multiple communities and controlling corruption corruption presents an assurance problem to businesses all businesses are best off if none act corruptly but in the event that corruption occurs are better off if they act corruptly than if they do not and because there is no assurance that other actors are not cheating a business does not know how to act the usual solution to an assurance problem criminal sanctions imposed on cheaters does not work in a corrupt system integrative social contract theory suggests a solution to the assurance problem application of integrative social contract theory to corruption demonstrates that in the case of corruption it has advantages over international law and that the theory s elegance lies in its recognition of norms generated by multiple communities

a minimum wage can be welfare improving and employment enhancing abstract we examine whether minimum wages can fulfill a useful role as part of an optimal tax transfer scheme the government cannot observe household abilities only their incomes and is constrained to ensure that those working are at least as well off as those not working a minimum wage combined with the institutional features of typical welfare systems allows the incentive constraint to be severed at the ability level associated with the minimum wage if such a scheme can be enforced the government can increase the amount of redistribution from those working to those not working and possibly lower the number of unemployed

corruption south african multinational enterprises and institutions in africa we examine the responses of south african multinational enterprises mnes to corruption in african markets in the context of institutional voids corruption is a source of uncertainty and additional transactional costs for mnes and it necessitates a strategic response the research employs a qualitative study of a sample of mnes with experience in internationalising into africa the results indicate that corruption in african markets is pervasive and closely associated with the institutional voids in these countries mnes see themselves as institution takers responding to countries institutional makeup at the organisational and individual level but fail to fully appreciate their impact on institutions both positively and negatively rather mnes focus on strategic responses at the organisational level to address corruption operationally in the host country we add to the existing literature by providing a dynamic framework of the complex webs of association between institutions mnes and corruption in conditions of economic underdevelopment the research suggests that mnes do not need to get caught in a vicious cycle whereby they perpetuate corruption in conditions of underdevelopment and institutional voids but instead can contribute towards a virtuous cycle through which they institutionalise ethical foundations

economies of traffic density in the deregulated airline industry this article estimates a structural model of competition among hub and spoke airlines in order to measure the strength of economies of traffic density on individual route segments we find that economies of density were strong during the sample period fourth quarter 1985 stronger than previous estimates by douglas caves laurits christensen and michael tretheway derived from traditional cost function methods we also find that the airlines competitive behavior was far from collusive in the markets under study markets requiring a connection at a hub airport our structural model also provides plausible estimates of demand elasticities we use our estimates to provide a cost based rationale for the major changes in the structure of the industry following deregulation for example the increase in airport and industry wide concentration and the increase in competition at the city pair market level and to simulate the effects of a merger of airlines that share a hub

collusion in multiproduct oligopoly games under a finite horizon applying recent results on finitely repeated games to oligopoly theory the author finds that there exists a class of finite horizon output games in which collusion can be achieved as a subgame perfect equilibrium trigger strategies prevent defection from the cooperative outcome by credibly threatening that the defector will be forced to exit the industry for the case of a multiproduct oligopoly it is shown that collusion in one market can be enforced by the threat of punishment in a second market if someone defects even though the two markets are structurally independent the firms make them strategically interdependent through their strategies copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

assessing firm behavior in carve out markets evidence on the impact of carve out policy abstract airlines wanting to cooperatively set prices for their international air travel service must apply to the relevant authorities for antitrust immunity ati while cooperation may yield benefits it can also have anti competitive effects in markets where partners competed prior to receiving ati a carve out policy forbids ati partners from cooperating in markets policymakers believe will be most harmed by anti competitive effects we examine carve out policy applications to three ati partner pairings and find evidence more consistent with cooperative pricing in carve out markets in spite of the policy calling into question the effectiveness of the policy in achieving intended market outcomes

taxes redistribution and the minimum wage a theoretical analysis this paper considers a simple general equilibrium model that contains two types of workers with differing levels of ability and a social welfare maximizing government the paper shows that social welfare can sometimes be increased by supplementing an optimal linear income tax with a minimum wage but that social welfare can never be increased by supplementing an optimal nonlinear income tax with a minimum wage

competition in airline networks the case of constant elasticity demands abstract this paper is concerned with the effect of competition in airline hub and spoke networks using constant elasticity demand functions we demonstrate that competition in a single market may generate positive or negative network externalities depending on price elasticities of demand

diversification multi market contact and profitability this paper analyses the relationships between diversification multi market contact and industry profitability it focuses on the link between diversification and multi market contact to show that when diversification establishes or increases the extent to which firms meet in more than one market the effect of such multi market contact is to increase the possibility that collusion emerges as an evolutionary stable strategy as a result multi market contact may increase the potential for tacit collusion and so lead to higher profitability the effects of diversification and multi market contact on the price cost margin and the rate of return to capital are estimated using a specially constructed new database for uk manufacturing industry in 1979 this database provides information on the diversification and multi market contact of 418 firms across 134 manufacturing industries thus linking firm and industry level data the results show a clear positive effect of multi market contact on industry profitability

the economics of international codesharing an analysis of airline alliances abstract international airline alliances allow airlines to coordinate their operations in providing international service this paper analyzes the effect of such alliances on traffic levels fares and welfare in the model the benefits of alliances arise because cooperative pricing of trips by the partners puts downward pressure on fares in the interline city pair markets these are markets where travel on both carriers is necessary the loss of competition in the interhub market which connects the hub cites of the partners generates a countervailing effect tending to raise the fare in that market while the presence of economies of traffic density complicates these impacts by generating cost links across markets simulation analysis shows that the above tendencies typically prevail welfare analysis shows that both consumer and total surplus typically rise following formation of an alliance despite the harm to interhub passengers suggesting that the positive effects of alliances may outweigh any negative impacts

