contractual solutions to the hold up problem this paper considers a general version of the hold up problem where n agents first make relation specific investments and then must agree on some collective action it is shown that first best solutions exist under a variety of different assumptions about the nature of information asymmetries

measuring the demand for improved urban sanitation services results of a contingent valuation study in ouagadougou burkina faso in developing countries there are few institutional mechanisms for the incorporation of demand information in the planning of public services as a result misjudgements about consumer preferences have often led to poor project design and performance the contingent valuation method which relies on direct elicitation of consumer preferences and willingness to pay has emerged as one approach to address this shortcoming the paper describes an application of the method to facilitate demand driven planning for provision of improved sanitation in ouagadougou burkina faso the results suggest that demand information about unfamiliar technologies can be successfully obtained and can serve as a useful input in the design of public services

investments holdup and the form of market contracts the authors analyze incomplete contracts to induce efficient investment with exogenous switching costs fixed price contracts are efficient generate some rigidity in prices are renegotiated intermittently by possibly small amounts and when inflation is positive generate asymmetric responses to shocks all consistent with evidence on prices and wages with two sided specific investments efficiency requires prices to have sufficient escalator clauses to avoid renegotiation as observed in many long term contracts a third case with one sided specific investments can generate take or pay contracts and explain why firms sometimes pay for specific investments that appear to benefit employees directly

examining the differences in self and publicly supplied firms water demands this research examines the fac tors influencing the decision made by manufac turing firms regarding their source of water sup ply and tests whether self supplied firms exhibit demands for intake water different from firms supplied by a public utility the first stage of the estimation model involves a probit analysis of the supply source choice and the second stage employs a regression model with endogenous switching to estimate the demand equations for the two types offirms results indicate that eco nomic factors such as annual connection fees influence the supply source decision jel q25

estimation of substitution possibilities between water and other production inputs the traditional approach to measuring the demand for water by industries relies upon fixed water use coefficients water supply planners base decisions about system expansion partly upon fixed coefficients applied to projected levels of industrial growth among the restrictive assumptions implied by this approach is that producers are generally unresponsive to the relative price of water compared with other factors earlier studies focused on industry by industry assessments of present and potential water use technologies and the possibilities for substituting other productive inputs for water most of these studies are economic engineering in form thompson and young and russell are analyses of the steam electric generating industry and the petroleum refining and petrochemical industry respectively because they used linear programming techniques their results must be interpreted cautiously the flexible functional forms which have become

market microstructure and incentives to invest market organization significantly affects total output and incentives for firms to invest i compare three types of market organization in a market with search and random matching total output is excessive and there are incentives for inefficient underinvestment in a market with a monopoly dealer total output is insufficient and underinvestment also occurs competition between the search market and the dealer market improves incentives to invest and competition between dealers yields efficient total output and investment this suggests that additional entry of wholesalers and other interbusiness dealers should stimulate aggregate business investment

analysing inflation by the fractionally integrated arfima garch model this paper considers the application of long memory processes to describing inflation for ten countries we implement a new procedure to obtain approximate maximum likelihood estimates of an arfima garch process which is fractionally integrated i d with a superimposed stationary arma component in its conditional mean additionally this long memory process is allowed to have garch type conditional heteroscedasticity on analysing monthly post world war ii cpi inflation for ten different countries we find strong evidence of long memory with mean reverting behaviour for all countries except japan which appears stationary for three high inflation economies there is evidence that the mean and volatility of inflation interact in a way that is consistent with the friedman hypothesis

cooperative investments and the value of contracting recent articles have shown that contracts can support the efficient outcome for bilateral trade even in the face of specific investments and incomplete contracting these studies typically considered selfish investments that benefit the investor e g the seller s investment reduces her production costs the authors find very different results for cooperative investments that directly benefit the investor s partner e g the seller s investment improves the buyer s value of the good most importantly if committing not to renegotiate the contract is impossible then contracting has no value i e the parties cannot do better than to abandon contracting altogether in favor of ex post negotiation

platform competition and seller investment incentives many products and services are not sold on open platforms but on competing for profit platforms which charge buyers and sellers for access what is the effect of for profit intermediation on seller investment incentives since for profit intermediaries reduce the available rents in the market one might naively suspect that sellers have weaker investment incentives with competing for profit platforms however we show that for profit intermediation may lead to overinvestment when free access would lead to underinvestment because investment decisions affect the strength of indirect network effects and thus access prices we characterize the effect of for profit intermediation on investment incentives depending on the nature of the investment and on which side of the market singlehomes

business to business electronic commerce just as the industrial revolution mechanized the manufacturing functions of firms the information revolution is automating their merchant functions four types of potential productivity gains are expected from business to business b2b electronic commerce cost efficiencies from automation of transactions potential advantages of new market intermediaries consolidation of demand and supply through organized exchanges and changes in the extent of vertical integration of firms the article examines the characteristics of b2b online intermediaries including categories of goods traded market mechanisms employed and ownership arrangements and considers the market structure of b2b e commerce

aggregation and simple dynamics the koyck geometric lag or ar 1 specification is a commonly proposed behavioral model sometimes after differencing the distribution of koyck lag or ar 1 coefficients across agents in an economy is shown to be completely identified just from the dynamic behavior of aggregate macroeconomic data aggregate testable implications of an economy composed of agents having koyck lags or ar 1 models are provided extensions to higher order and time varying lags are discussed aggregate u s consumption data are shown to support the hypothesis that some consumers have random walk consumption while the rest have arima 1 1 0 consumption with widely varying ar coefficients copyright 1994 by american economic association

discovering the link between inflation rates and inflation uncertainty a new time series model is used to reassess the strength of the link between inflation uncertainty and the level of inflation in the united states the model provides several statistical measures that can be used to examine different aspects of uncertainty the main finding is that uncertainty about the long rather than short term prospects for inflation moved strongly with the rate of inflation since the early 1970s copyright 1991 by ohio state university press

