efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

efficiency and equalization payments in a federal system of government a synthesis and extensions of recent results this paper investigates the rationale for a system of equalization transfers in a federal system of government the existing sources of inefficiency of resource allocation in economies with more than one level of government are synthesized in the framework of a simple decentralized multiprovince model with mobile factors of production the sources of inefficiency arise first because migrants respond at the margin to incorrect signals owing to the phenomena of rent sharing and fiscal exterality and second because of global rather than local inefficiencies the model is then extended to consider the role of the federal government in providing intergovernmental transfers in the face of such inefficiencies in addition to synthesizing the sources of inefficiency in federal models the equity arguments for equalization are briefly recounted efficacite et paiements de perequation dans un systeme federal de gouvernement synthese et extensions de certains resultats recents ce memoire examine la logique qui soustend un systeme de paiements de perequation dans un systeme fdderal de gouverement les auteurs utilisent un modele simple d un systeme multi provincial decentralise avec des facteurs de production mobiles pour definir les sources d inefficacite dans l allocation des ressources dans les dconomies qui possedent plus d un niveau de gouvernement ces inefficacites proviennent de ce que d abord ceux qui se deplacent le font en reponse a la marge a des signaux incorrects engendres par le partage de la rente sur la base de la residence et par les phenomenes d exteralites fiscales elles sont aussi le resultat d inefficacites globales plutot que locales dans le cadre de ce modele les auteurs analysent le role du gouvernement federal effectuant des transferts inter gouverementaux pour corriger ces inefficacites en plus de presenter une synthese des sources d inefficacite dans les regimes federaux les auteurs font un bref rappel en passant a l ensemble des arguments fondes sur l equite qu on utilise pour rationaliser les paiements de perequation this paper is a linear combination of two papers presented at the may 1982 meetings of the canadian economics association in halifax entitled the case for equalization payments by the authors and recent developments in the theory of regional economic policy in canada by boadway the authors are grateful for comments by the discussants jim johnson and baxter macdonald and by jack mintz brian scarfe gerard belanger david sewell tom courchene and the referees we are especially heavily indebted to dan usher for many stimulating comments and suggestions while the work was in progress some of the above persons will undoubtedly disagree with the emphasis we have chosen to put on various aspects of the analysis for policy purposes support for some of this work has been provided by the economic council of canada and is gratefully acknowledged canadian journal of economics revue canadienne d economique xv no 4 november novembre 1982 printed in canada imprimd au canada 0008 4085 82 0000 0613 01 50 1982 canadian economics association this content downloaded from 207 46 13 127 on wed 12 oct 2016 04 27 47 utc all use subject to http about jstor org terms 614 robin boadway and frank flatters

distortionary taxes and the provision of public goods economists have long been concerned with finding an efficient level of public expenditure the classic statement of the problem was given by paul samuelson 1954 an optimal level of expenditure is where the sum of the marginal rates of substitution between the public good and a reference good equals the marginal rate of transformation between the public good and the reference good mrs mrt however samuelson s formula assumes that all of the revenue needed to finance public goods can be raised with lump sum taxes since this is not generally possible the formula must be modified to account for the distortionary effects of the tax system an appropriate modification is to multiply the cost side of the equation by a term that is commonly called the marginal cost of public funds mcf in the case of samuelson s formula where government is entirely financed with lump sum taxes the mcf would be exactly 1 0 in the traditional view of economists distortionary taxes cause the mcf to be greater than one thus raising the cost of providing public goods in this paper we discuss some cases where the mcf may be less than one we will illustrate this possibility using numerical examples for labor taxes

progressive taxation and the social marginal cost of public funds abstract this paper describes the calculation of the social marginal cost of public funds smcf for a progressive tax system which distorts individuals labour supply decisions a formula for the smcf indicates that the income and substitution effects of the labour supply response are weighted by the changes in individuals average and marginal tax rates respectively other well known formulas for the smcf are shown to be special cases of this formula the difference between this formula and the mayshar 1991 formula is shown to be due to different but equally valid ways of computing the change in the average tax rate the condition under which a marginal tax rate increase may lead to a reduction in revenues is derived

political structure taxes and trade abstract this paper examines the effects of the political organization of a chain of markets on the level of taxes and the volume of trade using a game theoretic approach we note that under certain demand stuructures noncooperative tax policies implemented by independent jurisdictions entail externalities detrimental to trade we show that the monoplization of the chain of markets or the implementation of cooperative tax strategies by internalizing the costs associated with these externalities increases the volume of trade and the tax revenues simultaneously

the marginal welfare cost of public funds theory and estimates abstract we derive a general analytic formula for the marginal welfare cost mwc of public funds without imposing restrictive assumptions on preferences or technologies the framework encompasses the various special cases previously considered and reconciles the disparities among the reported estimates of mwc unresolved differences in existing estimates are fully explained by appropriate interpretations of intended thought experiments and alternative assumptions about the elasticity of labor supply with respect to public spending further progress in measuring mwc requires empirical estimation of labor supply functions that include government spending as an explanatory variable

purchasing raw materials with uncertain fluctuating prices on identifie les differentes etapes de la decision d achat des matieres premieres ainsi que les differentes approches et les aptitudes requises on decrit plusieurs methodes et modeles proposes et appliques aux differentes etapes les aspects importants etant l inadequation des modeles de stocks classiques l application de la programmation lineaire au probleme de melange la prevision des prix a l aide de l econometrie et de l analyse des series temporelles et la prise de decision sequentielle pour l achat au jour le jour

indirect distributional effects in benefit cost analysis of small projects small public projects perturb the equilibrium prices of many commodities generating small real income changes pecuniary externalities for many households the analy sis of this paper shows that even extremely small price changes on t he order of 1016 can have distributional effects that are far from n egligible e g 10 percent of project outlays it is shown that at least in some simple cases the benefit cost analyst can accommodate these effects without measuring the actual price changes if certain key empirical parameters such as demand and supply elasticities are known copyright 1988 by royal economic society

the implications of competition among jurisdictions does tiebout need politics the paper investigates whether compensation among local jurisdiction is by itself sufficient to ensure efficient provision of local public goods jurisdictions have fixed boundaries and each has an entrenched government with the power to tax and supply the public good residents can move costlessly among jurisdictions it is shown that competition among numerous jurisdictions is not sificient to guarantee public sector efficiency though residents can vote with their feet land is immobile hence governments can unsurp some land rents for their own ends increasing the number of jurisdictions limits but cannot completely eliminate the ability to exercise discretionary governmental power

the uncommon insight of elinor ostrom author s bergstrom ted abstract this article was written in celebration of eleanor ostrom s nobel prize standard economic approaches to the problem of overuse of common property resources have emphasized two competing remedies the pigovian approach of corrective taxation and the property rights approach of internalizing externalities by means of assigning marketable property rights to individual owners with exclusive claim on the entire commons elinor ostrom pursues a third approach which is based on case studies of existing communities that have established successful and durable systems of managing common property resources this paper discusses her work and suggests that economists with an interest in public policy have much to gain from becoming familiar with the work of ostrom and her co authors

does voluntary participation undermine the coase theorem abstract the coase theorem states that costless enforcement of voluntary agreements yields efficient outcomes we argue that previous treatments fail to recognize the full meaning of voluntary it requires a two stage game a non cooperative participation decision followed by coaseian bargaining only among those who choose to participate we illustrate this in a simple public goods model and find outcomes ranging from extremely inefficient to fully efficient however the efficient equilibrium is not robust to even very small transaction costs thus we cast doubt on coaseian claims of universal efficiency finally we outline a kind of coercion that restores efficiency

capitalization and the theory of local public finance the tiebout literature is incomplete this paper argues because it has not fully accounted for the capitalization of local fiscal variables into house values the paper explains why capitalization arises why it persists in long run equilibrium how it affects both residential location and the outcome of local voting and why it interferes with the efficiency of a system of local governments the analysis which is based on the main tiebout assumptions plus a property tax combines a model of household bids in a housing market with a median voter model of local public service determination

complementarity and the discount rate for public investment the marginal rate of return on public investment in a tax distorted economy is a weighted average of the marginal social productivity of capital in the private sector and the marginal social rate of time preference but the weights are shown to depend not only on the proportions of funding obtained from each source through incremental borrowing but also on the degree of complementarity or substitutability between public and private investment

labor mobility and the incidence of the residential property tax abstract this paper analyzes the incidence of the residential property tax in an economy with two communities workers are perfectly mobile so that their utility levels are equal in the two communities in equilibrium the property tax is modeled as an ad valorem tax on housing services

the rate of time preference implications for the greenhouse debate abstract if one adopts a real annual discount rate of 5 or more and there are no significant climate impacts for half a century these impacts have a present value that is virtually negligible within a cost benefit framework it then becomes exceedingly difficult to justify any near term actions other than no regrets policies in the greenhouse debate it is important to draw a clear distinction between prescriptive and descriptive reasoning a philosopher or an economist may counsel a low or a zero rate of time preference but this advice does not provide a good description of the collective outcome of individual choices in particular it implies an unrealistically rapid increase in the rate of savings and investment