competitive advantage and collusive optima cost differences may often be important in real oligopolies if side payments are impossible the standard cartel objective total industry profits lacks plausibility when costs differ this essay considers plausible alternatives four different technologies for effecting collusion which are essentially identical when costs are equal define sets of possible profits axiomatic bargaining models are used to select unconstrained optima from among these possibilities simple functional forms are employed low cost firms with large shares in cournot equilibrium may have little to gain from collusion if collusion is effective low cost firms will have relatively low estimated conjectural variations

the economics of hubs the case of monopoly in this paper we study the optimization problem of an unregulated air carrier which is given the exclusive right to satisfy demand for air travel between any pair of cities it chooses a network of connections and a set of prices to maximize profits thus both network design and prices are endogenous we characterize the solution to this optimization problem when demands and costs are symmetric our main result is that if there are economies of density in the number of individuals travelling between two directly connected cities the optimal network is either a hub of size n 1 or one in which every pair of cities is connected directly

who pays for the minimum wage this paper analyzes the eects of a large 60 and persistent increase in the minimum wage instituted in hungary in 2001 we propose a new approach to estimating the employment eects of a minimum wage increase that exploits information on the distribution of wages before and after the policy change we infer the number of jobs destroyed by comparing the number of pre reform jobs below the new minimum wage to the excess number of jobs paying at and above the new minimum wage our estimates imply that the higher minimum wage had at most a small negative eect on employment and so the main eect was pushing up wages we then use data on a large panel of firms to evaluate the economic incidence of the minimum wage increase contrary to theoretical models that attribute the small employment eects of minimum wage changes to monopsonistic wage setting we find no evidence that the rise in the minimum wage led to lower profitability among low wage employers instead we find that the costs of the minimum wage were largely passed through to consumers

the contribution of minimum wages to increasing wage inequality recent research has shown the reduction in the minimum wage to be the main cause of the rise in wage dispersion in the lower half of the wage distribution in the us during the 1980s however the return to human capital does not seem to have been much affected using new methodology this paper confirms previous conclusions regarding the wage distribution but shows that the return to human capital has also increased strongly a 10 reduction of the minimum wage causes the wage of someone earning the previous minimum to fall by 8 evidence in favour of a distance dependent elasticity of substitution dides production function there has been a massive increase in wage inequality in the us the 10 50 and 50 90 log wage differential grew by 0 10 and 0 06 respectively during the 1980s economists have tried to put their finger on the causes of this phenomenon wood 1995 believes globalisation to be the main cause however most empirical research suggests that international trade is only a small part of the explanation see freeman 1995 for a survey others hold skill biased technological progress responsible for example bound and johnson 1992 technology is always a kind of residual item for which appropriate variables are hardly available its impact is therefore difficult to pin down empirically autor et al 1998 have shown that the use of computers by industry is strongly correlated to the increase in the employment of college graduates dinardo et al 1996 called attention to the role of institutions in particular declining unionism and the fall in minimum wages during the 1980s they hold minimum wages responsible for 25 of the increase in wage dispersion pictures of the estimated density functions for the period 1973 90 show that minimum wages have had a large impact dinardo et al calculate the effect of minimum wages by assuming a change in the minimum wage to have no effect on the shape of the wage distribution to the right of the minimum at first glance the wage distributions plotted in their paper suggest that this assumption is not supported by the data implying that their estimate of 25 is a lower bound indeed applying a different methodology lee 1999 reached the conclusion that the decrease in minimum wages can explain virtually the whole increase in wage inequality he simply regresses 10 50 and 50 90 log wage differentials by year and state on the relevant minimum wage using state variation in minimum wages lee s results open the question as to what mechanism makes that minimum wages have so large an impact there are two potential channels either minimum

good jobs versus bad jobs this article develops a model of noncompetitive labor markets in which high wage good and low wage bad jobs coexist minimum wages and unemployment benefits shift the composition of employment toward high wage jobs because the composition of jobs in the laissez faire equilibrium is inefficiently biased toward low wage jobs these labor market regulations increase average labor productivity and may improve welfare

do recessions keep students in school the impact of youth unemployment on enrolment in post compulsory education in england in this paper i assess the impact of the youth labour market on enrolment in post compulsory education to that end i construct data for a panel of english regions and identify youth labour market effects using variation in youth unemployment rates across regions and over time my estimates suggest that the youth labour market has large enrolment impacts at least twice as large as suggested by uk estimates based on time series data this helps to explain why enrolment growth slowed down from the mid 1990s and suggests that a weakening youth labour market could cause enrolment to increase again

trade costs and multimarket collusion contrary to conventional wisdom this article argues that trade liberalization may facilitate collusion and reduce welfare with the help of a duopoly model in which firms interact repeatedly in multiple markets we first show that if trade costs i e tariffs transport costs and discount factors are not too high efficient cartel agreements necessitate the cross hauling of goods as that entails lower deviation incentives in this setting we then demonstrate that reciprocal trade liberalization always raises total output when trade costs are within a range whose lower bound exceeds a threshold level but may reduce total output and thus be pro collusive when trade costs are below that threshold level