water reuse in brazilian manufacturing firms this article examines the factors influencing manufacturing firms water reuse decision and analyses whether the structure of intake water demand differs between firms that adopt water reuse practices and those which do not the first stage of the estimation model involves a probit analysis of the water reuse decision and the second stage employs an endogenous switching regression to estimate the intake water demand equations results suggest that water charges may act as an effective mechanism in inducing firms to undertake water reuse investments and in reducing intake water demand estimates of the water demand price elasticities indicate that plants that reuse water are more sensitive to water price increases than plants without access to reuse technologies

estimating the structure of industrial water demands the case of canadian manufacturing this study considers water use by canadian manufacturing firms the estimation of water demands is based on a detailed cross sectional survey of establishment level observations on water prices quantities and expenditures industrial water use is modeled as having four components intake treatment prior to use recirculation and discharge average values for the estimated own price elasticity for water intake range from 0 1534 to 0 5885 water recirculation is found to be a substitute for both water intake and water discharge this confirms that expanding the use of economic incentives e g effluent fees may be effective in encouraging firms to reduce their water use while increasing in plant recirculation

aggregation with log linear models when economic theory suggests a log linear specification for individual agents e g cobbdouglas production it is common to estimate the same log linear model with aggregate data invoking a representative agent assumption and thereby assuming away aggregation errors this paper gives necessary and sufficient restrictions on the distribution of agents in an economy for log linear agent models to aggregate into log linear macro models and discusses the aggregation bias resulting from violation of these restrictions theorems tests economic rationales and empirical results are given included are connections to random walks and to cointegration analogous results for log level models are derived

the economic value of lng in the korean manufacturing industry abstract although lng is an important input to industrial production for manufacturing firms its economic value has been rarely investigated in the literature this paper attempts to estimate the economic value of lng in korea s manufacturing sector by employing the concept of the value of marginal product vmp for this we used data on 328 firms using lng as an input two types of production functions the cobb douglas and trans log functions are applied the result of the specification test indicates that the trans log function is more appropriate for estimating the data the output elasticity and vmp of industrial lng are estimated to be 0 1346 and krw 6844 usd 6 22 per m 3 respectively the results have important implications for various areas of industrial lng management for example any cost benefit analysis of new projects providing industrial lng requires information on the economic value of industrial lng in addition such information is useful for the korean government s future policies on lng pricing

holdups and efficiency with search frictions a natural holdup problem arises in a market with search frictions firms have to make a range of investments before finding their employees and larger investments translate into higher wages in particular when wages are determined by ex post bargaining the equilibrium is always inefficient recognizing that capital intensive production relations have to pay higher wages firms reduce their investments this can only be prevented by removing all the bargaining power from the workers but this in turn depresses wages below their social product and creates excessive entry of firms in contrast to this benchmark we show that efficiency is achieved when firms post wages and workers can direct their search toward more attractive offers this efficiency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage offers we show that the underlying reason for efficiency is not wage posting per se but the ability of workers to direct their search toward more capital intensive jobs

the relationship between forecast dispersion and forecast uncertainty evidence from a survey data arch model this paper examines empirically the relationship between measures of forecast dispersion and forecast uncertainty from data on inflation expectations from the livingston survey series and the survey research center src survey series because the survey series do not provide probabilistic forecasts of inflation we derive measures of inflation uncertainty by modelling the conditional variance of the inflation forecast errors from the survey series as an autoregressive conditional heteroscedastic arch process the analysis is complicated by the fact that the overlap of forecast horizons for the survey series does not preclude the model s disturbance terms from displaying autocorrelation and also places a restriction on the specification for the arch measures of inflation uncertainty we estimate the model using hansen s 1982 generalized method of moments gmm procedure to account for the presence of serial correlation and conditional heteroscedasticity in the disturbance terms the results generally support the hypothesis that the measures of forecast dispersion across survey respondents are positively and statistically significantly associated with the measures of inflation uncertainty however the appropriateness of using forecast dispersion measures as proxies for inflation uncertainty is sensitive to the choice of the survey series

valuing water for chinese industries a marginal productivity analysis a marginal productivity approach is developed for valuing industrial use of water and applied using data from chinese industrial firms where water as well as capital labour and raw materials are treated as inputs to a production function models on price elasticity of water demand associated with the marginal productivity approach are also developed and estimated for different chinese industrial sectors

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

does competition solve the hold up problem in an environment in which heterogeneous buyers and sellers undertake ex ante investments the presence of market competition for matches provides incentives for investment but may leave inefficiencies namely hold up and coordination problems this paper shows using an explicitly non cooperative model that when matching is assortative and investments precede market competition buyers investments are constrained efficient while sellers marginally underinvest with respect to what would be constrained efficient however the overall extent of this inefficiency may be large multiple equilibria may arise one equilibrium is characterized by efficient matches but there can be additional equilibria with coordination failures

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models

modelling multi period inflation uncertainty using a panel of density forecasts this paper examines the determinants of inflation forecast uncertainty using a panel of density forecasts from the survey of professional forecasters spf based on a dynamic heterogeneous panel data model we find that the persistence in forecast uncertainty is much less than what the aggregate time series data would suggest in addition the strong link between past forecast errors and current forecast uncertainty as often noted in the arch literature is largely lost in a multi period context with varying forecast horizons we propose a novel way of estimating news and its variance using the kullback leibler information and show that the latter is an important determinant of forecast uncertainty our evidence suggests a strong relationship of forecast uncertainty with level of inflation but not with forecaster discord or with the volatility of a number of other macroeconomic indicators copyright 2006 john wiley sons ltd