getting big too fast strategic dynamics with increasing returns and bounded rationality neoclassical models of strategic behavior have yielded many insights into competitive behavior despite the fact that they often rely on a number of assumptions including instantaneous market clearing and perfect foresight that have been called into question by a broad range of research researchers generally argue that these assumptions are good enough to predict an industry s probable equilibria and that disequilibrium adjustments and bounded rationality have limited competitive implications here we focus on the case of strategy in the presence of increasing returns to highlight how relaxing these two assumptions can lead to outcomes quite different from those predicted by standard neoclassical models prior research suggests that in the presence of increasing returns tight appropriability and accommodating rivals in some circumstances early entrants can achieve sustained competitive advantage by pursuing get big fast gbf strategies rapidly expanding capacity and cutting prices to gain market share advantage and exploit positive feedbacks faster than their rivals using a simulation of the duopoly case we show that when the industry moves slowly compared to capacity adjustment delays boundedly rational firms find their way to the equilibria predicted by conventional models however when market dynamics are rapid relative to capacity adjustment forecasting errors lead to excess capacity overwhelming the advantage conferred by increasing returns our results highlight the risks of ignoring the role of disequilibrium dynamics and bounded rationality in shaping competitive outcomes and demonstrate how both can be incorporated into strategic analysis to form a dynamic behavioral game theory amenable to rigorous analysis

a note of the theory of international transfers abstract if each of n trading countries supplies each of several international public consumption goods then sufficiently small international transfers have no effect on the consumption production or welfare of any country

cost externalities and corporate diversification abstract this paper examines the optimal time of entry by established firms that strategically exploit cost externalities resulting from experience transfer from their core product line to the entered market established firms may delay entry even under conditions when newborn firms would enter early the paper can also explain other entry scenarios including early diversification at an initial loss into markets that newborn firms would never enter the shape of the experience curve in the entered market strongly affects these differences in scenarios

revealed preference analysis of non cooperative household consumption we develop a revealed preference approach to analyse non unitary household consumption behaviour that is not cooperative or pareto efficient we derive global necessary and sufficient conditions for data consistency with the model we show that the conditions can be verified by means of relatively straightforward mixed integer programming methods which is particularly attractive in view of empirical analysis our framework extends to tests for separate spheres and joint contribution to public goods an application to data drawn from the russia longitudinal monitoring survey demonstrates the empirical relevance of the non cooperative consumption model

on welfare frameworks and catastrophic climate risks recent theoretical work in the economics of climate change has suggested that climate policy is highly sensitive to fat tailed risks of catastrophic outcomes weitzman 2009 68 such risks are suggested to be an inevitable consequence of scientific uncertainty about the effects of increased greenhouse gas concentrations on climate criticisms of this controversial result fall into three categories the first suggests that it may be irrelevant to cost benefit analysis of climate policy the second challenges the fat tails assumption and the third questions the behavior of the utility function assumed in the result this paper analyses these critiques and suggests that those in the first two categories have formal validity but that they apply only to the restricted setup of the original result which may be extended to address their concerns they are thus ultimately unconvincing critiques in the third category are shown to be robust however they open up new ethical and empirical challenges for climate economics that have thus far been neglected how should we value catastrophes as a society i demonstrate that applying results from social choice to this problem can lead to counterintuitive results in which society values catastrophes as infinitely bad even though each individual s utility function is bounded finally i suggest that the welfare functions traditionally used in climate economics are ill equipped to deal with climate catastrophes in which population size changes drawing on recent work in population ethics i propose an alternative welfare framework with normatively desirable properties which has the effect of dampening the contribution of catastrophes to welfare

the economics of predation what drives pricing when there is learning by doing predatory pricing a deliberate strategy of pricing aggressively in order to eliminate competitors is one of the more contentious areas of antitrust policy and its existence and efficacy are widely debated the purpose of this paper is to formally characterize predatory pricing in a modern industry dynamics framework that endogenizes competitive advantage and industry structure our framework encompasses important phenomena such as learning by doing network effects switching costs dynamic demand and certain types of adjustment costs due to its prominent role in legal cases involving alleged predation we examine learning by doing in more detail we first show that predation like behavior arises routinely in our learning by doing model equilibria involving predation like behavior typically coexist with equilibria involving much less aggressive pricing to disentangle predatory pricing from mere competition for efficiency on a learning curve we next decompose the equilibrium pricing condition and develop alternative characterizations of a firm s predatory pricing incentives we finally measure the impact of these incentives on industry structure conduct and performance we show that forcing a firm to ignore the predatory incentives in setting its price can have a large impact and that this impact stems from eliminating equilibria with predation like behavior along with the predation like behavior however a fair amount of competition for the market is eliminated