does multimarket contact facilitate tacit collusion inference on conduct parameters in the airline industry we provide empirical evidence that multimarket contact facilitates tacit collusion among airlines using a flexible model of oligopolistic behavior where conduct parameters are modelled as functions of multimarket contact we find i carriers with little multimarket contact do not cooperate in setting fares whereas carriers serving many markets simultaneously sustain almost perfect coordination ii cross price elasticities play a crucial role in determining the impact of multimarket contact on equilibrium fares iii marginal changes in multimarket contact matter only at low or moderate levels of contact iv assuming firms behave as bertrand nash competitors leads to biased estimates of marginal costs

equity and efficiency in rationed labor markets the social welfare implications of income tax policy are shown to critically depend on whether or not labor markets are rationed i e on the existence of involuntary unemployment with rationed labor markets raising taxes on the employed and transfers to the unemployed might improve both equity and efficiency it improves equity by redistributing income from the employed to the unemployed it improves efficiency as it encourages people with a small utility surplus of employment to exit the labor market leaving their jobs for people with a higher utility surplus i derive conditions under which this result continues to hold when only part of the labor market is rationed when there is both frictional and rationing unemployment and when rationing endogenously follows from trade unions monopoly power

minimum wage legislation and unemployment insurance as instruments for redistribution the use of minimum wages and unemployment insurance as instruments for redistributing income is analyzed the government is assumed to be able to implement an optimal income tax in an economy consisting of two types of individuals who differ in ability the effect of introducing a minimum wage which induces involuntary unemployment will be to improve social welfare under weak conditions circumstances under which combining unemployment insurance with the minimum wage will be welfare improving are also considered

which commodity taxes should supplement the income tax the analysis takes as its point of departure a continuum of consumers economy in which an optimum income tax exists and is the only tax instrument in operation the welfare effects of introducing small excise taxes to supplement the income tax are then explored essential in this context are changes in the tax distortions of work incentives it is shown that a commodity should be taxed or subsidized depending on whether it is positively or negatively related to leisure in a sense which is precisely defined the results are related to earlier contributions to the literature on direct versus indirect taxation the history of debates on the proper roles of direct and indirect taxation goes back at least to the days of gladstone as well described by atkinson 1977 the prevailing political opinion of the balance between the two types of taxes has varied over time at present the swing in a number of european countries seems to be in favour of reforms towards tax systems which rely more heavily on indirect taxation and less on income taxation in view of this long economic political record it is not surprising that the choice between income tax and commodity taxes has also become an important subject in tax theory an early contribution to the understanding of this issue was corlett and hague 1953 54 their main model considers a three good economy containing leisure and two taxed commodities there is only one consumer or a population of identical consumers labour is the only source of income producer prices are fixed the government s revenue requirement is given the starting point of the analysis is a situation in which the two commodities are taxed at uniform rates the question which is analyzed is then how the government can raise welfare by slightly differentiating the tax rates the answer which is derived is that the consumer good which is the stronger substitute for labour complement with leisure should be taxed at

quasi states dual regimes and neoclassical theory international jurisprudence and the third world decolonization in parts of the third world and particularly africa has resulted in the emergence of numerous quasi states which are independent largely by international courtesy they exist by virtue of an external right of self determination negative sovereignty without yet demonstrating much internal capacity for effective and civil government positive sovereignty they therefore disclose a new dual international civil regime in which two standards of statehood now coexist the traditional empirical standard of the north and a new juridical standard of the south the biases in the constitutive rules of the sovereignty game today and for the first time in modern international history arguably favor the weak if international theory is to account for this novel situation it must acknowledge the possibility that morality and legality can in certain circumstances be independent of power in international relations this suggests that contemporary international theory must accommodate not only machiavellian realism and the sociological discourse of power but also grotian rationalism and the jurisprudential idiom of law

impacts of code share alliances on airline cost structure a truncated third order translog estimation abstract the airline industry has undergone significant changes following deregulation more than a decade ago a prominent development in recent years has been the proliferation of airline alliances an important question arises are alliances cost savings or competition reducing this paper addresses the first part of the question however the answer has bearing on the second part as well since results in industrial economics suggest that unless a merger or alliance can substantially reduce costs consumers are unlikely to enjoy lower prices e g farrell j and c shapiro 1990 horizontal mergers an equilibrium analysis american economic review 80 1 107 26 this paper estimates a truncated third order translog cost function using quarterly firm level data of 10 airlines for the period 1994qi to 2001qi using the estimated function we assess whether alliances have any impacts on costs and if so the extent to which the cost structure of airlines are affected it is found that the truncated third order translog is an appropriate specification and alliances do appear to lower costs however while the impacts are statistically significant in economic terms the magnitude appears to be immaterial

the welfare cost of rationing by queuing across markets theory and estimates from the u s gasoline crises governments sometimes impose price controls and nonprice rationing by queuing profit seeking firms occasionally ration by putting their customers on allocation following barzel 1974 and deacon and sonstelie 1985 we take the decision to ration as a given and analyze it employing standard microeconomics and applied welfare economics this paper adds to the literature by focusing on optimally rationing a good across markets further we estimate the actual welfare cost of improper allocation across markets in the u s gasoline crises of 1973 1974 and 1979

evaluating the performance of merger simulation evidence from the u s airline industry abstract this paper uses merger simulations to predict postmerger prices for five airline mergers from the 1980s and compares these predictions with observed postmerger prices i find that standard simulation methods which measure the effect of the change in ownership on unilateral pricing incentives do not generally provide an accurate forecast by incorporating postmerger information into the model i measure the relative importance of other factors that also contributed to the observed price changes the results indicate that the unexplained component of the price change is largely accounted for by supply side effects i conclude that deviations from the assumed model of firm conduct play an important role in accounting for the differences between the predicted and observed price changes this conclusion suggests that the predictive performance of merger simulation would benefit if more flexible models of firm conduct were incorporated into the methodology

catalyzing corporate commitment to combating corruption this article considers what policy reforms may help catalyze corporate commitment to combating corruption the starting point for this discussion is a voluntary corporate principles approach to self regulation such an approach should seek to encourage corporations to implement effective compliance and ethics programs and to disclose information related to their anti corruption activities to relevant stakeholders although a corporate principles approach is a private initiative there is a significant role for the public sector this article discusses some of the ways that the public sector can support and further the goals of a corporate principles approach to combating corruption the reforms discussed in this article include amnesty programs for corporations that self disclose corrupt payments the use of corporate monitors in the enforcement of anti corruption laws expanding the definition of corruption in criminal laws sustainability reporting indicators related to bribery and the implementation of multi stakeholder initiatives to support a corporate principles approach

optimum taxation with errors in administration abstract the paper compares the welfare levels which can be achieved by two distinct tax regimes lump sum taxation where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics and income taxation where characteristics are not observed but personal incomes are measured and taxed where there are no errors in classifying individuals lump sum taxation is superior but where mistakes are made in the allocation of lump sum grants or subsidies income taxation may be more attractive the level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of feldstein 1973 where there is strong aversion to inequality then income taxation becomes preferable at quite small errors in analysing income taxation it is shown that in the feldstein model with endogenous wages the marginal tax rate in optimum income taxation on the more skilled is negative and that on the less skilled is positive in contrast to the standard results see seade 1977 with exogenous wages

on the optimality of a minimum wage new insights from optimal tax theory we build a theoretical model to study whether a minimum wage can be welfare improving if it is implemented in conjunction with an optimized nonlinear income tax we consider this issue in a framework where search frictions on the labor market generate unemployment workers differ in productivity the government does not observe workers productivity but only their wages hence the redistributive policy solves an adverse selection problem we show that a minimum wage is optimal if the bargaining power of the workers is relatively low however if the government controls the bargaining power then it is preferable to set a sufficiently high bargaining power

is a minimum wage an appropriate instrument for redistribution textabstractwe analyze the redistributional dis advantages of a minimum wage over income taxation in competitive labor markets without imposing assumptions on the in efficiency of labor rationing compared to a distributionally equivalent tax change a minimum wage increase raises involuntary unemployment but also raises skill formation as some individuals avoid unemployment a minimum wage is an appropriate instrument for redistribution if and only if the public revenue gains from additional skill formation outweigh both the public revenue losses from additional unemployment and the utility losses of inefficient labor rationing we show that this critically depends on how labor rationing is distributed among workers a necessary condition for the desirability of a minimum wage increase is that the public revenue gains from higher skill formation outweigh the revenue losses from higher unemployment we write this condition in terms of measurable sufficient statistics our empirical analysis suggests that a minimum wage increase is undesirable in nearly all oecd countries a reduction in the minimum wage along with tax adjustments that keep net incomes constant would yield a pareto improvement

the allocative cost of price ceilings in the u s residential market for natural gas a direct consequence of restricting the price of a good for which secondary markets do not exist is that in the presence of excess demand the good will not be allocated to the buyers who value it the most we demonstrate the empirical importance of this allocative cost for the u s residential market for natural gas which was subject to price ceilings during 1954 89 using a household level discrete continuous model of natural gas demand we estimate that the allocative cost in this market averaged 3 6 billion annually nearly tripling previous estimates of the net welfare loss to u s consumers

entry deterrence and strategic alliances researchers have written extensively on the impact that strategic alliances between airlines have on airfare but little is known of the market entry deterrent impact of strategic alliances using a structural econometric model this paper examines the market entry deterrent impact of codesharing a form of strategic alliance between incumbent carriers in domestic air travel markets we find evidence of market entry deterrence but deterrence impact depends on the specific type of codesharing between market incumbents as well as the identity of the potential entrant we quantify the extent to which market incumbents codesharing influences potential entrants market entry cost and probability of market entry

optimal minimum wage policy in competitive labor markets this paper provides a theoretical analysis of optimal minimum wage policy in a perfectly competitive labor market and obtains two key results first we show that a binding minimum wage while leading to unemployment is nevertheless desirable if the government values redistribution toward low wage workers and if unemployment induced by the minimum wage hits the lowest surplus workers first importantly this result remains true in the presence of optimal nonlinear taxes and transfers in that context a binding minimum wage enhances the effectiveness of transfers to low skilled workers as it prevents low skilled wages from falling through incidence effects second when labor supply re sponses are along the extensive margin only the co existence of a minimum wage with a positive tax rate on low skilled work is always second best pareto ineffcient a pareto improving policy consists of reducing the pre tax minimum wage while keeping constant the post tax minimum wage by increasing transfers to low skilled workers and financing this reform by increasing taxes on higher paid workers overall our results imply that the minimum wage and subsidies for low skilled workers are complementary policies pa

airline code share alliances and their competitive effects abstract code share alliances have become a prominent feature in the competitive landscape of the airline industry however policy makers are extremely hesitant to approve proposed code share alliances when the potential partners route networks have significant overlap the main concern is that an alliance may facilitate price collusion on partners overlapping routes this article shows how policy makers can use a structural econometric framework to quantify the competitive effects of proposed code share alliances where potential alliance partners compete on overlapping routes in the prealliance industry as an example i apply the econometric model to the delta continental northwest alliance this proposed alliance was initially greeted with skepticism by the u s department of transportation owing to the potential partners unprecedented level of route network overlap for the markets considered in my analyses it appears as though the ultimate approval of the alliance by policy makers was justified

domestic airline alliances and consumer welfare this article investigates the consumer welfare consequences of the recent code share agreement between continental airlines and northwest airlines we develop a discrete choice model based on individual flight characteristics this structural model recognizes that consumers i may have heterogeneous preferences for flight attributes and ii may face different prices for the same flight the empirical methodology also deals with the measurement error problem stemming from the absence of consumer level data on prices the estimation results suggest that whereas the code share agreement did not impact consumers significantly on average it increased the average surplus of connecting passengers but decreased the average surplus of nonstop passengers interestingly the magnitude of our welfare results may be attributed in large part to changes in product characteristics other than prices

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

the strategic effects of batch processing we study a duopoly game in which firms commit to a batch technology before competing in sales quantities adopting a batch technology requires the quantity produced to equal an integer number of batches and allows sales to be less than production when larger batch sizes lower unit production costs as in the u s airline industry with its economies of density subgame perfect equilibrium sales quantities are unique and more competitive than the cournot equilibrium quantities of a one shot game with continuous total cost functions when larger batch sizes yield higher unit costs equilibrium production can exceed equilibrium sales

dynamics for integrative social contracts theory norm evolution and individual mobility this article proposes a specific logic of dynamics for integrative social contracts theory isct that combines two empirically oriented process extensions strengthening concreteness of donaldson and dunfee s conceptualization namely 1 international policy regime theory and 2 tiebout migration while either would help dynamize and concretize isct the two combined are even more insightful real world policy regime processes can develop concrete action guiding norms instantiating hypernorms to guide business decisions donaldson and dunfee placed empirical reliance on expectation of converging parallel evolution of universal principles and authentic local values isct remains vague on how global or local norms can develop and change for two reasons first isct does not explain mechanisms for how proposed hypernorms can become actual global norms and also become accepted across extant authentic communities international policy regime theory explains how hypernorms can become instantiated as global norms expressed in policy regimes second a basic element in isct is implied consent positing free exit from voluntary moral communities empirically individuals or businesses may be unable to exit from undesired membership in authentic communities to which they do not consent the tiebout migration model provides valuable insights concerning how substantive mobility or its absence improves on the minimum isct assumption of implied consent an integrated logic of isct dynamics generates a three level framework in which instantiated hypernorms and authentic community microsocial norms can empirically change and individuals or businesses can migrate more freely across extant communities

the economics of airport congestion pricing abstract conventional economic wisdom suggests that congestion pricing would be an appropriate response to cope with the growing congestion levels currently experienced at many airports several characteristics of aviation markets however may make naive congestion prices equal to the value of marginal travel delays a non optimal response this paper develops a model of airport pricing that captures a number of these features the model in particular reflects that 1 airlines typically have market power and are engaged in oligopolistic competition at different sub markets 2 part of external travel delays that aircraft impose are internal to an operator and hence should not be accounted for in congestion tolls and 3 different airports in an international network will typically not be regulated by the same authority we present an analytical treatment for a simple two node network and some numerical results to illustrate our findings some main conclusions are that second best optimal tolls are typically lower than what would be suggested by congestion costs alone and may even be negative and that cooperation between regulators need not be stable but that non cooperation may lead to welfare losses also when compared to a no tolling situation

fluidity of regulation csr nexus the multinational corporate corruption example corporate social responsibility csr is a relatively undeveloped concept despite its increasing importance to corporations one difficulty is the possible inexactness of csr another is the apparent reluctance by regulatory authorities and policy makers to intervene in the area this is largely a result of inhibitions created by traditional approaches to company law with emphasis on shareholder protection and financial disclosure the consequence is the stultification of independent development of csr by tying social issues to financial performance this attitude might not be unconnected to the theoretical and practical challenges in justifying csr and defining its scope the underlying impediment is a factual and theoretical failure to distinguish instrumental and pure ethical csr this article demonstrates that ethical csr highlights the role of regulation and a principal stance is that regulation is neither incompatible nor irreconcilable with ethical csr the article argues that cognizance of the intrinsic moral justification of pure csr is required for delineating the scope of csr as well as for clarifying the desirability and extent of its regulation it argues that the dynamic history and visage of multinational corporate corruption illuminates the fluidity of the regulation csr relationship the current and widening backlash against transnational corporate corruption is arguably a demonstration of the position that regulation and csr are not mutually exclusive and absolute concepts this article submits that recognition and application of this ethical and instrumental csr distinction is fundamental to the development of csr and resolution of connected questions of regulation

overcoming incentive constraints by linking decisions consider a bayesian collective decision problem in which the preferences of agents are private information we provide a general demonstration that the utility costs associated with incentive constraints become negligible when the decision problem is linked with a large number of independent copies of itself this is established by defining a mechanism in which agents must budget their representations of preferences so that the frequency of preferences across problems mirrors the underlying distribution of preferences and then arguing that agents incentives are to satisfy their budget by being as truthful as possible we also show that all equilibria of the linking mechanisms converge to the target utility levels the mechanisms do not require transferable utility or interpersonal comparisons of utility and are immune to manipulations by coalitions