redistribution and the marginal cost of public funds abstract discussions of the marginal cost of public funds with distortionary taxation are often cast in the framework of a one consumer economy while the main justification of distortionary taxes is that they are needed for redistribution this paper analyzes the issue in a model with heterogeneous consumers and a linear income tax focusing on the tradeoff between labour market distortions and the redistribution from high wage to low wage workers in an optimal tax system the mcf will be the same for all sources of funds and under certain assumptions less than one without optimality the mcf will in general differ between different sources of finance

the marginal cost of raising tax revenue and redistributing income we present analytic formulas for calculating marginal welfare costs when taxes are levied against the wages of a heterogeneous population of households and marginal tax revenue finances either the supply of a public good or lump sum transfers the formulas are applied to explain the wide discrepancy between estimates of marginal welfare costs for redistribution previously obtained through computer simulation procedures our calculations reveal that these procedures introduced lump sum transfers that were not specified as part of the reforms to be simulated but explain most of the differences between their estimates we also show that welfare cost estimates are quite sensitive to the elasticity of labor supply with respect to exhaustive public spending

preferences in the future environmental economics has been much occupied with the discount rate which is the value of future costs and benefits relative to present costsor benefits but at least as important is the question of whatshould be discounted that is what the value of those future environmentalbenefits is to future generations this paper analyzes the role for futurepreferences and discusses the state of knowledge i argue that theappropriate discount rate is the market one and that the real problemis determining future willingness to pay this approach makes clearerthe connection between discounting and the valuation debate this paper focuses on two features that have been prominent in that debate existence value and reference dependence i argue that thereis a vital connection between the two constructs and that this link yieldsimportant implications for future willingness to pay

capacity reservation under spot market price uncertainty abstract capacity reservation contracts and spot markets are two alternative purchasing practices we focus on the cost effective management of the combined use of these two procurement sources due to the variability of the spot market prices and demand uncertainty the flexibility of combined sourcing can be advantageous spot market purchasing is a benefit in case of low spot market prices or insufficient reserved capacity and the capacity reservation contract is an operational risk hedging for high spot market price incidents the structure of the optimal combined purchasing policy is complex in this paper we consider a simple and easy to implement capacity reservation base stock policy and compare it to single sourcing options we examine the joint effect of demand and spot market price uncertainty our analysis shows that in the case of large spot market price variability the combined sourcing is superior over spot market sourcing even in the case of low average spot price the combined sourcing is also superior over long term sourcing even in the case of high average spot price if there is large spot market price variability analytical and simulation results are presented to show the effect of the different price cost and uncertainty parameters on the optimal capacity reservation base stock policy and on the expected percentage gain over single sourcing

a marginal cost of funds approach to multi period public project evaluation implications for the social discount rate abstract although the use of marginal cost of funds mcf has been widely appreciated in public finance literature discussions of mcf have been confined to a static setting this paper develops a multi period project evaluation rule that is based on mcf unlike previous approaches the parameters required for implementing the mcf rule are independent of projects under consideration a lesson from this paper is that the government discount rate policies that are largely based on the concepts of social discount rate and shadow price of capital should be rewritten with the use of parameters representing mcf

taxation and the tiebout model the differential effects of head taxes taxes on land rents and property taxes on the theory of state and local public finance is the seminal paper by charles tiebout 1956 tiebout constructed a multijurisdictional model in which independent local governments offer a wide variety of expenditure and tax policies and perfectly mobile consumers reveal their preferences for local public goods through their choice of residential community he argued that under such circumstances local public service provision would be efficient the tiebout model has formed the basis of a vast number of subsequent articles in the state and local public finance literature and has also been very influential in urban and regional economics the efficiency properties of various tiebout type models of local public good provision have been examined and the role of politics in these models has been debated at length in this literature of more direct relevance to this paper however is the fact that although tiebout had little to say directly about taxation simply assuming the existence of head taxes subsequent analyses have used adaptations of this model to examine the effects of local head taxes land taxes and property taxes it is the literature on the efficiency and distributional effects of alternative local taxes that is the subject of this survey 1

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

optimal public good provision with limited lump sum taxation it is often argued that the use of distortionary taxation lowers the optimal provision of public goods below its optimal level in a first best economy which contains no restrictions on lump sum taxation however this issue is usually investigated using commodity tax models that contain no lump sum taxes this paper examines a many consumer economy in which the only tax instruments are commodity taxes and a poll tax subsidies are negative taxes the optimal level of public good provision in this economy typically exceeds the first best level at least for distributionally neutral public goods copyright 1991 by american economic association

the incidence of heterogeneous residential property taxes abstract in an economy with multiple tax jurisdictions the distribution of the burden of heterogeneous residential property taxes is shown to depend on the elasticity of demand for housing the elasticity of substitution between land and capital in housing production the elasticity of supply of land to individual tax jurisdictions and the degree of population mobility between tax jurisdictions it is demonstrated that the excise effects of the residential property tax may not cancel across jurisdictions and the average rate of tax may overstate or understate the burden on residential capital

supply contract with bidirectional options the buyer s perspective abstract this paper develops a single period two stage supply contract with bidirectional options by which the buyer can adjust the initial order both upward and downward at the beginning of the planning horizon the buyer places an initial order and purchases options after updating the demand forecast the buyer exercises options to adjust the initial order we analyze the contract from the buyer s perspective and formulate the buyer s optimal policies in particular we obtain closed form formulae to describe the buyer s optimal behavior when the demand is uniformly distributed we also analyze how the parameters affect the buyer s behavior and prove numerically that using bidirectional options can improve the buyer s profit

discounting according to output type federal discount rate policies advocate both a high rate representing the marginal productivity of capital and a low rate representing the government borrowing rate these differential discount rate policies could be inconsistent and biased in favor of projects on which the lower discount rate is applied this paper shows that the coexistence of different discount rates may be appropriate depending on the type of project output when a project s outputs are perfect substitutes for private consumption both its costs and benefits should be discounted using the marginal productivity of capital however if the project s outputs are separable in the utility function the benefits should be discounted using the net of tax rate of return

coping with asymmetries in the commons self governing irrigation systems can work many analysts presume that the appropriators of a common pool resource are trapped in a hobbesian state of nature and cannot themselves create rules to counteract the perverse incentives they face in managing the resource the logical consequence of this view is to recommend that an external authority the government take over the commons but considerable empirical evidence from field and experimental settings holds that appropriators frequently do constitute and enforce their own rules and that these rules work our research agenda is to develop a coherent understanding of the set of conditions that enhance or detract from self organizing capabilities when individuals differ substantially from one another for the sake of concreteness this paper focuses on the asymmetry present in most irrigation systems between those who are physically near the source of water the head enders and those who are physically distant from it the tail enders this paper first explores the interaction between head end and tail end farmers particularly their decisions about whether to devote resources to the upkeep of the irrigation system and how bargaining between the parties can benefit all sides finally we examine empirical evidence from a study of irrigation institutions in nepal and discuss the broader practical significance of our findings

alternative measures of the marginal cost of funds liqun liu this article reconciles the use of two different marginal cost of funds mcf measures by resorting to alternative marginal benefit measures it demonstrates how the alternative mcf measures can be properly applied to two classic problems in expenditure analysis local cost benefit project evaluation and the second best public good level question relative strengths of the two mcf approaches in addressing the two problems are identified jel h21 h43 1 introduction it is widely appreciated that the welfare cost of taxation should play a role in the normative analysis of government expenditures efficiency in government spending involves balancing the marginal benefits and marginal costs of expenditures the marginal cost of spending in part depends on the welfare costs also known as excess burdens or deadweight losses we will use the term welfare costs that result from raising the revenue that finances the expenditures to determine the marginal cost of government spending we multiply the direct resource cost of the expenditure by a term generally referred to as the marginal cost of funds mcf the mcf is the cost of raising an additional dollar of revenue which includes the direct cost the dollar of revenue actually raised plus any additional welfare costs resulting from the change in the tax structure martin feldstein emphasized the importance of mcf in a recent paper appropriately titled how big should government be feldstein 1997 he correctly stresses that the answer to this question involves comparing the benefits of incremental government spending with the mcf and concludes that the economics profession should devote more attention to informing policy makers of the importance of mcf and providing estimates of its magnitude feldstein s own estimate of mcf is 2 65 feldstein 1999 implying that the distortionary cost of raising revenue is amazingly high raising an additional dollar of revenue carries with it an efficiency loss that is more than one and a half times 1 65 as large in sharp contrast there are a number of estimates in the literature on mcf that are strikingly lower so low as to suggest that mcf should play a minor role in the evaluation of government spending programs for example stuart 1984 reports an estimate of 1 07 and ballard and fullerton 1992 suggest that i n a variety of cases mcf is less than 1 10 these disparate estimates of the magnitude of mcf are worrisome because they have contradictory implications regarding the importance of the distortionary cost of taxation but a major reason for the differences in these estimates is simply definitional fullerton 1991 and ballard and fullerton 1992 feldstein is using a definition of mcf that depends primarily on the compensated effects of taxation whereas the other estimates use a definition of mcf that depends primarily on uncompensated effects the definition based on compensated effects always yields a larger estimate of mcf 1 this raises the obvious question which definition is the appropriate one to use in the evaluation of government expenditures that is the subject of the present paper in this paper we investigate the appropriate measure of mcf for a special case that has been widely discussed in the literature when the government expenditure is to finance the provision of a public good that enters consumers utility functions in a separable fashion from private goods and leisure that the appropriate definition of mcf depends on exactly how the expenditure affects consumer utility was emphasized by wildasin 1984 and ballard and fullerton 1992 recent papers that help clarify the role of the separability assumption include mayshar 1991 snow and warren 1996 and ahmed and croushore 1996 furthermore we restrict our attention to the case in which the public good is financed by a tax on wage income in this case much of the literature on mcf emphasizes that the definition of mcf should be based on the uncompensated wage elasticity of labor supply in contrast to feldstein s measure

clubs local public goods and transportation models a synthesis abstract clubs local public goods and transportation models are analyzed within a unified model the emphasis is on the derivation of optimal allocation pricing and the size of the sharing group we derive the conditions under which optimal prices will yield surplus or deficit as well as those under which competitive provision will be efficient given heterogeneous tastes we prove that segregation according to tastes is generally efficient although several cases where this result does not hold are also discussed we show that the existing literature is unnecessarily restrictive and that the unified approach suggested here considerably extends the existing analysis of clubs local public goods and the transportation problems

endogenous private safety investment and the willingness to pay for mortality risk reductions when individuals cannot undertake safety improving expenditures the effect of an increase in the initial risk on the willingness to pay wtp for mortality risk reduction is positive because of the dead anyway effect when they can undertake safety improving expenditures the effect of an increase in the initial risk is governed by two effects the dead anyway effect which is positive and the high payment effect which is negative we treat the two types of risk reducing expenditures endogenous and exogenous as inputs in a safety improving technology function and find conditions that guarantee that the high payment effect dominates

procurement planning to maintain both short term adaptiveness and long term perspective we study the fuel procurement problem for electrical utilities under uncertain demand and market price long term contractual supply commitments are made at a set price with fuel suppliers at the beginning of each year each month the procurement planner can use fuel from these contracts or purchase fuel at the current market price motivated by practical insights from this market we propose a two phase dynamic procedure to determine a procurement plan in the first phase the minimum contract purchases for each month are determined at the beginning of the year in the second phase given the minimum contract purchases the more detailed procurement decisions are determined at the beginning of each month with the most up to date information we perform intensive computational experiments that show that this procedure produces high quality solutions comparable to a rolling horizon stochastic programming heuristic is easier to maintain and generalize is computationally faster and is robust to random fluctuations in demand requirements spot market prices and other sources of uncertainty

addressing global environmental externalities transaction costs considerations is there a way to understand why some global environmental externalities are addressed effectively whereas others are not the transaction costs of defining the property rights to mitigation benefits and costs is a useful framework for such analysis this approach views international cooperation as a contractual process among country leaders to assign those property rights leaders cooperate when it serves domestic interests to do so the demand for property rights comes from those who value and stand to gain from multilateral action property rights are supplied by international agreements that specify resource access and use assign costs and benefits including outlining the size and duration of compensating transfer payments and determining who will pay and who will receive them four factors raise the transaction costs of assigning property rights i scientific uncertainty regarding mitigation benefits and costs ii varying preferences and perceptions across heterogeneous populations iii asymmetric information and iv the extent of compliance and new entry these factors are used to examine the role of transaction costs in the establishment and allocation of property rights to provide globally valued national parks implement the convention on the international trade in endangered species of wild fauna and flora execute the montreal protocol to manage emissions that damage the stratospheric ozone layer set limits on harvest of highly migratory ocean fish stocks and control greenhouse gas emissions jel d23 p14 q22 q51 q54 q58

2 the institutional structure of production 1 prize lecture to the memory of alfred nobel december 9 1991 this abstract was borrowed from another version of this item

dual sourcing using capacity reservation and spot market optimal procurement policy and heuristic parameter determination abstract this contribution focuses on the cost effective management of the combined use of two procurement options the short term option is given by a spot market with random price whereas the long term alternative is characterized by a multi period capacity reservation contract with fixed purchase price and reservation level a reservation cost proportional with the reservation level has to be paid for the option of receiving any amount per period up to the reservation level a long term decision has to be made regarding the reserved capacity level and then it has to be decided period by period which quantities to procure from the two sources considering the multi period problem with stochastic demand and spot price the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming exploiting these structural properties an advanced heuristic is developed to determine the respective policy parameters this heuristic is compared with two rolling horizon approaches which use the one period and two period optimal solution a comprehensive numerical study reveals that the approaches based on one period and two period solutions have considerable drawbacks while the advanced heuristic performs very well compared to the optimal solution finally by exploiting our numerical results we give some insights into the system s behavior under problem parameter variations

one thousand points of light seeking a number a case study of cbo s search for a discount rate policy abstract several years ago the congressional budget office cbo published several studies in quick succession each of which employed a discount rate to convert future values into present ones each study used a different discount rate no rationale was given for the choices and it did not seem sensible to let dealer s choice be the regime for cbo discount rate policy this paper describes how cbo established a provisional policy how that policy confronted subsequent demands for analysis and where we now stand

property rights regimes and natural resources a conceptual analysis the term common property resource is an example of a term repeatedly used to refer to property owned by a government or by no one it is also used for property owned by a community of resource users such usage leads to confusion in scientific study and policy analysis in this paper we develop a conceptual schema for arraying property rights regimes that distinguishes among diverse bundles of rights ranging from authorized user to claimant to proprietor and to owner we apply this conceptual schema to analyze findings from a variety of empirical settings including the maine lobster industry

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

procurement strategies and coordination mechanism of the supply chain with one manufacturer and multiple suppliers abstract this paper investigates the coordination mechanism for supply chain with one manufacturer and multiple competing suppliers in the electronic market we first study two conventional price only policies including wholesale price policy and catalog policy based on the reverse vickrey auction and show that both the buyer and the powerful suppliers with production cost less than a special threshold value prefer catalog policy to wholesale price policy and the powerless suppliers prefer wholesale price policy to catalog policy simultaneously neither policy can coordinate the channel composed of the manufacturer and the winning supplier we also show that a quantity discount policy cannot coordinate the supply chain with competing suppliers unless a kind of restriction is imposed the aim of the paper is to explore a coordination mechanism i e the price restricted quantity discount policy pareto analysis indicates that the manufacturer and the winning supplier will realize the win win situation and the channel can also be coordinated a key managerial implication of our study is that additional restrictive condition may be necessary to eliminate system inefficiency some numerical examples are also given to illustrate management insights

a generalized approach to multigeneration project evaluation 1 introductionit is well known that the choice of discount rate plays a significant role in the ranking of projects with varying time paths of costs and benefits for public projects the choice of the appropriate social discount rate sdr is not clear cut even in the context of short lived projects in which costs and benefits occur within a single generation in particular when capital taxes produce a wedge between gross and net rates of return should one discount at the economy s rate of return the before tax rate or the individual s rate of return the after tax rate in the single generation context the literature falls in two camps 1 one camp argues that the appropriate sdr is a weighted average of the gross and net rates of return with weights typically determined by the fractions of resources drawn from consumption and private investment respectively 2 a second camp argues that future benefits should be discounted at the net rate of return but that the initial investment should be multiplied by a scale factor so that the direct costs of the project can be expressed in terms of consumption units 3both approaches suffer from severe implementation problems for the first approach there is no general formula for the weights needed to calculate the sdr as a weighted average of two market rates of return dreze 1974 indeed the appropriate sdr to use is project specific stiglitz 1982 without a systematic methodology to derive project specific sdrs the weighted average approach is hard to implement for the second approach which equalizes the sdr to the net rate of return the scale factor the opportunity cost of public investment must be quantified the opportunity cost of public investment depends on whether resources come from private investment or consumption and on the calculation of the present value of the future consumption yielded by a unit of capital discounted at the net rate of return that is the shadow price of capital as lind 1997 points out however there is no general agreement on a specific procedure for calculating the shadow price of capital indeed the concept of the opportunity cost of public investment suffers the same project dependence problem as the first view of the sdr diamond 1968 multigeneration projects such as nuclear waste disposal natural resource conservation or even social security reform further complicate discount rate choice specifically intergenerational equity in addition to intertemporal efficiency plays a role in determining the appropriate social discount rate for multigeneration public project evaluation 4 as in the single generation context there are two competing views on the appropriate discount rate when evaluating multigeneration projects the descriptive and the prescriptive approaches 5the descriptive approach to discounting is a market based approach it does not rely on an explicit social welfare function swf or the pure time preference rate embedded in the swf however the descriptive approach works under the assumption that intergenerational compensation through changes in the tax debt policy is available 6 it is argued that under appropriate intergenerational compensation the market rates of return are still relevant for calculating the sdr for multigeneration project evaluation and in general the sdr should be a weighted average of the gross and net rates of return this descriptive view of setting the sdr equal to the market return appears to underlie the office of management and budget s omb adoption of 7 as the appropriate discount rate for federal programs 7the intent of the prescriptive approach is to use the social discount rate as an expression of ethical judgment on how consumption of future generations should be compared to consumption of current generations

a pigovian rule for the optimum provision of public goods abstract the integrated treatment of optimal taxation and public expenditure presented here is based on the dual relationship between the prices of private goods and the quantities of public goods the conditions for optimum public good provision can be expressed as a modification of the samuelson conditions with extra terms representing a the distortionary effect of taxes on the willingness to pay for the public good and b distributional effects the former captures pigou s notion of the indirect damage caused by the need to finance public expenditure out of distortionary taxes and we call this the pigou term in certain cases a very simple benefit cost ratio for public projects emerges that is equivalent to measuring benefits as if they were taxed

a critique of tiebout s theory of local public expenditures the last section of this paper presents a rigorous version of tiebout s theory of local public goods it is shown that equilibria exist and are pareto optimal this rigorous theory follows closely the more rigorous part of tiebout s work this rigorous theory makes a number of very special assumptions which make local public goods essentially private the body of this paper presents a series of examples which show that if one tries to generalize the rigorous version of tiebout s theory in a number of interesting directions then equilibria may no longer exist or may not be pareto optimal the conclusion is that tiebout s idea does not lead to a satisfactory general theory of local public goods the goal of this paper is to point out that tiebout s notion of equilibrium with local governments does not have the nice properties of general competitive equilibrium except under very restrictive assumptions tiebout 39 suggested that there are competitive forces which tend to make local governments allocate resources in a pareto optimal fashion consumers choose to live in those towns with the mix of taxes and public goods they prefer local governments choose this mix so as to attract inhabitants this idea may seem intriguing for it suggests that the invisible hand solves an important part of samuelson s perplexing public goods problem 32 tiebout in fact makes an argument which is nearly rigorous i give a rigorous version of his argument at the end of the paper however in this rigorous version so many restrictive assumptions are made that public goods become essentially private in the body of the paper i give a series of examples with which i try to convince the reader that one is forced to adopt tiebout s restrictive assumptions the idea is that if one changes any of his assumptions then either equilibria may not exist or may not be pareto optimal my examples are presented in the context of a general class of tiebout models i consider several subclasses one of which is the special case considered by tiebout in each of the subclasses except that considered by tiebout i give a counterexample either to the existence of equilibrium or to its pareto optimality the subclasses are so chosen that the difficulties they reveal would be shared by any reasonable tiebout model which differed from his special case i believe that my examples controvert tiebout s suggestion 39 last paragraph that his theory compares favorably with competitive equilibrium theory most of the examples in this paper have already appeared in the literature i cite related work as i go along what is new here is that i assemble the examples in a unified argument

on the interpretation of the modified samuelson rule for public goods in static models with heterogeneity abstract pigou argued that use of distorting taxation would increase the social cost of a public good due to the excess burden created by a distorting tax system samuelson s rule governing a pure public good must then be modified a second best rule has appeared in the literature when heterogeneity exists and an interpretation for the various effects captured by the additional terms appearing in the rule has been given we present a counterexample to the standard interpretation and provide an alternative derivation and interpretation which allows us to make a more precise distinction among the effects mentioned in the literature

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

reconciling alternative views about the appropriate social discount rate abstract this paper shows that in an economy with an exogenous rate of return and a given capital income tax distortion and with lump sum taxes as the marginal tax instrument the soc and mcf criteria both correctly identify all worthwhile projects if the criteria are properly applied the equivalence between the soc and mcf criteria continues to hold i if distortionary taxes are used to balance the budget and ii if the rate of return to capital is endogenous apparent differences between the soc and mcf criteria arise from different definitions of a project s indirect revenue effect neither criterion has an implementation advantage because the information requirements for each are identical

symmetric tragedies commons and anticommons an anticommons problem arises when there exist multiple rights to exclude in a lengthy law review paper michael a heller has examined the tragedy of the anticommons especially in regard to disappointing experiences with efforts to shift from socialist to market institutions in russia in an early footnote heller suggests that a formal economic model of the anticommons has not been developed this paper responds to heller s challenge we analyze the anticommons problem in which resources are inefficiently underutilized rather than overutilized as in the familiar commons setting the two problems are shown to be symmetrical in several respects we present an algebraic and geometric illustration and extend the discussion to several applications of greater importance we suggest that the construction is helpful in understanding the sources of major value wastage in modern regulatory bureaucracy the navigation of the danube is of very little use to the different states of bavaria austria and hungary in comparison of what it would be if any of them possessed the whole of its course till it falls into the black sea adam smith the wealth of nations 1776 bk 1 ch 3

the economics of governance the economics of governance is an effort to implement the study of good order and workable arrangements where good order includes both spontaneous order in the market which is a venerated tradition in economics adam smith 1776 friedrich hayek 1945 kenneth a arrow and gerard debreu 1954 and intentional order of a conscious deliberate purposeful kind chester irving barnard 1938 p 9 also i interpret workable arrangements to mean feasible modes of organization all of which are flawed in comparison with a hypothetical ideal avinash dixit 1996 pp 4 9 the object is to work out the efficiency logic for managing transactions by alternative modes of governance principally spot markets various long term contracts hybrids and hierarchies interest among social scientists economists included in the study and practice of good order and workable arrangements has been steadily growing in contrast with the orthodox lens of choice prices and output supply and demand the economics of governance is a lens of contract construction broadly in the spirit of james buchanan s 2001 p 29 observation that mutuality of advantage from voluntary exchange is the most fundamental of all understandings in economics the economics of governance as herein described is principally an exercise in bilateral private ordering by which i mean that the immediate parties to an exchange are actively involved in the provision of good order and workable arrangements to be sure the need for private ordering varies with the rules of the game as provided by the state distinctions between lawlessness where the state provides limited or unreliable protection for property and contract dixit 2004 and lawfulness where the state undertakes to protect property and enforce contracts in a principled way are pertinent the first of these applies mainly to primitive and transition economies the second is commonly associated with western democracies recourse to private ordering under conditions of lawlessness is altogether understandable given the absence of state support the walter a haas school of business university of california berkeley ca 94720 1900 the paper has benefited from workshop presentations at the university of california berkeley the university of valencia insead fountainebleau and the 2004 annual conference of the international society for new institutional economics an abbreviated version was also given as the horst claus recktenwald lecture at nuremburg on 4 november 2004 comments and suggestions from fred balderston ernesto dalbo avinash dixit robert gibbons witold henisz ian larkin steven tadelis and dean williamson are especially acknowledged 1 lon fuller s 1954 p 477 definition of eunomics as the science theory or study of good order and workable arrangements is very much in the spirit of what i refer to as governance 2 one of the immediate ramifications of insistently comparing feasible alternatives all of which are flawed is that the purported inefficiencies that are ascribed to failures to achieve first best optimality are not dispositive but invite the query as compared with what i return to this issue in section iv 3 excluding corporate governance the numbers of articles that used the word governance during the period 1998 2000 as compared with the period 1977 1979 in selected economics business management sociology organization and political science journals were 60 vs 1 76 vs 4 79 vs 18 and 60 vs 25 where the journals surveyed were the american economic review journal of political economy quarterly journal of economics rand journal of economics and journal of economic perspectives in economics strategic management journal management science academy of management journal and academy of management review in business management administrative science quarterly organization science american journal of sociology american sociological review and annual review of sociology in sociology organization and american political science review political science quarterly journal of politics and political research quarterly in political science combining these four categories articles using the word governance increased from 48 to 275 over this 20 year interval dixit 2004 pp 149 50 reports that the number of web pages that turn up under the search for governance is huge

choosing a government discount rate an alternative approach abstract this paper examines the choice of a government discount rate under the reasonable assumption that the level of government spending is determined in a top down fashion by macroeconomic and political considerations rather than in a bottom up fashion it is shown that setting the discount rate at the maximal internal rate of return available from unfunded government projects leads to an efficient portfolio choice under current and foreseeable conditions this implies a discount rate in the 10 or more real range rather than the 2 4 real discount rate recommended by second best theorists

market price uncertainty risk aversion and procurement combining contracts and open market sourcing alternatives abstract we evaluate the implications of concurrent utilization of contracts and open market arrangements by a risk averse buyer in continuous procuring of a standardized product of known demand over a specified time period the buyer being risk averse is concerned about the magnitude and uncertainty of expenses the contract price is deterministic and the market price is stochastic cases when the two price processes are exogenous and when the contract price is endogenously linked to volume of procurement and market price are examined models are developed to determine the optimal pattern of procurement from the two arrangements for specified price risk aversion and contract duration parameters the study finds that optimal procurement from market increases with contract price premium but decreases with degree of risk aversion and market price uncertainty usefulness of alternate forms of contracts when contract and market alternatives are used concurrently is discussed application of the models to hypothetical datasets compares the relative usefulness of alternate forms of integrating contract and market alternatives and of complete reliance on contract or market alternatives