disentangling pioneering cost advantages and disadvantages existing literature discusses a number of possible pioneering cost advantages and disadvantages in this paper we empirically test three different sources of long term pioneering cost advantage experience curve effects preemption of input factors and preemption of ideal market space and three different sources of pioneering cost disadvantage imitation vintage effects and demand orientation we disentangle these sources by breaking total cost of a business unit into three different components purchasing production and selling general and administrative sg a costs and identifying conditions that intensify or reduce the effect of the proposed source using two samples of business units one for consumer goods and one for industrial goods we find support for five of the six sources of pioneering cost advantage and disadvantage in both samples while the advantage due to preemption of ideal market space is limited to the consumer goods sample the unconditional analysis shows a pioneering purchasing cost advantage but even larger pioneering production and sg a cost disadvantages the complexity of our obtained findings suggests that managers need to think carefully about their particular conditions before making assumptions about the cost and therefore profit implications of a pioneering strategy

climatic cost benefit analysis under uncertainty and learning on climate sensitivity and damages abstract cost benefit analyses on climate change have drawn considerable critique primarily due to contestable choices of discounting and high uncertainties in climate sensitivity and climatic damages consequentially it is argued that cost benefit analysis can suggest mitigation rates that are nearly arbitrary this article investigates how firm conclusions can be made from cost benefit analysis if the main uncertainties are considered endogenously in the analysis and an extensive sensitivity analysis is carried out regarding the contestable assumptions the score model is used to calculate optimal emission pathways and carbon prices that hedge against climate sensitivity and damage risks using a wide range of plausible parametrizations in a vast majority of cases the near term emissions fall between 1 5 c and 2 c emission pathways giving thus support for the paris agreement targets sequential decision making allows hedging against uncertainties and readjusting mitigation efforts over time to reflect new information leading to diverse stabilization temperatures in the long term assumptions on mitigation costs climate sensitivity and damages affect optimal near term mitigation and long term stabilization temperature more strongly than the discount rate choice the consideration of parametric uncertainty on climate sensitivity and damages adds a substantial risk component to carbon pricing while learning can induce significant price volatility in a decadal timescale

learning curve spillovers and market performance this paper examines the effect of learning curve spillovers on market structure and performance we derive a simple characterization of the true marginal cost for a broad class of learning curves and use calculated examples to show that spillovers substantially undercut the barriers to entry erected by proprietary learning unlike the case of cost reducing research and development spillovers also tend to improve market performance the increased efficiency of the industrywide reduction process typically outweighs the decrease in firms incentives to reduce costs by expanding output

nash bargained household decisions reply pierre andre chiappori s 1988 claim that the nash bargaining model is of weak empirical relevance and neither convenient nor really restrictive is incorrect nash bargained household behavior implies a rich set of empirical implications extending well beyond the pareto efficiency of intrafamily distributions by systematically accounting for the impact of opportunities outside the family on resource distribution within the family nash bargained demand theory considerably expands the scope of neoclassical demand theory such expansion can elucidate issues ranging from the impact of alimony and child support laws in developed societies to the intrafamily distribution of nutrition in less developed countries copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

rotten kids purity and perfection bergstrom has shown that becker s rotten kid theorem holds in a world of two commodities if their utilities are transferable the present paper identifies a further circumstance in which the theorem is valid we show that it also holds in the absence of transferable utility if the externalities are assumed to take the form of a single pure public good

worktime regulations and spousal labor supply we study interdependencies in spousal labor supply by exploiting the design of the french workweek reduction which introduced exogenous variation in one s spouse s labor supply at constant earnings treated employees work on average two hours less per week husbands of treated women respond by reducing their labor supply by about half an hour consistent with substantial leisure complementarity and specifically cut the non usual component of their workweek leaving usual hours unchanged women s response to their husband s treatment is instead weak and rarely statistically significant possibly due to heavier constraints in the organization of their workweek

the learning curve market dominance and predatory pricing sufficient conditions for id and iid are given in the case of two step learning in which a firm reaches the bottom of its learning curve after just two sales however examples are also constructed for the two step learning case in which neither id nor iid holds it is also shown that in equilibrium iid implies that learning is privately disadvantageous although it is socially advantageous finally introducing avoidable fixed costs and possible exit into the model yields a new theory of predatory pricing based on the learning curve hypothesis