optimal income transfer programs intensive versus extensive labor supply responses this paper analyzes optimal income transfers for low incomes labor supply responses are modeled along the intensive margin intensity of work on the job and along the extensive margin participation into the labor force when behavioral responses are concentrated along the intensive margin the optimal transfer program is a classical negative income tax program with a substantial guaranteed income support and a large phasing out tax rate however when behavioral responses are concentrated along the extensive margin the optimal transfer program is similar to the earned income tax credit with negative marginal tax rates at low income levels and a small guaranteed income carefully calibrated numerical simulations are provided

minimum wage legislation as a second best policy mass unemployment is a striking phenomenon of the present economic situation of european market economies although the profession of economists has been criticized for not providing satisfactory cures it has produced a number of different explanations either complementary or contradictory for the occurrence of mass unemployment in this paper we examine the argument that unemployment is the consequence of minimum wage legislation which is socially desirable the observation of current wage legislations suggests that the above argument is broadly at least partly accepted by policy makers curiously enough a defence of this argument meeting the rigorous requirements of modern theory seems to be missing symmetrically attacks against minimum wage legislation often rely upon reasonings of dubious relevance i e the obvious remark that unemployment is a waste with first best efficiency criteria the present paper proposes a second best analysis where second best stems from informational asymmetries which prevent the implementation of lump sum transfers needed for a first best redistribution policy the question under scrutiny can be reformulated in a more precise way as follows does a second best optimal redistribution policy lead to minimum wage legislation and unemployment our elements of answer are gathered in 3 sections in section 2 the principles of the analysis of the desirability of quantity controls and existing results are recalled in section 3 the analysis of section 2 is specified to a simple prototype model for the study of linear income taxation in section 4

the price effects of international airline alliances abstract this paper provides evidence on the effect of international airline alliances on fares the main finding is that alliance partners charge interline fares that are approximately 25 percent below those charged by nonallied carriers according to our theoretical model the main source of this fare reduction is the internalization of a negative externality that arises from the uncoordinated choice of interline sub fares in the absence of an alliance the paper also looks for evidence of an anti competitive alliance effect in the gateway to gateway markets while the point estimates show that an alliance between two previously competitive carriers would raise fares by about 5 percent this effect is not statistically significant

training and the new minimum wage using the british household panel survey we estimate the impact of the national minimum wage introduced in april 1999 on the work related training of low wage workers we use two treatment groups those workers who explicitly stated they were affected by the new minimum and those workers whose derived 1998 wages were below the minimum using difference in differences techniques for the period 1998 to 2000 we find no evidence that the introduction of the minimum wage reduced the training of affected workers and some evidence that it increased it

hybrid cooperation agreements in networks the case of the airline industry abstract this paper develops a unified framework to analyze a continuum of hybrid cooperation agreements along two dimensions their degree of revenue sharing scope of alliances and their degree of cost sharing scope of joint ventures the analysis focuses on the air transportation industry distinguishing between interline and interhub markets as economies of traffic density become stronger we find that the socially optimal cooperation agreement moves from full alliance to joint venture in interline markets whereas it moves from joint ventureto merger in interhub markets these results are driven by the tradeoff between a procompetitive effect of alliances in interline markets and an anticompetitive effect in interhub markets along with the efficiency gains associated with joint ventures in interhub markets we also develop an empirical application for intercontinental routes for the period 2010 2016 that identifies a positive impact of deeper degrees of airline cooperation revenue and cost sharing on traffic both in interline and interhub markets therefore the potential anticompetitive effect of deeper alliances in interhub markets is not observed in our sample

optimal cartel equilibria with imperfect monitoring abstract there exist optimal symmetric equilibria in the green porter model 4 8 having an elementary intertemporal structure such an equilibrium is described entirely by two subsets of price space and two quantities the only production levels used by firms in any contingency the central technique employed in the analysis is the reduction of the repeated game to a family of static games

the misallocation of housing under rent control the standard analysis of price controls assumes that goods are efficiently allocated even when there are shortages but if shortages mean that goods are randomly allocated across the consumers that want them the welfare costs from misallocation may be greater than the undersupply costs we develop a framework to empirically test for misallocation the methodology compares consumption patterns for demographic subgroups in rent controlled and free market places we find that in new york city which is rent controlled an economically and statistically significant fraction of apartments appears to be misallocated across demographic subgroups jel c25 d12 d61 r20

international airfares in the age of alliances the effects of codesharing and antitrust immunity this paper provides empirical evidence showing the effect of airline cooperation on the interline fares paid by international passengers the analysis focuses on two measures of cooperation codesharing and antitrust immunity and the results show that their partial effects are both negative the presence of codesharing on an international interline itinerary reduces the fare by 8 17 with the exact number depending on the sample used and the estimation method moreover the presence of antitrust immunity reduces the fare by 13 21 codesharing and immunity are substitutes however in the sense that their combined effect is smaller than the sum of their partial effects taking account of this difference which is captured by an interaction variable in the regressions the combined effect ranges between 17 and 30 these results provide strong evidence that airline cooperation in the fare setting process generates substantial benefits for interline passengers

symmetric research joint ventures cooperative substitutes and complements we introduce the concepts of cooperative substitutes and complements and use them to explain when all firms in a research joint venture will choose equal levels of r d we show that the second order conditions for a symmetric optimum take a particularly simple form ruling out both excessive cooperative substitutability and excessive cooperative complementarity and nesting conditions already derived in the literature finally we apply our results to the comparison between cooperative and non cooperative r d and show in an important special case that asymmetric outcomes are only optimal for a very limited range of parameter values

minimum wage unemployment and growth abstract this paper shows that in an overlapping generations model with endogenous growth minimum wage legislation does not necessarily has negative consequences on economic performance such legislation can have positive effects on growth by inducing more human capital accumulation more precisely a low demand for unskilled labor induced by a minimum wage may create an incentive for workers to accumulate human capital moreover it is possible that a decrease in the minimum wage lowers the welfare of each agent in the economy

how progressive is the u s federal tax system a historical and international perspective this paper provides estimates of federal tax rates by income groups in the united states since 1960 with special emphasis on very top income groups we include individual and corporate income taxes payroll taxes and estate and gift taxes the progressivity of the u s federal tax system at the top of the income distribution has declined dramatically since the 1960s this dramatic drop in progressivity is due primarily to a drop in corporate taxes and in estate and gift taxes combined with a sharp change in the composition of top incomes away from capital income and toward labor income the sharp drop in statutory top marginal individual income tax rates has contributed only moderately to the decline in tax progressivity international comparisons confirm that is it critical to take into account other taxes than the individual income tax to properly assess the extent of overall tax progressivity both for time trends and for cross country comparisons the pattern for the united kingdom is similar to the u s pattern france had less progressive taxes than the united states or the united kingdom in 1970 but has experienced an increase in tax progressivity and has now a more progressive tax system than the united states or the united kingdom

commitment in utility regulation a model of reputation and policy applications abstract this paper builds a dynamic model of utility regulation where a government cannot commit to a time inconsistent policy of not expropriating investment by allowing the government s type to change over time i explore how reputation concerns may generate partial commitment restricting attention to equilibria that are strongly renegotiation proof i show that there is a unique perfect bayesian equilibrium this contains episodes of investment and good behaviour followed by periods of expropriation and non investment i then apply the model to consider how the power of the incentive scheme and decentralization may influence the properties of this equilibrium in the case of the power of incentives the model suggests that price caps may worsen commitment in developing countries but not in developed ones similarly the model suggests that decentralisation is likely to have a significant effect on commitment but that this effect will depend on the general ability of the government to commit overall we conclude that the effect of such policies on commitment will be different across countries depending on the institutional environment

vertical relationships between manufacturers and retailers inference with limited data in this paper different models of vertical relationships between manufacturers and retailers in the supermarket industry are compared demand estimates are used to compute price cost margins for retailers and manufacturers under different supply models when wholesale prices are not observed the purpose is to identify the set of margins compatible with the margins obtained from estimates of cost and to select the model most consistent with the data among non nested competing models the models considered are 1 a simple linear pricing model 2 a vertically integrated model and 3 a variety of alternative strategic supply scenarios that allow for collusion non linear pricing and strategic behaviour with respect to private label products using data on yogurt sold in several stores in a large urban area of the u s the results imply that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain this is consistent with non linear pricing by the manufacturers or high bargaining power of the retailers

monopoly competition and information acquisition abstract an incumbent monopolist is uncertain about its linear demand but can acquire public information at a cost we determine how an entry threat affects the firm s information acquisition if returns to scale are constant and the state contingent demands become more dispersed as output increases then entry reduces information acquisition if however either the incumbent or entrant has increasing returns or if the state contingent demands are nonlinear or fail increasing dispersion then entry can increase information finally entry can hurt consumers although entry always increases output it can decrease information consumers sometimes prefer a better informed monopoly to a duopoly

minimum wage policy with optimal taxes and unemployment abstract using a search model i derive a formula that links the welfare gains from the minimum wage to its effect on low skilled labor force participation and employment this formula shows that the minimum wage is welfare improving if pushing the low skilled labor market tightness downwards brings it closer to its efficient level i estimate the causal effect of the minimum wage on low skilled labor force participation and employment using federal and state minimum wage variation i discuss the policy implications of my estimates when viewed through the lens of the marginal welfare gain formula

collective strategies in fighting corruption some intuitions and counter intuitions this article explores the plausibility of some intuitions and counter intuitions about the anti corruption efforts of mdbs and international organizations leveraging the power of the private sector regulation of a sizable percentage of global private sector actors now falls into a new area of international governance with innovative institutions standards and programs we wrestle with the role and value of private sector partnerships and available informal and formal social controls crafting proportional informal controls e g monitoring evaluations and sanctions and proper incentives to cooperative games across networks are the lynchpins of successful collective action programs ambivalence with informal social controls or effective incentives we argue risks far too much deference to private sector interests

multimarket contact economies of scope and firm performance we integrate the efficiency and competitive effects of product market scope choice into a comprehensive model of economic performance and empirically test the model in the context of the u s airli

training and union wages abstract this paper investigates whether unions through imposing wage floors that lead to wage compression increase on the job training our analysis focuses on germany based on a model of unions and firm financed training we derive empirical implications regarding apprenticeship training intensity layoffs wage cuts and wage compression in unionized and nonunionized firms we test these implications using firm panel data matched with administrative employee data we find support for the hypothesis that union recognition via imposing minimum wages and wage compression increases training in apprenticeship programs

rivalry between strategic alliances abstract rivalry between strategic alliances is investigated in a model where each alliance member maximizes its own profit and some share of its partner s profit a complementary alliance confers a strategic advantage by allowing the partners to credibly commit to greater output owing to both within alliance complementarities and cross alliance substitutabilities although rivalry between different alliances can sometimes lead to a prisoners dilemma for firms it tends to improve economic welfare on the other hand an alliance that arises due purely to the threat of entry may reduce welfare

multimarket contact competition and pricing in banking abstract in this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model in which the divergence of price from marginal cost is a function of multimarket linkages the model is estimated using aggregate data from the italian regions for the years 1997 2009 our results show that multimarket contact is positively and significantly correlated to the market power index and is also connected to both home and non home market concentration the evidence is robust to changes in model specification and multimarket contact measures and supports the idea that firms which have a greater amount of contact are more likely to collude

optimal participation taxes addressing extensive labour supply responses the literature has established a case for larger transfers to the working poor than to even poorer non working people this paper casts new light on this result i argue that the result hinges crucially on the labour supply responses of people in income brackets above that of the working poor then distinguishing between more and less poor working people i show that if a single working type faces a negative tax it is the poorer one who does finally i endogenize wages and show that key conditions will be of the same form as before

do lower minimum wages for young workers raise their employment evidence from a danish discontinuity we estimate the impact of youth minimum wages on youth employment by exploiting a large discontinuity in danish minimum wage rules at age 18 using monthly payroll records for the danish population the hourly wage jumps up by 40 percent at the discontinuity employment falls by 33 percent and total input of hours decreases by 45 percent leaving the aggregate wage payment almost unchanged we show theoretically how the discontinuity may be exploited to evaluate policy changes the relevant elasticity for evaluating the effect on youth employment of changes in their minimum wage is in the range 0 6 1 1

a pareto improving minimum wage this paper shows that a graduated minimum wage in contrast to a constant minimum wage can provide a strict pareto improvement over what can be achieved with an optimal income tax the reason is that a graduated minimum wage requires high productivity workers to work more to earn the same income as low productivity workers which makes it more difficult for the former to mimic the latter in effect a graduated minimum wage allows the low productivity workers to benefit from second degree price discrimination which increases their income

living by the golden rule multimarket contact in the u s airline industry this paper examines empirically the effects of multimarket contact on pricing in the u s airline industry the analysis of the time series and cross sectional variability of airline fares in the 1000 largest domestic city pair routes reveals the presence of statistically significant and quantitatively important multimarket effects fares are higher in city pair markets served by carriers with extensive interroute contacts these findings are consistent with the claims of industry experts that airlines live by the golden rule i e that they refrain from initiating aggressive pricing actions in a given route for fear of what their competitors might do in other jointly contested routes during his testimony mr steven b elkins senior director of marketing systems development for northwest airlines cited an example in which northwest lowered fares on night flights that were flying with empty seats in a number of routes from minneapolis and upper midwest cities to various west coast cities he said that continental airlines swiftly responded by cutting prices in important northwest markets mr elkins s memo advises northwest pricing analysts we will live by the golden rule in his testimony he explained that the golden rule in that context was that i did not want my pricing analyst initiating actions in another carrier s market like chicago for fear of what that other carrier might do to retaliate wall street journal october 9 1990 p b1

collusion at the extensive margin abstract we augment the multi market collusion model of bernheim and whinston 1990 by allowing for firm entry into and exit from individual markets we show that this gives rise to a new mechanism by which a cartel can sustain a collusive agreement collusion at the extensive margin whereby firms collude by avoiding entry into each other s markets or territories we characterise parameter values that sustain this type of collusion and identify the assumptions where this collusion is more likely to hold than its intensive margin counterpart specifically it is demonstrated that where duopoly competition is fierce collusion at the extensive margin is always sustainable finally we provide a theoretic foundation for the use of a proportional response enforcement mechanism

the effect of minimum wages on low wage jobs we estimate the eect of minimum wages on low wage jobs using 138 prominent state level minimum wage changes between 1979 and 2016 in the u s using a dierence in dierences approach we first estimate the eect of the minimum wage increase on employment changes by wage bins throughout the hourly wage distribution we then focus on the bottom part of the wage distribution and compare the number of excess jobs paying at or slightly above the new minimum wage to the missing jobs paying below it to infer the employment eect we find that the overall number of low wage jobs remained essentially unchanged over the five years following the increase at the same time the direct eect of the minimum wage on average earnings was amplified by modest wage spillovers at the bottom of the wage distribution our estimates by detailed demographic groups show that the lack of job loss is not explained by labor labor substitution at the bottom of the wage distribution we also find no evidence of disemployment when we consider higher levels of minimum wages however we do find some evidence of reduced employment in tradable sectors we also show how decomposing the overall employment eect by wage bins allows a transparent way of assessing the plausibility of estimates

college entry by blacks since 1970 the role of college costs family background and the returns to education college enrollment of black 18 19 year old high school graduates declined from 1980 through 1984 and then rebounded after 1984 this paper presents data from a time series of cross sections of 18 19 year old youths from 1973 through 1988 to test the role of family background direct college costs local economic conditions and returns to college in driving these trends the evidence suggests that on the one hand increases in direct college costs were driving enrollment rates downward throughout the eighties on the other hand dramatic increases in average parental education for black youths exerted upward pressure on college enrollment by blacks particularly in the latter half of the decade the net effect of these two factors contributed to the pattern of decline and recovery observed during the eighties

dropout school performance and working while in school abstract we develop an econometric model where the determinants of working while in school academic performance and the decision to drop out are set in the context of two types of high school students those who prefer schooling and those who are more likely to join the labor market the likelihood function of this model with heterogeneous preferences for schooling is composed of 48 individual contributions of a standard quadrivariate normal function exploiting a unique canadian microdata set of high school students and school dropouts we show that being a female student attending a private school and living with educated parents are linked to having a strong preference for schooling over the labor market we also find that working fewer than fifteen hours per week while in school is not necessarily detrimental to success in school our results indicate that the decision to drop out is affected by the legal age to access the labor market high minimum wages and low unemployment rates several polic

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic