constructed as an example a latent variable model of nursing home quality is estimated

real wages profit margins and inflation in turkish manufacturing under post liberalization this article reports investigations into the behaviour of gross profit margins mark ups in turkish manufacturing industries for the post 1980 liberalization period in relation to price inflation trade liberalization openness and real wage costs panel data econometrics over 29 subsectors of turkish manufacturing are used over the period 1980 1996 results suggest that profit margins are positively and significantly related both to price inflation and real wage costs however openness is found to have very little impact on profit margins

physician licensure a new approach to examining the role of professional interests for years economists have debated the extent to which organized medicine has benefited from medical licensing restrictions this debate has been hampered by the lack of a viable alternative hypothesis this paper provides an alternative hypothesis and suggests an empirical test which focuses on the relationship between licensure restrictions and the level of consumption of physician services across states the evidence suggests that in the mid 1960s the interests of organized medicine dominated those of consumers in influencing the medical regulatory supply process

dynamic rent seeking games the present paper analyses rent seeking games in which competitors for a rent can act and react finitely or infinitely often it argues for an infinite move model as the most appropriate specification of a model of rent seeking dynamic equilibrium analysis of this game suggests that wasteful expenditures in rent seeking competitions are lower than previously studied static simultaneous move games predict journal of economic literature classification numbers d72 c73

the relation between stock prices and inflationary expectations the international evidence this paper provides empirical evidence on the relation between stock returns and inflationary expectations for nine countries over the period 1971 80 the fisherian assumption that real returns are independent of inflationary expectations is soundly rejected for each major stock market of the world using interest rates as a proxy for expected inflation our data provide consistent support for the geske and roll model whose basic hypothesis is that stock price movements signal negative revisions in inflationary expectations finally a weak real interest rate effect was found for some of these countries

reduced quality and an unlevel playing field could make consumers happier we study a model of imperfect competition and limited production capacity in which a key feature is the trade off between quality and quantity in particular lowering product quality enables firms to increase total production we illustrate that in the presence of limited capacity the choice of lower quality often results in increased social welfare we also explore the relation between the extent of competition and the choice of quality we find that in some cases reduced competition leads to increased production decreased average quality increased total welfare and makes consumers better off finally we consider the possibility of regulator mandated quality standards imposing high quality standards never improves welfare in our model on the other hand mandating an upper bound on quality could either increase or decrease welfare in either a monopoly or a duopoly market

optimal wages for politicians i consider a society that has to decide on the wage that it offers for an elected official potential candidates differ in their abilities which determines their effectiveness in office and their opportunity cost they consider the wage when deciding whether to enter as candidates and if they do how hard to campaign the remuneration for the official that maximizes ordinary citizens expected utility is a function of the proportion of competent voters who are better informed about the quality of the candidates and are not influenced by the campaign i use the data on u s governor salaries over six decades to evaluate some implications of the model specifically the proportion of the state s population with a bachelor s degree a proxy for the proportion of competent voters is negatively correlated with the governors salaries when controlled for other factors

on giffen like goods abstract this paper provides as a counter example to the alchian allen theorem a theory of giffen like goods a per unit charge to two similar goods raises the relative price of the lower quality good and yet increases the relative demand of the good

prices as signals of product quality this paper is concerned with the provision of quality in markets in which consumers have only imperfect information the analysis focuses on a market for a product that can be produced at different quality levels all consumers prefer higher to lower quality but they may differ in their willingness to pay for quality producers can produce any quality they like but higher qualities are more costly to produce the information in this market is imperfect in the sense that the exact quality chosen by a firm is known only to the firm itself some information about the quality of a firm s product will however reach its potential customers even if they do not make any special effort to acquire it within the framework suggested here two conclusions are drawn first prices may serve as signals which exactly differentiate the available quality levels that is there exists a fulfilledexpectations equilibrium at which each price signals a unique quality level second the pricesignals are not arbitrary each price signal exceeds the marginal cost of producing the quality it signals such a mark up depends on the nature of the product specific information received by consumers the poorer the information the higher the mark up

the use of expert opinion quality and reputation indicators by consumers evidence from the french vaulting stallion semen market we build a model inspired by the standard hedonic approach developed by rosen 1974 and completed by landon and smith 1997 1998 to analyse the price of french vaulting stallion semen in 2004 we show that reputation modelled as an endogenous factor plays a less important role than information on true quality for the explanation of price dispersion this result is explained by the fact that information on studhorses is not only available but also reliable insofar as the quality of a stallion is stable over time contrary to nondurable products like wine or cigars this explains also why consumers on this market do not use expert opinions to make their choices

inflation real returns and capital investment we find evidence for the hypothesis of mundell 1963 and tobin 1965 that the expected real return component of interest rates is negatively related to the expected inflation component in the mundell tobin model the variation in expected real returns is caused by the variation in expected inflation our evidence suggests however that the variation in expected real returns is more fundamentally an outcome of the capital expenditures process equilibrium expected real returns vary directly with capital expenditures in order to induce equilibrium allocations of resources between consumption and investment this positive relation between expected real returns and real activity which comes out of the real sector combines with a negative relation between expected inflation and real activity which is traced to the monetary sector thus inducing the negative relation between expected inflation and expected real returns predicted by mundell and tobin but explained in terms of a model much different from theirs

why is there so little money in u s politics in this paper we argue that campaign contributions are not a form of policy buying but are rather a form of political participation and consumption we summarize the data on campaign spending and show through our descriptive statistics and our econometric analysis that individuals not special interests are the main source of campaign contributions moreover we demonstrate that campaign giving is a normal good dependent upon income and campaign contributions as a percent of gdp have not risen appreciably in over 100 years if anything they have probably fallen we then show that only one in four studies from the previous literature support the popular notion that contributions buy legislators votes finally we illustrate that when one controls for unobserved constituent and legislator effects there is little relationship between money and legislator votes thus the question is not why there is so little money politics but rather why organized interests give at all we conclude by offering potential answers to this question this abstract was borrowed from another version of this item

the economics of nested names name specificity reputations and price premia a good can be identified by its region or country of origin the firm that produces it and its product name in other words names can nest within each other to categorize goods with increasing specificity this article develops a conceptual framework for jointly analyzing the effect of product firm and collective reputations on market price the model is estimated via quantile regression with california wine market data the results portray how the structure and relative importance of reputations change as product prices vary specifically reputation premia migrate from collective to specific names as prices increase

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

interest group size and legislative lobbying abstract we develop a model of legislative decision making in which lobbying and public policy are jointly determined we examine how policy outcomes depend on the sizes of the interest groups while a larger size typically involves favorable effects on policy we also identify threshold levels of interest group size where a lobby will be harmed if it becomes larger this may provide another rationale as to why some interests do not or not fully organize spending limits can remove adverse policy effects of interest group size however this is not necessarily welfare improving moreover we find that endogenous proposal making may turn a second mover advantage in standard legislative lobbying models into a second mover disadvantage

do polls create momentum in political competition abstract we explore how public opinion polls affect candidates campaign spending in political competition generally polls lead to more asymmetric behavior under a majority rule there always exists an equilibrium in which the initially more popular candidate invests more in the campaign and thereby increases her lead in expectation polls create momentum when campaigning is very effective and the race is very close a second type of equilibrium may exist the trailing candidate outspends and overtakes his opponent regardless of the type of equilibrium polls have a tendency to decrease expected total campaigning expenditures by amplifying ex ante asymmetries between candidates and thus defusing competition when candidates care also for their vote share in addition to having the majority candidates incentives crucially depend on the distribution of voters candidate preferences

ambiguous changes in product quality economic goods are frequently sold according to a price per unit quantity where the quantity characteristic does not measure all the economically important characteristics of the good milk is sold by the quart automobiles rented by the mile physicians services bought by the visit and tennis lessons by the hour in all cases heterogeneous units are available in the market and the price per unit quantity depends upon the amount of the unpriced characteristic contained in each unit the per quart price of milk depends upon the butterfat content the mileage costs of automobile rentals on the cars make and the price per unit time for personal services on the providers skill and training the common distinction made between these variants of the same good is that they differ in quality where quality refers to the amounts of the unpriced attributes contained in each unit of the priced attribute thus milk is packaged according to the attribute milk liquid and the quality of milk refers to the ratio of butterfat per unit of liquid 2 this paper considers some of the unique aspects of the economics of supply and demand under this situation where products contain at least two desired attributes only one of which is quantified and measured prior to purchase product quality is here defined by the ratio of the second quality attribute per unit of the measured quantity attribute 3 this simple specification of quality allows a direct link between standard economic models of related products and the economics of variable product quality previous analyses which treat quality simply as a shift parameter in the demand function are shown to obscure the actual subtleties of supply and demand with variable endogenous quality 4 the paper proceeds by first examining the efficient quality and quantity and the competitive equilibrium the market equilibrium under monopoly is then contrasted in the second section the general theme of the

are stocks a good hedge against inflation evidence from emerging markets theory suggests that equities are a good hedge against inflation however most of the empirical evidence for industrialized economies suggests that the relationship between stock returns and inflation is negative one explanation is the negative correlation between inflation and real output growth this paper examines the relationship between inflation and stock returns for ten important emerging stock market esm markets namely chile mexico brazil argentina thailand s korea malaysia hong kong philippines and turkey during the 1990s to anticipate the results the relationship between stock returns and inflation for the whole sample period is positive and statistically significant for three of the sample esms while it is positive but statistically insignificant for a further three only for one esm is the relationship negative and statistically significant this result may be due to the role of money and the positive relationship between consumer prices and output

good grapes and bad lobsters applying the alchian and allen theorem i the theorem the alchian and allen theorem states that adding a common charge to the price of two substitute goods increases the relative consumption of the higher quality good real income held constant the classic example of this theorem is from alchian and allen s 1964 75 textbook university economics suppose that grapes are grown in california and that it costs 5 cents a pound to ship grapes to new york whether the grapes are choice or standard suppose further that in california the choice grapes sell for 10 cents a pound and the standard for 5 cents a pound if grapes are shipped to new york the shipping costs will raise the costs of choice grapes to 15 cents and of standard grapes to 10 cents in new york the costs of choice grapes are lower relative to standard grapes 1 5 to 1 than in california 2 to 1 new yorkers faced with a lower price of choice grapes relative to standard will consume relatively more choice grapes than californians will alchian and allen s theorem is solely about relative price effects and does not rely upon income effects or selection effects it assumes that those most willing to pay the fixed charge do not have systematically different preferences and incomes as those not paying the charge furthermore the theorem does not hold for corner solutions where the high and low quality goods are consumed by different classes of consumers or equivalently each consumer purchases only one unit of the good in question we must then consider the different rates at which consumers of high and low quality goods decrease consumption when price changes purchasers of high quality items need not reap more consumer surplus than purchasers of low quality items 1 ii per unit costs versus fixed and sunk costs the alchian and allen theorem applies only when the costs are applied to each good on a per unit basis charging a single fee or fixed tax to allow consumption of the good to take place does not create a substitution effect the fixed fee once paid is treated as a sunk cost and consumers face the same relative prices they faced initially an increase in the cost of a grape shipping permit for instance will not have any direct effects on the quality of grapes many of the examples of the alchian allen theorem that have been given in the literature do not specify true per unit taxes umbeck 1980 for example argues that an increase in the installation charge for phones will increase phone usage but in this case the relevant charges are fixed the installation or monthly service charge will increase current phone usage only if individuals are planning to go without a phone in future periods in contrast individuals who will continue phone service into the foreseeable future cannot minimize their monthly charges or their installation charges by increasing their phone usage now any change in behavior would be due to an income effect which is unpredictable a trickier problem is raised by borcherding and silberberg 1978 133 who claim that it does not matter if the goods are shipped to the consumers or the consumers are shipped to the goods going to maine or the country involves a transport cost to people not from maine or the country what the alchian allen theorem predicts therefore is that tourists in maine will consume on average higher quality lobsters than the natives and similarly for city versus rural dweller s purchases of produce at roadside stands if people who make a special trip to maine in fact choose to eat truly delectable instead of inferior quality lobsters sold there this confirms alchian and allen s thesis emphasis added when the tourists are transported the alchian allen theorem applies only if 1 the tourists are planning both high quality and low quality trips in the future and 2 high quality lobster is strongly and positively related to a high quality vacation in maine

competition among hospitals the traditional view of hospital competition has posited that hospitals compete primarily along quality dimensions in the form of fancy equipment to attract admitting physicians and pleasant surroundings to entice patients price competition among hospitals is thought to be non existent this paper estimates the effects of various hospital market characteristics on hospital prices and expenses in an attempt to determine the form of hospital competition the results suggest that both price and quality competition are greater in markets that are less concentrated although the net effect of the two on prices is insignificant it appears therefore that despite important distortions hospital markets are not immune to standard competitive forces

investment under uncertainty in dynamic conflicts this paper analyses a model in which two groups repeatedly compete with each other for a prize in every time period we assume that there is a status quo bias if there is a fight today yesterday s winner is in a stronger position than the other group hence a change of the status quo has long term consequences that groups need to take into account important applications of this model include lobbying for legislation and political transitions through revolutions we analyse the strategic timing of attacks on the status quo which is similar to investment decisions under uncertainty we find that the attack threshold is considerably lower than in a comparable one period game and that the expenditure level necessary to change the status quo is low in comparison to the prize this provides a possible solution to tullock s rent seeking paradox in lobbying copyright 2006 wiley blackwell

costly distribution and the non equivalence of tariffs and quotas when governments impose a quota or tariff on imports it is well known that the resulting rents and revenues trigger costly rent seeking and revenue seeking activities which are welfare reducing and may be economically more significant than the efficiency losses resulting from the protectionist induced resource misallocation repeated interaction among firms can eliminate wasteful rent and revenue seeking expenditures through cooperation we show that while aggregate outcomes are equivalent under tariffs and quotas if cooperation arises the conditions under which cooperation arises differ by policy this difference arises because a firm must incur additional cost to physically import and distribute the goods associated with additional quota licenses whereas there is no such cost when it comes to consuming additional tariff revenue thus quotas and tariffs are non equivalent we provide a simple sufficient condition under which cooperative elimination of rent seeking under quotas is easier than cooperative elimination of revenue seeking under tariffs and therefore a quota is the preferred policy whenever the policy admits cooperation

quantity quality and the welfare effects of us airline deregulation in this paper we employ a method for estimationg quality adjusted demand to calculate measures of the change in consumer suruplus due to us airline deregulation the quality adjusted estimates of the price elasticity of demand indicate that consumers are from 25 to 50 more sensitive to changes in air fares than unadjusted estimates would suggest changes in unadjusted consumer surplus overstate the net welfare gains from deregulation by roughly a factor of two strongly suggesting that adjustments for quallity of service are essential to welfare analysis of regulatory changes in this industry

high inflation and returns on residential real estate evidence from turkey this study examines the hedging behaviour of real estate investment in a high inflationary environment the hypothesis that the real estate investment hedges both expected and unexpected inflation is tested the returns of investment on residential apartments in several neighbourhoods in the capital of turkey are used in the analysis expected inflation is measured by three proxies it is found that in a high inflationary environment real estate investment does not provide hedge against inflation a reverse causality between returns on real estate and changes in expected inflation is not observed however a relationship between real returns and changes in inflationary expectations seem to be different in relatively low and relatively high income neighbourhoods

taxation and product quality new evidence from generic cigarettes in this journal barzel 1976 theorized that per unit taxes should increase the average quality of a product whereas ad valorem taxes may either lower product quality or leave it unaffected there are several different ways to present the logic behind this theory barzel stresses that per unit taxes do not tax all attributes of a commodity causing a substitution from the taxed attributes quantity into the others quality 1 another way is to draw an analogy to the alchian and allen 1964 theorem where the addition of a fixed fee causes a decrease in the relative price of the higher quality version of the product 2 because ad valorem taxes add the same percentage to the prices of both the highand low quality versions of the product they do not distort relative prices thus ad valorem taxes should

collective reputation social norms and participation this paper analyzes a repeated games model of collective reputation with imperfect public monitoring and perfect local peer monitoring of efforts even when peer monitoring is local firms may achieve higher profits under collective reputation by decreasing the cost of maintaining customers trust the optimal number of firms that share a common reputation is greater when 1 trades are more frequent and public information is disseminated more rapidly 2 the deviation gain is smaller compared to the quality premium 3 customers information regarding firms quality is more precise or 4 intragroup information about firms quality is more global from a positive perspective we suggest how social norms can influence the reputation of regional products we also offer an efficiency explanation for food scares from a normative point of view in our model protection of geographical indications increases and mandatory traceability decreases welfare and incentives to provide quality without taking into account direct implementation costs copyright 2012 oxford university press

the dynastic cycle and the stationary state a dynastic cycle is a periodic alternation of society between despotism and anarchy in a society of farmers rulers and bandits population growth simultaneously impoverishes farmers and reduces the ruler s surplus per head society evolves into a despotic stationary state or into a dynastic cycle dependent on whether poverty among farmers chokes off population growth before the surplus shrinks to the point where rulers turn to banditry copyright 1989 by american economic association

the inflation hedging properties of turkish reits this study empirically tests the inflation hedging abilities of turkish reits in comparison to the indices of common stocks listed on the istanbul stock exchange ise over the period december 1999 to december 2004 two main factors motivate this study first compared to their counterparts in developed capital markets turkish reits have some important tax incentives as well as flexibility in managing their portfolios second the turkish economy provides a rare and good opportunity to test the hedging behaviour of real estate stocks in periods of both high and moderate inflation rates the empirical results show that turkish reits in general provide a better hedge against both actual and expected inflation than do the ise common stock indices dividing the entire sample period into the high and moderate inflation sub periods we find that the hedging ability of reits is better under high inflation than under moderate inflation

payment source and the cost of hospital care evidence from a multiproduct cost function with multiple payers abstract this study investigates the capacity of hospitals to vary the intensity of their services based on patients expected sources of payment while the concept of price discrimination by hospitals based on payer generosity cost shifting has been discussed extensively the notion that hospitals can adjust payer specific marginal costs to reflect differences in reimbursement policies has not been studied in depth to examine this issue this analysis employs a multiproduct cost function with hospital outputs defined as admissions by payment source controlling for the distribution and severity of illness casemix for each payer marginal costs of casemix adjusted discharges are obtained and compared for medicare medicaid private payers and a residual category that includes uncompensated care we find that indeed payer specific marginal costs generally reflect payer generosity

monetary transmission mechanism in turkey under the monetary conditions index an alternative policy rule this study analyses monetary transmission mechanism in turkey using a small structural macroeconomic model the core equations of the model consist of aggregate demand wage price setting uncovered interest rate parity foreign sector and a monetary policy rule the aim of the paper is to analyse the disinflation path the output gap the output level the exchange rate and the interest rate and also the output inflation variance frontier of the economy under various scenarios the first scenario assumes that a standard taylor rule is implemented as the policy rule in the alternative scenario instead of the standard taylor rule the mci monetary conditions index combination of the changes in the short term real interest rate and in the real effective exchange rate in a single variable is used as a policy instrument the results indicate that the economy stabilizes much more quickly and shows significantly less volatility under this new setting therefore the paper concludes that the policymakers

on the international harmonization of bank regulation this paper offers a three way typology of bank regulation and examines the question of international harmonization for each category for economic regulation the danger is that harmonization could support and preserve domestic protectionist regulatory regimes but it could instead be a beneficial guise for lowering protectionist barriers the latter efforts should be encouraged for prudential regulation national regulation should be adequate to handle the extra stresses of international banking harmonization efforts e g the basle accord may offer only modest help but the accord may offer indirect help by limiting national governments competitive efforts implicitly to subsidize their banks risk taking activities finally for information regulation national regulation appears to be adequate and international harmonization does not appear to be necessary copyright 1994 by oxford university press

price controls non price quality competition and the nonexistence of competitive equilibrium we investigate how price ceilings and floors affect outcomes in continuous time double auction markets with discrete goods and multiple qualities when price controls exist the existence of competitive equilibria is no longer guaranteed hence we investigate the nature of non price competition and how markets might evolve in its presence we develop a quality competition model based on matching theory equilibria of the quality competition model always exist in such price constrained markets moreover they naturally correspond to competitive equilibria when competitive equilibria exist additionally we characterize the set of equilibria of the quality competition model in the presence of price restrictions in a series of experiments we find that market outcomes closely conform to the predictions of the model in particular price controls induce non price competition between agents both in theory and in the experimental environment market behaviors result in allocations close to the predictions of the model

professional versus consumer interests in regulation the case of the us child care industry professional licensure benefits producers by creating entry barriers into the profession but consumers might also gain if licensure induces producers to supply high levels of quality whether consumers or producers gain most form licensure can be determined by examining the effect of licensure requirements on aggregate consumption this paper uses a cross sectional model to estimate the relationship between variations in state licensure rules and consumption of child care services the results suggest that professional interests and not those of consumers are dominant in the setting of regulatory standards for the us child care industry

on the third law of demand i introduction the alchian and allen 1967 63 64 theorem sometimes elevated to the status of a third law of demand as in bertonazzi et al 1993 is a clever application of the fundamental principle of economizing behavior as usually stated the theorem suggests that by reducing the price of higher quality relative to lower quality versions of the same good a fixed transportation charge will trigger a predictable shift in the mix of quality grades purchased by consumers in distant markets as compared to the mix purchased locally producers will respond rationally to this difference in behavior relatively more high quality goods will be included in outbound shipments leaving more low quality goods to be sold nearer the point of origin hence other things being the same the theorem predicts that it will be harder to find good apples in the state of washington a prime apple growing region than in say new york city where bad apples are comparatively more expensive the first law of demand still holds of co urse in that fewer apples of both types will be consumed in new york than in seattle ceteris paribus similarly given that the cost of a babysitter will be the same no matter where the parents of young children decide to spend the evening out they are more likely than an otherwise identical childless couple to choose an upscale restaurant over an inexpensive eatery and to go to the theater rather than to the movies moreover if both couples plan to see a play or a concert the couple with children will opt for better seats the foregoing examples indicate that the alchian and allen theorem is rich in empirical implications in what follows however we show that placed in the context of a market model its range of applications is narrower than has been acknowledged in the literature heretofore more specifically our analysis demonstrates that a fixed charge unambiguously reduces the price of a higher quality good relative to a lower quality version of the same good only when that good is sold by a perfectly competitive constant cost industry under increasing cost conditions or imperfectly competitive industry structures by contrast it is possible for relative prices either to be unaffected by the addition of a fixed charge or indeed for the lower quality good to become relatively cheaper in distant markets depending on the elasticity characteristics of relevant market demand and supply functions our analysis is in no way intended as an attack on alchian and allen or their fine textbook which has taught more than one generation of economists to be better price theorists we do not quarrel in the least with the pedagogical value of their theorem which has been immense our purpose is to identify some plausible scenarios under which the third law of demand may fail to hold the present article is thus in the spirit of yang and stitt 1995 who show that the ramsey 1927 rule for optimal commodity taxation is changed in important ways when the assumption of constant production costs is relaxed it is organized as follows in the next section the fundamentals of the alchian and allen theorem are described in more detail and its predictions are situated within the existing literature section iii explores the theorem s operations under alternative cost conditions and industry structures factors complicating the analysis of the effects of a fixed charge on the relative prices of high and low quality goods are also addressed in this section finally section iv contains some concluding remarks ii shipping the good apples out to borrow an example from a classic statement of the alchian and allen theorem 1 suppose that good washington apples sell for 10 cents each in seattle and bad apples each cost a nickel there because the price of a good apple is twice that of a bad apple seattle s consumers must sacrifice the opportunity of buying two bad apples to obtain a good one

the dynamics of lobbying a differential game this paper presents a dynamic model on lobbying the interactions between two competing lobbies who attempt to influence regulations and legislation are modelled as a differential game we consider for this game first a time consistent and then a subgame perfect equilibrium in linear markov strategies the subgame perfect equilibrium lowers considerably lobbying activity and expenses this provides a partial explanation of the puzzle that rent seeking expenses are often small compared with the prize sought

the generalized alchian allen theorem a slutsky equation for relative demand we generalize the alchian allen theorem so as to account for income and endowment effects and provide two versions of a generalized alchian allen theorem one for a unit cost component and one for a proportional cost component both versions provide a decomposition of an uncompensated change in the demand ratio of two goods into a substitution effect and an income endowment effect and may thus be regarded as extensions of the familiar slutsky equation for relative demand finally we apply our results to the choice of real estates and to parental time allocation decisions the latter providing implications for child care policies uel dll h21 j22 r21 i introduction the alchian allen theorem see alchian and allen 1964 74 75 suggests that an increase in the prices of two goods by the same amount leads to a decrease in the relative price of the more expensive good and hence to a relative increase in the compensated demand for that good as this pure substitution effect applies to any pair of goods with a common but abstract unit cost component the alchian allen theorem has a broad range of applications for example the common unit cost component may be interpreted as a specific tax as a fixed transportation cost as a flat transaction cost or as the wage forgone in favor of different leisure time activities accordingly the alchian allen theorem has been discussed in various fields of both theoretical and empirical economics 1 above all borcherding and silberberg 1978 formulated the alchian allen theorem for compensated demand in the standard consumer model with three goods then hummels and skiba 2004 extended the analysis of borcherding and silberberg by introducing an ad valorem tariff on the two goods under consideration and showed that the effect of a change in the ad valorem tariff is basically opposite to the effect of a change in the unit cost in this paper we generalize the two formulas for substitution effects one for demand changes resulting from the unit cost components and one resulting from the proportional cost components 2 within the alchian allen framework so as to incorporate income and endowment effects we believe that this generalization constitutes an important result as these effects are arguably significant for a broad variety of goods in this way we arrive at two versions of the generalized alchian allen theorem gaat which essentially provides a decomposition of an uncompensated change in the demand ratio of two goods into a substitution effect compensated effect and an income endowment effect because of the apparent similarity of our decomposition of the change in the demand ratio with the renowned slutsky equation the two versions of the gaat we provide here may be regarded as the proper versions of the slutsky equation for relative demand the alchian allen result i e an increase in the demand for the more expensive good relative to the demand for the less expensive good resulting from an increase of a common unit cost component of both goods has been examined empirically for example bertonazzi maloney and mccormick 1993 interpreted the alchian allen theorem within a household production framework 3 and found that football fans traveling farther tend to purchase higher quality tickets hummels and skiba 2004 presented the hypothesis that an increase in unit transport costs increases the share of the higher quality goods and therefore the share weighted average of prices and confirmed this using international trade data moreover some researchers have indirectly provided findings that are consistent with the alchian allen result sobel and garrett 1997 found that an increase in specific taxes is estimated to increase the market share of premium brand cigarettes and nesbit 2007 found that an increase in specific taxes is estimated to increase the market share of premium grade gasoline