the micro economics of group behavior general characterization abstract we study the demand function of a group of s members facing a global budget constraint any vector belonging to the budget set can be consumed within the group with no restriction on the form of individual preferences the nature of individual consumptions or the form of the decision process beyond efficiency moreover only the group aggregate behavior summarized by its demand function is observable we provide necessary and locally sufficient restrictions that fully characterize the group s demand function with and without distribution factors we show that the private or public nature of consumption within the group is not testable from aggregate data on group behavior

the microeconomics of efficient group behavior identification1 consider a group consisting of s members facing a common budget constraint p 1 any demand vector belonging to the budget set can be privately or publicly consumed by the members although the intragroup decision process is not known it is assumed to generate pareto efficient outcomes neither individual consumptions nor intragroup transfers are observable the paper analyzes when to what extent and under which conditions it is possible to recover the underlying structure individual preferences and the decision process from the group s aggregate behavior we show that the general version of the model is not identified however a simple exclusion assumption whereby each member does not consume at least one good is sufficient to guarantee generic identifiability of the welfare relevant structural concepts

the learning curve in a competitive industry we consider the learning curve in an industry with free entry and exit and price taking firms a unique equilibrium exists if the fixed cost is positive although equilibrium profits are zero mature firms earn rents on their learning and if costs are convex no firm can profitably enter after the date the industry begins under some cost and demand conditions however firms may have to exit the market despite their experience gained earlier furthermore identical firms facing the same prices may produce different quantities the market outcome is always socially efficient even if it dictates that firms exit after learning finally actual and optimal industry concentration does not always increase in the intensity of learning

do firms learn to create value the case of alliances we investigate whether firms learn to manage interfirm alliances as experience accumulates we use contract specific experience measures in a data set of over 2000 joint ventures and licensing agreements and value creation measures derived from the abnormal stock returns surrounding alliance announcements learning effects are identified from the effects of unobserved heterogeneity in alliance capabilities we find evidence of large learning effects in managing joint ventures but no such evidence for licensing contracts the effects of learning on value creation are strongest for research joint ventures and weakest for marketing joint ventures these results are consistent with the view that learning effects are more important in situations characterized by greater contractual ambiguity copyright 2000 john wiley sons ltd

a cournot nash model of family decision making this paper models a two person family each family member is utility maximising yet family members are interdependent because of caring and public goods within the family the two family members interdependent utility maximisation problems are first solved using a non cooperative or cournot nash game theoretic framework the cournot nash equilibrium is then used as a threat point in a bargaining game the paper provides a rigorous derivation of the properties of household demands a full analysis of the determinants of intra household resource allocation including the effect of varying household bargaining power and consideration of policy implications

household consumption when the marriage is stable we develop a novel framework to analyze the structural implications of the marriage market for household consumption we de ne a revealed preference characterization of e cient household consumption when the marriage is stable stability means that the marriage matching is individually rational and has no blocking pairs we characterize stable marriage with intrahousehold consumption transfers but without assuming transferable utility we show that our revealed preference characterization generates testable conditions even with a single consumption observation per household and heterogeneous individual preferences across households the characterization also allows for identifying the intrahousehold decision structure including the sharing rule under the same minimalistic assumptions an application to dutch household data demonstrates the usefulness of our theoretical results we nd that the female gets a higher income share when her relative wage increases which we can give a structural interpretation in terms of outside options from marriage that vary with individual wages

nash bargained household decisions a rejoinder this note is a rejoinder to marjorie b mcelroy and mary jean horney s 1990 reply it discusses the scope of mcelroy and horney s previous results and the possibility of estimating a nash bargained model from independent observation of threat points copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

commitment versus discretion in climate and energy policy to decarbonize the power sector policy makers need to commit to long term credible rules for climate and energy policy otherwise risk of opportunistic policy making will impair investments into low carbon technologies however the future benefits and costs of decarbonization are subject to substantial uncertainties thus there may also be societal gains from allowing policy makers the discretion to adjust the policies as new information becomes available we examine how this trade off between policy commitment either unconditional or state contingent and discretion affects the optimal intertemporal design of market based instruments in the power sector using a dynamic partial equilibrium model we show that commitment to a state contingent level of ambition for the market based instrument leads to higher welfare than both unconditional commitment and discretion with benefit uncertainty the choice between the practically more feasible approaches of unconditional commitment and discretion is analytically ambiguous a basic numerical illustration suggests that policy discretion may outperform unconditional commitment in terms of welfare however this result is reversed when only a limited fraction of benefit uncertainty resolves in reasonable time when future policy makers have own agendas or when investors are risk averse with cost uncertainty policy discretion is welfare superior if the government can commit to a technology deployment target

learning by doing organizational forgetting and industry dynamics learning by doing and organizational forgetting have been shown to be important in a variety of industrial settings this paper provides a general model of dynamic competition that accounts for these economic fundamentals and shows how they shape industry structure and dynamics previously obtained results regarding the dominance properties of flrms pricing behavior no longer hold in this more general setting we show that forgetting does not simply negate learning rather learning and forgetting are distinct economic forces in particular a model with learning and forgetting can give rise to aggressive pricing behavior market dominance and multiple equilibria whereas a model with learning alone cannot

non parametric analysis of multi output production with joint inputs we focus on analysing cost minimising production behaviour in multi output settings we distinguish between two approaches for modelling the use of joint inputs the cooperative approach assumes cost minimisation at the aggregate firm level while the non cooperative approach assumes cost minimisation at the level of the individual output division our framework extends the existing non parametric framework for analysing single output production an empirical application to the english and welsh drinking water and sewerage sector shows the practical usefulness of our framework specifically we compare the empirical validity of the cooperative and non cooperative models for describing the observed production behaviour

learning and climate feedbacks optimal climate insurance and fat tails we study the effect of potentially severe climate change on optimal climate change policy accounting for learning and uncertainty in the climate system in particular we test how fat upper tailed uncertainty over the temperature change from a doubling of greenhouse gases the climate sensitivity affects economic growth and emissions policy in addition we examine whether and how fast uncertainties could be diminished through bayesian learning our results indicate that while overall learning is slow the mass of the fat tail diminishes quickly since observations near the mean provide evidence against fat tails we denote as partial learning the case where the planner rejects high values of the climate sensitivity with high confidence even though significant uncertainty remains fat tailed uncertainty without learning reduces current emissions by 38 relative to certainty indicating significant climate insurance or paying to limit emissions today to reduce the risk of very high temperature changes is optimal however learning reduces climate insurance by about 50 the optimal abatement policy is strongly influenced by the current state of knowledge even though greenhouse gas ghg emissions are difficult to reverse non fat tailed uncertainty is largely irrelevant for optimal emissions policy

static and intertemporal household decisions we discuss the most popular static and dynamic models of household behavior our main objective is to explain which aspects of household decisions different models can account for using this insight we describe testable implications identification results and estimation findings obtained in the literature particular attention is given to the ability of different models to answer various types of policy questions

the uniqueness of nash equilibrium in the private provision of public goods abstract this note provides an alternative elementary proof of bergstrom blume and varian s well known result on the uniqueness of nash equilibrium in the private provision of a public good when all goods are normal

the degree of spillovers and the number of rivals for maximum effective r d abstract the amount of cost reduction or effective r d that results in a symmetric sequential nash equilibrium with quadratic payoffs and differentiated goods is shown to increase with spillovers in oligopolies with a few rivals and to achieve a maximum for spillovers that are not perfect in industries with many firms similar tendencies apply for consumer surplus profits and static welfare more rivals typically lead to reduced investments output and profitability while consumer surplus and welfare increase or at least do not decrease limited entry in markets with a few rivals may enhance innovative investments profitability and consumer surplus if only product differentiation and spillovers are sufficiently high and r d costs sufficiently low too many rivals will then again lead to reductions and a decrease in static welfare

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

network location and learning the influence of network resources and firm capabilities on alliance formation this paper presents a dynamic firm level study of the role of network resources in determining alliance formation such resources inhere not so much within the firm but reside in the interfirm networks in which firms are placed data from extensive fieldwork show that by influencing the extent to which firms have access to information about potential partners such resources are an important catalyst for new alliances especially because alliances entail considerable hazards this study also assesses the importance of firms capabilities with alliance formation and material resources as determinants of their alliance decisions i test this dynamic framework and its hypotheses about the role of time varying network resources and firm capabilities with comprehensive longitudinal multi industry data on the formation of strategic alliances by a panel of firms between 1970 and 1989 the results confirm field observations that accumulated network resources arising from firm participation in the network of accumulated prior alliances are influential in firms decisions to enter into new alliances this study highlights the importance of network resources that firms derive from their embeddedness in networks for explaining their strategic behavior copyright 1999 john wiley sons ltd

intra household experiments a survey experiments with family groups are rare but since many decisions are taken at the household level or occur within the household it is an important area to investigate this paper provides a survey of the recent experimental work on intra household decision making i discuss some of the challenges involved in doing experiments with couples and families and consider major areas that remain yet to be explored while general themes from the research are still emerging four results repeatedly occur 1 the absence of efficiency in intra household decisions 2 joint decisions that are not a convex combination of individual decisions 3 individual behaviour is affected by opportunities for hiding actions from spouses and 4 deviations from standard models of microeconomics in line with those seen in the anomalies literature of individual decision making

carbon prices for the next hundred years this paper examines the socially optimal pricing of carbon emissions over time when climate change impacts are unknown potentially high consequence events the carbon price tends to increase with income but learning about impacts or their absence decouples the carbon price from income growth the price should grow faster than the economy if the past warming is not substantial enough for learning the true long run social cost it grows slower than the economy as soon as the warming generates information about events that could have arrived but have not done so a quantitative assessment shows that the price grows roughly at the rate of the economy for the next 100 years

a 4 stated dice quantitatively addressing uncertainty effects in climate change we introduce a version of the dice 2007 model designed for uncertainty analysis dice is a wide spread deterministic integrated assessment model of climate change climate change long term economic development and their interactions are highly uncertain the quantitative analysis of optimal mitigation policy under uncertainty requires a recursive dynamic programming implementation of integrated assessment models such implementations are subject to the curse of dimensionality every increase in the dimension of the state space is paid for by a combination of exponentially increasing processor time lower quality of the value or policy function approximations and reductions of the uncertainty domain the paper promotes a state reduced recursive dynamic programming implementation of the dice 2007 model we achieve the reduction by simplifying the carbon cycle and the temperature delay equations we compare our model s performance and that of the dice model to the scientific aogcm models emulated by magicc 6 0 and find that our simplified model performs equally well as the original dice model our implementation solves the infinite planning horizon problem in an arbitrary time step the paper is the first to carefully analyze the quality of the value function approximation using two different types of basis functions and systematically varying the dimension of the basis we present the closed form continuous time approximation to the exogenous discretely and inductively defined processes in dice and we present a numerically more efficient re normalized bellman equation that in addition can disentangle risk attitude from the propensity to smooth consumption over time

uniqueness of nash equilibrium in private provision of public goods an improved proof our 1986 paper private provision of public goods presents a theorem on the uniqueness of nash equilibrium in the private provision of public goods richard hirth of the university of pennsylvania and clive fraser of warwick have independently suggested that although our theorem is correct our proof is incorrect each writer proposes an alternative method of proof for the theorem with characteristic charity to our own deficiencies we prefer to view our earlier proof as unduly opaque rather than wrong whichever view one takes a more transparent proof is called for the proof presented here follows the same outline as our 1986 proof but explains a step of the argument that was far from obvious in the original proof this proof uses the notation of the 1986 paper and refers to facts that are proved there

gender power fertility and family policy the birth of children often shifts the balance of power within a family if family decisions are made according to the welfare function of the spouses this shift in power might cause a time consistency problem in a model of cooperative family decision making we show that this problem can lead to a systematic downward bias in fertility by keeping fertility low spouses mitigate the ex ante undesired shift in the balance of power that results from the presence of children this provides scope for welfare enhancing policy intervention we discuss to what extent existing family policy measures are suitable for overcoming the bias

noncooperative household demand we study noncooperative household models with two agents and several voluntarily contributed public goods deriving the counterpart to the slutsky matrix and demonstrating the nature of the deviation of its properties from those of a true slutsky matrix in the unitary model we provide results characterising both cases in which there are and are not jointly contributed public goods demand properties are contrasted with those for collective models and conclusions drawn regarding the possibility of empirically testing the collective model against noncooperative alternatives and the noncooperative model against a general alternative

market rivalry and learning by doing abstract the failure to link learning by doing to its market effects and the complementary failure to consider market models in which competition extends to the search for cost efficiency can have unfortunate implications for economic policy this paper considers how the firm s equilibrium investment in learning arises in a two period oligopoly implications of these results for the manufacture of high technology products particularly by japanese semiconductor firms are developed

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

the effects of male and female labor supply on commodity demands we examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply using data on individual households from six years of the uk fes we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables allowance is made for the possible endogeneity of these conditioning labor supply variables we find that separability is rejected furthermore we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates

efficient intra household allocations a general characterization and empirical tests the neoclassical theory of demand applies to individuals yet in empirical work it is usually taken as valid for households with many members this paper explores what the theory of individuals implies for households that have more than one member we make minimal assumptions about how the individual members of the household resolve conflicts all we assume is that however decisions are made outcomes are efficient we refer to this as the collective setting we show that in the collective setting household demands must satisfy a symmetry and rank condition on the slutsky matrix we also present some further results on the effects on demands of variables that do not modify preferences but that do affect how decisions are made we apply our theory to a series of surveys of household expenditures from canada the tests of the usual symmetry conditions are rejected for two person households but not for one person households we also show that income pooling is rejected for two person households we then test for our collective setting conditions on the couples data none of the collective setting restrictions are rejected we conclude that the collective setting is a plausible and tractable next step to take in the analysis of household behavior

the engel curves of non cooperative households we provide a set of necessary and sufficient conditions for a system of engel curves to have been generated by a non cooperative model of family behaviour these conditions fully characterise the local behaviour of household level consumption in the cross section i e as a function of total income and distribution factors in this setting any demand system compatible with a non cooperative model is also compatible with a collective model but the converse is not true we describe how these nested conditions may be tested using standard instrumental variables strategies

the economic effects of climate change greenhouse gas emissions are fundamental both to the world s energy system and to its food production the production of co2 the predominant gas implicated in climate change is intrinsic to fossil fuel combustion specifically thermal energy is generated by breaking the chemical bonds in the carbohydrates oil coal and natural gas and oxidizing the components to co2 and h2o one cannot have cheap energy without carbon dioxide emissions similarly methane ch4 emissions an important greenhouse gas in its own right are necessary to prevent the build up of hydrogen in anaerobic digestion and decomposition one cannot have beef mutton dairy or rice without methane emissions climate change is the mother of all externalities larger more complex and more uncertain than any other environmental problem the sources of greenhouse gas emissions are more diffuse than any other environmental problem every company every farm every household emits some greenhouse gases the effects are similarly pervasive weather affects agriculture energy use health and many aspects of nature which in turn affects everything and everyone the causes and consequences of climate change are very diverse and those in low income countries who contribute least to climate change are most vulnerable to its effects climate change is also a long term problem some greenhouse gases have an atmospheric life time measured in tens of thousands of years the quantities of emissions involved are enormous in 2000 carbon dioxide emissions alone and excluding land use change were 24 billion metric tons of carbon dioxide tco2

distributional effects in household models separate spheres and income pooling we derive distributional eects for a non cooperative alternative to the unitary model of household behaviour we consider the nash equilibria of a voluntary contributions to public goods game our main result is that in general the two partners either choose to contribute to dierent public goods or they contribute to at most one common good the former case corresponds to the separate spheres case of lundberg and pollak 1993 the second outcome yields local income pooling a household will be in dierent regimes depending on the distribution of income within the household any bargaining model with this non cooperative case as a breakdown point will inherit the local income pooling we conclude that targeting bene ts such as child bene ts to one household member may not always have an eect on outcomes

the empirical content of nash bargained household behavior in households whose allocation decisions can be represented as nash bargained household decisions extrahousehold environmental parameters eeps serve as pure shifters of the threat points the comparative statics of changes in demands due to changes in these eeps are given these are incorporated into a comprehensive statement of the empirical content of nash bargained household behavior including a nash generalization of barten s 1966 fundamental matrix equation of the theory of consumer demand estimation and data requirements are discussed along with nested testing of the following structure the neoclassical model is nested in the nash bargained model which in turn is nested in an unrestricted model of household demands emphasized throughout is the enriched menu of explanatory variables for demand analysis provided by the nash model as well as the model s ability to jointly analyze i household formation and ii intrahousehold allocation decisions

does federal disaster assistance crowd out flood insurance abstract we empirically analyze whether federal disaster aid crowds out household purchase of disaster insurance we combine data on annual household flood insurance purchases for the united states over the period 2000 2011 with data from the two main u s post disaster federal aid programs fema s individual assistance grants and sba s low interest disaster loans estimating both fixed effects and instrumental variable models to account for the endogeneity of disaster assistance grants we find that receiving individual assistance grants decreases the average quantity of insurance purchased the following year by between 4000 and 5000 the reduction we find is roughly 3 of the mean insurance coverage in the sample but larger than the average flood related ia grant in our sample which is 2984 ia is currently limited and larger grants could have different impacts the crowding out is on the intensive margin we find no impact on take up rates likely because there is a requirement that recipients of disaster aid purchase an insurance policy we do not know how take up rates might change without such a requirement low interest post disaster government loans have no systematic effect on insurance purchases

impact of growth opportunities and competition on firm level capability development trade offs how should managers prioritize among production product development branding internationalization and other capabilities and resources this question is central to the resource based view and the answer depends not only on the direct returns on investment in each capability but also on the trade offs in using those returns for future growth or survival in a competitive market through simulation experiments this study examines firm level capability development trade offs in the context of a firm s market level competition and growth it is found that investing in operational capabilities which enhance short term performance gains priority over investing in long term dynamic capabilities when the operational capability investment strengthens the reinforcing loop between performance investment flow and capability development such operational capability investment provides growth opportunities and competitive advantage moreover in strategic competition firms anticipating rivals focus on short term growth need to further ignore dynamic long term capability building in order to survive testable propositions are offered as to how trade offs between short term and long term investments depend on different firm and industry characteristics the results may explain why short term focused firm behavior persists in firms even in the absence of discounting short term managerial incentives decision biases or learning failures

the life cycle of the u s tire industry 1 introduction a recent literature has emerged focusing on industry evolution or the dynamic patterns that industries and firms follow as they systematically evolve over time this literature is important because of the insights provided about how industries change why they change and the consequences of industrial change the year 1982 saw three fundamental contributions made to the research on the evolution of industry boyan jovanovic published the first formal model of industry evolution richard nelson and sidney winter presented their influential book on the causes and effects of this phenomenon and michael gort and steven klepper published their careful analysis of the stages of the product life cycle knowledge concerning industry dynamics and industry evolution has expanded since then despite this progress in the field of industry evolution considerable gaps remain for example we lack an adequate empirical understanding of the evolutionary process at the single industry level from the early to the late stages of its life cycle shakeouts have been identified in the literature as an integral component of this evolutionary process the sudden disappearance of large numbers of firms have been documented across a broad spectrum of industries such as steel airline carriers financial intermediaries automobiles and tires an important strand in the literature argues that the catalyst for these shakeouts is the introduction of a new dominant innovation confronted by a new technology introduced by a competitor the inability of other firms to adopt this new dominant technology presumably forces them out of the market jovanovic and macdonald 1994 made a pioneering and parsimonious contribution in this field of research by explaining patterns of number of firms output and prices of the u s tire industry despite the importance of their contribution we argue that their model does not adequately describe the key historic developments that have taken place in this or many other industries that faced a shakeout of producers 2 the domain of relevance of the jovanovic macdonald model is limited it assumes that one innovation followed by just one refinement is responsible for the nonmonotonicity in firm numbers this implies that the model is applicable only for those industries having experienced just two technologies in their entire history an initial low tech and a subsequent high tech phase most industries including the automobile tire industry that was the testing ground of jovanovic and macdonald have an ongoing history of significant improvements in product quality and productivity it seldom occurs that one innovation is dominant this is certainly true for the tire industry nelson 1987 in his study on the u s tire industry observed that there was no single technical breakthrough that unlocked the industry s potential for highspeed production nor was any individual or firm of overriding importance the advent of mass production was a cumulative process resulting from a vast number of successive small changes pp 331 2 italics added almost half a century ago reynolds 1938 p 463 described a similar process the great improvement in tire quality during the past 30 years is undoubtedly due to constant repetition of the cycle of invention and imitation we take a different approach than jovanovic and macdonald and explain the nonmonitonicity in firm numbers as resulting from gradual unit cost reduction over time leading to declining profit margins in the present paper we relate this cumulative process to the concept of learning by doing we will test the model using data of the american tire industry we do this to facilitate the comparison between our model and that of jovanovic and macdonald and because this industry is one of the few for which data are available for a long time period the process of learning by doing leading to decreasing marginal costs over time has an important impact on the number of firms in the industry

bayesian learning growth and pollution abstract environmental problems such as climate change have great uncertainties current expectations are that uncertainties about climate change will be resolved quickly we examine this hypothesis theoretically and computationally we consider bayesian learning about the relationship between greenhouse gas levels and global mean temperature changes a key uncertainty learning is non trivial because of a stochastic shock to the realized temperature we find theoretically the expected learning time which is related to the variance of the shock and the emissions policy implying a tradeoff between the benefits of controlling emissions and information we imbed the learning model into an optimal growth model with a climate sector and solve the resulting dynamic program we find computationally that learning takes on average over 90 yr far longer than currently believed

noncooperative decision making in the household evidence from malawi this paper proposes a novel test of productive efficiency in the household that also allows a test of noncooperative decision making i extend the collective model chiappori 1988 1997 to allow labor choices to affect future bargaining power by raising the value of outside options even if household consumption sharing is efficient labor choices are no longer efficient using data on malawi where there is predetermined variation in land rights that determine outside options in marriage i show that individuals spend more time on agricultural labor and less time on wage labor when household land is theirs they also have lower overall income and consumption the results are inconsistent with the fully efficient collective model but consistent with a noncooperative model with limited commitment where individuals allocate their labor supply to maximize future bargaining power limited commitment can lead to inefficient allocations that reduce household welfare

separate spheres bargaining and the marriage market this paper introduces the separate spheres bargaining model a new model of distribution within marriage it differs from divorce threat bargaining models e g manser brown mcelroy horney in that the threat point is not divorce but a noncooperative equilibrium within marriage this noncooperative equilibrium reflects traditional gender roles the predictions of our model thus differ from those of divorce threat bargaining models in the separate spheres model cash transfer payments to the mother and payments to the father can but need not imply different equilibrium distributions in existing marriages in the long run the distributional effects of transfer policies may be substantially altered by changes in the marriage market equilibrium

the empirical content of cournot competition we consider the testable implications of the cournot model of market competition our approach is nonparametric in the sense that we abstain from imposing any functional specification on market demand and firm cost functions we derive necessary and sufficient conditions for reduced form equilibrium market price and quantity functions to be consistent with the cournot model in addition we present identification results for the corresponding inverse market demand function and the firm cost functions finally we use our approach to derive testable restrictions for the models of perfect competition collusion and conjectural variations this identifies the conditions under which these different models are empirically distinguishable from the cournot model we also investigate empirical issues measurement error and omitted variables related to bringing our testable restrictions to data

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

a note on some limitations of crra utility abstract in a standard environment for choice under uncertainty with constant relative risk aversion crra the existence of expected utility is fragile with respect to changes in the distributions of random variables changes in prior information or the assumption of rational expectations

the climate change learning curve abstract the purpose of this paper is to confront economic models of climate change with the reality that limited information exists with which to form expectations about the evolution of the climate a key element in the tension between those who believe we should impose aggressive climate change mitigation policies and those who do not is the question of if we are merely in a long period of shock induced above average temperatures or if observed increases in temperature are a result of carbon emissions this paper characterizes learning dynamics resulting from the use of observations of temperature to update beliefs about two key characteristics of global climate the persistence of natural trends and the sensitivity of temperature to atmospheric carbon levels this paper shows that contrary to predictions in the literature that uncertainty may be resolved very quickly the time to learn the true processes may be in the order of thousands of years further this paper shows the effects of uncertainty on the likelihood that observations from the statistical record lead to important estimate and policy errors

income and outcomes a structural model of intrahousehold allocation there is evidence from several sources that one cannot treat many person households as a single decision maker if this is the case then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household we develop a method of identifying how incomes affect outcomes given conventional family expenditure data the basic assumption we make is that household decision processes lead to efficient outcomes we apply our method to a sample of canadian couples with no children we find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

investment and financing decisions with learning curve technology abstract the learning curve has a significant impact on production cost hence corporate profit in a number of industries while the learning curve is well recognized in the economics literature and its effect on operating costs and production decisions widely studied its effect on corporate investment has been largely unexplored to our knowledge there is one paper that examines this issue but it is limited to unlevered firms we therefore examine a levered firm s optimal investment and financing choices when using learning curve technology the main findings are as follows the effect of leverage on the investment decision depends on the level of debt using the optimal debt level will result in earlier and larger investment thus leverage has a positive effect on investment overall and the difference between levered and unlevered firm is an increasing function of learning speed the optimal leverage ratio without a borrowing constraint is an increasing function of learning speed with a borrowing constraint the investment decision is similar to the unconstrained borrowing case but the leverage ratio is initially increasing and subsequently decreasing in learning speed moreover it is a decreasing function over a wider range for a more stringent borrowing constraint for decreasing returns to scale technology and for a less volatile product market

quadratic engel curves and consumer demand this paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices a nonparametric analysis of consumer expenditure patterns suggests that engel curves require quadratic terms in the logarithm of expenditure while popular models of demand such as the translog or the almost ideal demand systems do allow flexible price responses within a theoretically coherent structure they have expenditure share engel curves that are linear in the logarithm of total expenditure we derive the complete class of integrable quadratic logarithmic expenditure share systems a specification from this class is estimated on a large pooled data set of u k households models that fail to account for engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase