market microstructure of the pink sheets abstract we study the microstructure of the pink sheets and assess the ability of existing theory to capture salient features of this relatively unstructured and unregulated market clustering patterns in quotes quoted spreads and trade prices indicate that market participants have selected price dependent tick sizes for different stocks clustering intensity varies across stocks as a function of proxies for information availability similarly the bid ask spread varies as a function of volatility and liquidity these results suggest 1 microstructure research has established robust predictions of market attributes and 2 unstructured markets are able to develop at least some effective behavioral norms endogenously

strategic labour contracts labor contracts affect a firm s cost function and for this reason they can be used as a recommitment device to gain a strategic advantage against other firms in a model that is otherwise neutral it is found that if firms compete in prices then strategic considerations alone yield results similar to those obtained by c azariadis 1983 workers are underemployed and worse off in more adverse states of nature on the other hand if firms compete in quantities then the equilibrium contracts resemble those of j green and c kahn 1983 workers are overemployed and better off in more adverse states

a common agency with incomplete information in the present article i demonstrate that forming a common agency by oligopolistic firms may not be to their advantage if agents have access to private information about their costs bernheim and whinston 1985 1986 pointed out that a common agency allows the firms to sustain the collusive outcome by giving them a vehicle to internalize the externality generated by their pricing or output decisions if agents have access to private information the advantage pointed out by bernheim and whinston may be more than outweighed by the possible existence of an informational disadvantage specifically if the unit costs of different potential agents are correlated the firm may be more successful in extracting the informational rents of its agent if it contracts with an independent agent and not with the same agent as its rival firm when oligopolistic firms contract with independent agents the revenues of one firm reveal implicit information about the unit costs of agents serving competing firms in the same industry however if the unit costs of different agents are correlated revenues also reflect information about the unit cost of the firm s own agent this additional information transmitted by revenues cannot be controlled by the agent s reporting behavior as a result if the firm conditions its agent s payoff upon revenues it can limit the informational rents that this agent can secure due to the existence of private information this possibility of limiting its agent s informational rents is eliminated if the firm contracts with the same agent as its rivals with a common agency the agent can manipulate the reports delivered to all the firms thus reducing the options available to each of them various patterns of agency relationship exist in markets where oligopolistic producers

delegation and commitment in durable goods monopolies this paper studies a simultaneous move infinite horizon delegation game in which the principal of a durable goods monopoly entrusts pricing decisions to a manager who enjoys consuming her monetary rewards but dislikes production effort the delegation contract allows for continual interference with managerial incentives in each period the principal rewards the manager according to her performance we show that when the cost of delegation is low relative to profits the principal can attain the precommitment price plan in a perfect rational expectations equilibrium the paper analyzes the robustness of this result under alternative specifications of timing and objectives we also provide a numerical characterization of the equilibrium strategies for the case of linear quadratic payoffs

strategic delegation by unobservable incentive contracts many strategic interactions in the real world take place among delegates empowered to act on behalf of others managers make strategic decisions that affect profits sales persons have power over setting prices and lawyers and sports agents represent their clients in bargaining processes one of the central messages of game theory is that this could be at least partly due to the strategic advantage delegation may provide to the delegating party the idea that signing binding and publicly observable contracts with a third party may serve as a beneficial commitment device goes back at least to schelling 1960 and has been put into use in many areas of economics 1 however the observability of contracts appears to be a precondition for them to play a commitment role and for this reason almost all applications of strategic delegation theory are couched in terms of observable contracts the formalization of this intuition is given by katz 1991 who showed that if contracts are unobservable then the nash equilibrium outcomes of a game with and without delegation coincide in particular delegation through unobservable contracts does not change the predicted outcome of games with a unique nash equilibrium these observations in turn call the empirical relevance of the applied delegation studies into serious question since in most real world transactions the signed contracts are unobservable to the outside parties however there are important strategic environments that fall outside the confines of katz s analysis first katz s model does not include the scenarios in which the outcome of the decision of delegating or not delegating is observable to the outside party in contrast in some models it is natural that the outside party observes the outcome of this decision simply because s he

executive compensation strategic competition and relative performance evaluation theory and evidence we examine compensation contracts for managers in imperfectly competitive product markets we show that strategic interactions among firms can explain the lack of relative performance based incentives in which compensation decreases with rival firm performance the need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance firms in more competitive industries place greater weight on rival firm performance relative to own firm performance we find empirical evidence of a positive sensitivity of compensation to rival firm performance that is increasing in the degree of competition in the industry

optimal collusion with internal contracting abstract in this paper two firms play an infinitely repeated bertrand game and each firm has an agent who produces the firm s output and holds private information about production costs the colluding firms fix prices and allocate market shares based on their agents information we develop a model of collusion in which firms use the presence of agents as a strategic opportunity to restrict their incentives to distort private information we show that such firm behavior may expand the scope of optimal collusion whether market allocation schemes are asymmetric or symmetric

when not all conflict is bad manufacturing marketing conflict and strategic incentive design researchers and managers broadly agree that coordination and harmony between manufacturing and marketing improve firm performance by eliminating suboptimal practices within the firm in this paper we present a contrasting view of the manufacturing marketing interface we model a duopoly in which the firms compete on price and quality dimensions the manufacturing and marketing managers within each firm are presented with conflicting incentives focused on cost minimization and revenue maximization respectively these managers bargain with each other before arriving at compromise decisions regarding price and quality while frequently encountered in practice this conflicting objectives puzzle is surprising because one expects that centralized coordination by the owners of the firm towards profit maximization would lead to higher profits in this paper we resolve the conflicting objectives puzzle and demonstrate that surprisingly the firm s resulting profits in this setting of conflict can be higher than those obtained when the decisions of the managers are perfectly coordinated we also analyze the equilibrium in incentive plans when the owners can choose between compromise and perfect coordination our results offer a new interpretation of manufacturing marketing conflict as a strategic tool that can enhance firm profits

minimum price variations discrete bid ask spreads and quotation sizes exchange minimum price variation regulations create discrete bid ask spreads if the minimum quotable spread exceeds the spread that otherwise would be quoted spreads will be wide and the number of shares offered at the bid and ask may be large a cross sectional discrete spread model is estimated by using intraday stock quotation spread frequencies the results are used to project 1 16 spread usage frequencies given a 1 16 tick projected changes in quotation sizes and in trade volumes are obtained from regression models for stocks priced under 10 the models predict spreads would decrease 38 percent quotation sizes would decrease 16 percent and daily volume would increase 34 percent article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

regulation fair disclosure and the cost of adverse selection regulation fair disclosure fd imposed by the securities and exchange commission in october 2000 was designed to prohibit disclosure of material private information to selected market participants the informational advantage such select participants gain is unclear if multiple insiders receive identical information private information is immediately incorporated in price and each insider has zero expected profit if on the other hand regulation fd has curtailed the flow of information from firms private information becomes longer lived and more valuable hence market makers will demand increased compensation by widening the adverse selection component of the bid ask spread we identify the cost components of the bid ask spread for a sample of nasdaq stocks surrounding the implementation of regulation fd controlling for other factors affecting the spread we find that adverse selection costs increase approximately 36 after regulation fd we interpret our finding as regulation fd failing to achieve one of its desired objectives

competing vertical structures precommitment and renegotiation we consider a model where two agents privately informed about their own characteristics play a normal form game on behalf of two uninformed principals we analyze the existence of precommitment effects through public announcements of contracts in a model where agency contracts designed ex ante can always be secretly renegotiated at the ex ante and interim stages we show that the existence of precommitment effects depends both on the strategic complementarity of the agents actions and on the direct effect of the opponents actions on each principal s welfare in our model the possibility of renegotiation is crucial for the existence of precommitment effects the results are introduced through an example of cournot and bertrand competition between firms viewed as vertical structures

subsidy and tuition policies in public higher education i introduction the much discussed and widely debated recent conditions in public higher education include expanding enrollments flat if not declining public appropriations per resident student and rapid increases in tuition rates 1 to many observers tuition policy in public higher education appears be explained as an attempt to set tuition at whatever level is necessary to compensate for shortfalls between public appropriations and instructional expenditures ehrenberg 2006 asserts that public higher education has been buffeted by a perfect storm in which state appropriations to public higher education institutions have failed to keep pace with per student expenditures in private higher education because of economic recession the priorities placed on alternative uses of state tax revenues such as elementary and secondary education medicaid welfare and criminal justice and efforts to reduce income and sales tax rates a considerable empirical literature examines the relationship between tuition in public higher education and state appropriations koshal and koshal 2000 identify a negative relationship between tuition and state appropriation a study of college costs and prices which is conducted by cunningham et al 2001 identifies an inverse association between tuition rates and annual budget appropriations but finds little evidence of a link between tuition and expenditures on instruction lowry 2001 treats state appropriations as exogenous in a resident tuition equation and discovers a significant negative relationship between state funding and tuition rizzo 2005 finds that increases in tuition are linked to declines in future levels of state funding which hints at a dynamic association rizzo and ehrenberg 2004 in one of the more extensive examination of the topic treat real state appropriations per student as an exogenous variable in their resident tuition equation and find that schools that receive higher state appropriations per student charge lower tuition though the elasticity is far from unity acknowledging the economic and demographic conditions of public higher education and the empirical literature linking appropriations and tuition raises a number of questions what activities are legislatures supporting when they allocate public funds to higher education what are the implied responsibilities for subsidizing residents versus nonresidents how are resident and nonresident tuition rates determined and what are the relationships among tuition rates resident and nonresident enrollments and state appropriations to higher education in particular there appears to be the need to develop a better understanding of the decision processes that determine both the public subsidy and the setting of tuition rates a goal of this article is to develop a conceptual framework for that process there is a widely held notion that residents should pay a lower tuition than nonresidents and as a result of a resident subsidy they do so in nearly all public universities one rationale for favorable treatment is that residents and their parents pay state taxes another claim which receives some support by groen 2004 is that residents are likely to remain in the state after graduation and thus contribute future tax revenues although the public subsidy to higher education is justified for these and many other economic development reasons some argue that the higher education subsidy is simply a payoff to special interest groups who influence legislatures and governors friedman 1968 and goldin and katz 1998 provide a general discussion of the objectives of subsidized higher education for whatever reasons resident students continue to receive a substantial publicfinanced subsidy while nonresidents pay close to full cost there are two basic arrangements for determining tuition rates in higher education 1 institutions determine tuition rates under the direction of an independent governing board and 2 state legislatures who are governed by statues and budget policies make tuition decisions

endogenous timing in contests with delegation i introduction contests with delegation where each player hires a delegate to expend effort or resources on the player s behalf to win a prize are common 1 an example is litigation between a plaintiff and a defendant in which each litigant hires an attorney who expends his effort to win the lawsuit on behalf of his client another example is a rent seeking contest in which each firm hires a lobbyist who expends his effort to acquire a monopoly or a procurement contract from the government on behalf of his client yet another example is a patent contest in which each firm hires a group of independent researchers or university professors who conduct research to obtain a patent on behalf of their employer delegation is attractive to players because they each can use superior ability by hiring a delegate with more ability than herself and achieve strategic commitments through delegation in such contests with delegation we believe delegates decide endogenously when to expend their effort after signing delegation contracts indeed pursuing their self interest the delegates may well endogenize the order of their moves and communicate it with each other before they expend their effort we believe also that players take it into account when designing their contracts for the delegates that the delegates will endogenize the order of their moves it is these ideas that motivate this paper accordingly the purpose of this paper is to systematically study contests with delegation in which delegates decide endogenously when to expend their effort after signing delegation contracts and before they expend their effort we study two player contests with delegation focusing on not only the equilibrium delegation contracts between players and their delegates but also the equilibrium orders of the delegates moves specifically we set up and analyze the following three stage game in the first stage two players each hire a delegate and they simultaneously announce their contracts written with their delegates each player s contract specifies how much her delegate will be paid if he wins the contest and how much if he loses it in the second stage each delegate decides when to expend his effort and the delegates announce their decisions simultaneously in the third stage the delegates expend their effort according to their decisions in the second stage to win the prize on behalf of their employers we show that in equilibrium the delegate hired by the higher valuation player chooses his effort level after observing his counterpart s and his expected payoff is greater than that of his counterpart this advantage of the delegate of the higher valuation player can be explained by the fact that his employer the higher valuation player offers better contingent compensation as it will be defined in section ii to him than the lower valuation player does to her delegate we compare the outcomes of the endogenous timing framework the three stage game presented above with those of the simultaneous move framework the game which is the same as the three stage game with the exception that the delegates choose their effort levels simultaneously and this order of their moves is given exogenously an interesting result is that each player offers her delegate a better contract in the endogenous timing framework than in the simultaneous move framework another interesting result is that unless the valuation for the prize of the higher valuation player is significantly greater than that of the lower valuation player then each delegate s expected payoff is greater in the endogenous timing framework than in the simultaneous move framework whereas each player s expected payoff is less in the endogenous timing framework than in the simultaneous move framework in summary pursuing their self interest the delegates decide endogenously when to expend their effort given contracts between the players and the delegates

coexistence of strategic vertical separation and integration abstract this paper gives conditions under which vertical separation is chosen by some upstream firms while vertical integration is chosen by others in the equilibrium of a symmetric model a vertically separating firm trades off fixed contracting costs against the strategic benefit of writing a two part tariff exclusive dealing contract with its retailer coexistence emerges when more than two vertical cournot oligopolists supply close substitutes when vertical integration and separation coexist welfare could be improved by reducing the number of vertically separating firms the scope for coexistence diminishes when assumptions on contract observability and commitment are relaxed

estimating product market competition methodology and application abstract in oligopolies firms behave strategically and commit to actions that elicit favorable responses from rivals firm actions consequently are a function of the nature of these strategic interactions in this paper we develop a methodology for the empirical estimation of strategic interactions in product markets we then apply our measure of strategic interactions to ceo compensation we use quarterly data on profits and sales from compustat to estimate the slope of firm s reaction function when the slope is negative and marginal profits decrease with an increase in the rival s actions the firm is classified as a strategic substitute when the slope is positive and marginal profits increase with an increase in the rival s actions the firm is classified as a strategic complement as predicted by theory we find significant evidence that strategic substitutes decrease the pay for performance incentives of their ceos on the other hand strategic complements significantly increase ceo pay for performance incentives the empirical measure developed can be used to test a wide variety of strategic models

information time option pricing theory and empirical evidence abstract with a stochastic time change from calendar time to information time we derive a parsimonious option pricing formula with stochastic volatility as a risk neutral poisson sum of merton s 1973 prices over the option s information time maturity domain the formula contains two unobservable parameters information arrival intensity and information time asset volatility with stochastic volatility induced by random information arrival when the information arrival rate intensifies the option price increases and vice versa we test the formula in pricing hedging and excess profits capture empirically using currency and the s p 500 futures options transaction data

the effects of shifts in a return distribution on optimal portfolios when the distribution of the returns of a risky asset undergoes a stochastically dominating shift a risk averse investor may not necessarily increase the investment in that asset this paper provides restrictions on the investor s utility function that are necessary and sufficient for a dominating shift to bring about no decrease in the investment in the respective asset if there are two risky assets in the portfolio these conditions are also necessary if there are n 2 assets and are necessary and sufficient if the utility function exhibits constant absolute risk aversion copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

mercantilism as strategic trade policy the anglo dutch rivalry for the east india trade this paper interprets seventeenth century mercantilism in light of recent theories of strategic trade policy long distance international commerce during the mercantilist period was undertaken chiefly by state chartered monopoly trading companies and was therefore conducted under conditions of imperfect competition the economic structure of the anglo dutch rivalry for the east india trade provides an excellent illustration of an environment in which the profit sharting motive for strategic trade policies exists dutch supremacy in the early east india trade was facilitated by a managerial incentive scheme in the monopoly charter that enabled it to achieve a stackelberg leadership position against the english using data from the east india trade around 1620 in a cournot duopoly model i find that the managerial incentives yielded greater dutch profits than would have been obtained from a standard profit maximizing objective and that the scope for other strategic trade policies was clearly present

entry and managerial incentives abstract this paper presents a two period full information model of entry where owners of incumbent and entrant firms endogenously select the incentive schemes for their managers it is shown that when output decisions are delegated to managers the incumbent s owner chooses to base incentive schemes only partly on profit but if output decisions are reached via nash bargaining between managers the incumbent s owner will base the reward on profit alone the entrant never bases the incentive scheme solely on profit if there is a sufficiently high fixed cost of entry then the incumbent can deter entry by providing management with appropriate incentive schemes

managerial incentives and the price effects of mergers most analysis of market power assumes that managers are perfect agents for shareholders this paper relaxes that assumption when managers of a multi product firm exert unobservable effort to improve product quality there is a trade off between providing adequate effort incentives and ensuring sufficient price coordination between the product divisions this makes some intra firm price competition optimal explaining why many multi product firms allow for competition between divisions when there are effort spillovers the optimal amount of price competition can be as great as when the products are under separate ownership even with some profit sharing intra firm price competition can reduce quality adjusted price which has important implications for antitrust policy

strategic gains from discrimination abstract according to a classical argument an employer handicaps herself if basing hiring decisions on factors unrelated to productivity therefore discrimination is undermined by competition this paper in contrast argues that being discriminatory can be a commitment device that helps an employer and its rivals to partially segment the labor market which leads to lower wages and higher profits discrimination can thus be an endogenous response to competition indeed the relationship between discrimination and competition can be non monotone moreover the logic suggests that a ban on wage discrimination may instead lead to discrimination in hiring

corporate tax systems multinational enterprises and economic integration abstract multinational firms are known to shift profits and countries are known to compete over shifty profits two major principles for corporate taxation are separate accounting sa and formula apportionment fa these two principles have very different qualities when it comes to preventing profit shifting and preserving national tax autonomy most oecd countries use sa in this paper we show that a reduction in trade barriers lowers equilibrium corporate taxes under sa but leads to higher taxes under fa from a welfare point of view the choice of tax principle is shown to depend on the degree of economic integration

share tenancy as strategic delegation abstract the paper develops a new explanation of sharecropping based on the idea of an incentive equilibrium it considers a set up in which a few landlords in a village confront the choice of cultivating their farms by adopting different tenurial arrangements ranging from owner operation through the fixed rental system to sharecropping these landlords are the only sources of employment in the village and compete in the wages they pay to their workers in such an environment sharecropping is explained as a form of strategic delegation where a landlord gets extra benefit by having a share tenant and giving him suitable incentives

an empirical investigation of the relative performance evaluation hypothesis the principal agent framework has become a widely used paradigm in accounting and economics for analyzing issues in performance evaluation management control and the design of incentive systems while recent work in experimental economics has begun to examine empirically some of the underlying assumptions and implications of agency theory see baiman and lewis 1989 and kirby forthcoming few precise hypotheses have been tested using real world or naturally occurring data one exception has been the empirical investigation of the relative performance evaluation rpe hypothesis agency theory suggests that there are benefits associated with evaluating agents on the basis of their relative performances when the agents performances are affected by a common shock term e g see diamond and verrecchia 1982 and holmstrom 1979 1982 specifically a relative performance based contract can remove the common shock term from an agent s performance which enables a better evaluation of the agent s actions

strategic export promotion in the absence of government precommitment arguments in favor of a strategic trade policy are based on the assumption that the government can credibly precommit to a policy that will not be altered even if it is suboptimal ex post this paper examines the implications of relaxing this assumption to this end a three stage game is considered that accounts for the sunk costs associated with capacity installment it is found that contrary to common belief the time consistent optimal subsidy level is positive though generally lower than the optimal level with precommitment this somewhat counterintuitive result is driven by the commitment value of capacity copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

comparative statics and portfolio choices under the phantom decision model abstract this study characterizes attitudes toward uncertainty in the phantom decision model introduced by izhakian and izhakian 2015 and conducts a comparative statics analysis to examine how changes in phantom uncertainty and phantom aversion affect portfolio choices first phantom averse and more phantom averse are defined in a manner that differs from izhakian and izhakian 2015 assuming that utility functions have realization forms the above notions are characterized by the shapes of their reduction components for the portfolio choice problem that consists of one safe asset and one phantom asset we derive sufficient conditions under which changes in phantom uncertainty and phantom aversion monotonically decrease the investment in the phantom asset some familiar concepts in expected utility theory are extended to the framework of the phantom decision model

strategic managerial incentives in a two period cournot duopoly abstract this paper examines the nature of optimal managerial incentives in the context of a duopoly marked by competition between the firm s managers in a dynamic production environment if the marginal cost of production falls moderately over time or remains unchanged there exists an equilibrium where one owner requires her manager to maximize profit whereas the rival owner requires her manager to maximize sales revenue the profit maximizing manager turns his firm into a stackelberg leader while the sales revenue maximizing manager turns his firm into a stackelberg follower further the profit maximizing manager may generate a larger firm profit relative to the sales revenue maximizing manager

oligopoly profit sharing contracts and the firm s systematic risk abstract this article examines the properties of wage and profit sharing contracts in a model of oligopoly with capital market equilibrium while profit sharing contracts dominate market wage contracts profit sharing also reduces the firm s cost of equity capital under fairly broad conditions of oligopoly by enforcing lower costs in exchange for a pre determined share of cash flows to workers this form of operational leverage both reinforces the classical effect of market power on systematic risk and the impact of profit sharing on the corporate finance of the firm as previously suggested by ichino 1994 european economic review 38 1411 1422

stock options and the strategic use of managerial incentives in cournot based oligopoly models there is an incentive for firms to pursue overly aggressive behavior resulting in prices and profits below those of the cournot equilibrium compensating managers in proportion to a combination of profits and sales provides one mechanism through which aggressive behavior emerges however when the profit component of managerial compensation comes in the form of stock options the aggressive behavior is restrained or even eliminated in equilibrium this result relies only on the nonlinearity of the stock option generalizations to other forms of compensation are discussed copyright 1993 by american economic association

strategic upfront marketing channel integration as an entry barrier abstract this paper investigates an organizational design problem concerning whether duopolistic firms competing in a product market should vertically integrate or separate their marketing channels in a dynamic noncooperative game setting previous operational research models have shown that the separation of the marketing channel with the adoption of a two part tariff contract is the dominant strategy compared with integration for each firm if the two firms face retail price competition and thereby constitutes the subgame perfect nash equilibrium spne contrary to this previous insight this paper demonstrates that if exogenous parameters that characterize fixed costs product substitutability and a demand function fall into a specific region marketing channel integration dominates the separation strategy when one of the two firms is the incumbent firm while the other is a potential entrant in other words the well known result in the price setting game can be reversed when we take entry threats into consideration specifically we show that upfront vertical integration of the marketing channel enables the incumbent to deter the entry of the potential competitor and to monopolize the market in the spne this result has operational implications for a firm confronting the threat of potential rivals entering the market in that the firm can use this apparently inferior strategy as a commitment device which creates a virtual entry barrier

the strategic value of partial vertical integration we investigate the strategic incentives for partial vertical integration namely partial ownership agreements between manufacturers and retailers when retailers privately know their costs and engage in price competition with differentiated goods the partial misalignment between the profit objectives within a partially integrated manufacturer retailer hierarchy implies a higher retail price than under full integration this information vertical effect translates into a competition horizontal effect the partially integrated hierarchy s commitment to a higher price induces the competitor to increase its price which strategically relaxes competition our analysis provides implications for vertical merger policy and theoretical support for the recently documented empirical evidence on partial vertical acquisitions

excessive retailing at the bertrand equilibria in oligopolistic markets where competition is in prices producers may prefer to be represented by agents that sell their products even if those agents do not provide any direct services to promote the sale of the product and even if contracting is costly contracting with the agents serves as a medium to relieve competitive pressures in the product market the benefit that a single firm derives from contracting is an increasing function of the number of firms that have already contracted with agents hence if the contracting cost is relatively low there exists a unique equilibrium where all firms contract with agents

eighths sixteenths and market depth changes in tick size and liquidity provision on the nyse using limit order data provided by the nyse we investigate the impact of reducing the minimum tick size on the liquidity of the market while both spreads and depths quoted and on the limit order book declined after the nyse s change from eighths to sixteenths depth declined throughout the entire limit order book as well the combined e ect of smaller spreads and reduced cumulative limit order book depth has made liquidity demanders trading small orders better o however traders who submitted

automation versus intermediation evidence from treasuries going off the run this paper examines the choice of trading venue by dealers in u s treasury securities to determine when services provided by human intermediaries are difficult to replicate in fully automated trading systems when treasury securities go off the run their trading volume drops by more than 90 this decline in trading volume allows us to test whether intermediaries knowledge of the market and its participants can uncover hidden liquidity and facilitate better matching of customer orders in less active markets consistent with this hypothesis the market share of electronic intermediaries falls from 81 to 12 when securities go off the run electronic trading systems have been steadily increasing their share of securities trading in almost all financial markets as the amount of automation in financial markets increases it is natural to ask what services human intermediaries provide that are difficult or impossible to replicate in a fully automated trading system existing theory suggests that human intermediaries play at least two important functions first an intermediary s knowledge of the market and its participants may uncover hidden liquidity that facilitates quicker and more efficient matching of customer orders grossman 1992 the value of this matching function is greater when trading volume is low and matches are difficult to find second when information asymmetry is high the repeated interaction between an intermediary and its customers allows the intermediary to protect itself against informed trades and offer better prices to its customers seppi 1990 these two factors explain for example why electronic communications networks ecns have a greater market share for the largest and most actively traded nasdaq stocks while nasdaq market makers have a larger share in smaller less liquid stocks characterized by greater information asymmetry barclay hendershott and mccormick 2003 and why nyse specialists have higher participation rates in smaller less liquid stocks madhavan and sofianos 1998

vertical separation with private contracts we consider a manufacturer s incentive to sell through an independent retailer rather than directly to final consumers when contracts with retailers cannot be observed by competitors if retailers conjecture that identical competing manufacturers always offer identical contracts symmetric beliefs manufacturers choose vertical separation in equilibrium even with private contracts vertically separated manufacturers reduce competition and increase profits by inducing less aggressive behaviour by retailers in the final market manufacturers profits may be higher with private than with public contracts our results hold both with price and with quantity competition and do not hinge on retailers beliefs being perfectly symmetric we also discuss various justifications for symmetric beliefs including incomplete information

a note on strategic delegation the market share case we consider a two stage market share delegation game with two competing firms each owner delegates the production decision to a manager each manager s remuneration is a weighted sum of profits and market share the market share delegation game results in higher duopoly profits than the sales delegation game both output delegation models lead to more aggressive managerial behavior than the standard cournot case implying lower profitability and higher social welfare similar results are obtained for the bertrand version of the delegation model market share delegation is the dominant strategy in a game in which owners can choose not to hire a manager or if they do so to pay their manager a bonus based on profits and sales or market share

benefits of a slanted view a discussion of disclosure bias abstract fischer and verrecchia j account econom 2004 forthcoming studies a model of imperfect competition in which firms disclosures are affected by biased information processing they find that optimism can add punch to a firm s actions when facing an optimist a rival is forced to soften its competitive posture thereby rendering such biases viable although the setting provides a cogent explanation for disclosure bias its reliance on imperfect information processing introduces some questions one concern is the ease with which polar results can be obtained when the rules of the game are sufficiently relaxed the discussion provides examples illustrating this and related issues

we re number 1 price wars for market share leadership i examine the dynamics of oligopolies when firms derive subjective value from market leadership in equilibrium prices alternate in tandem between high levels and occasional price wars which take place when market leadership is at stake the stationary distribution of market shares is typically multimodal that is much of the time there is a stable market leader even though shareholders do not value market leadership per se a corporate culture that values market leadership may increase shareholder value the online appendix is available at https doi org 10 1287 mnsc 2017 2725 this paper was accepted by bruno cassiman business strategy

delegating pricing decisions an outstanding problem in marketing is why some firms in a competitive market delegate pricing decisions to agents and other firms do not this paper analyzes the impact of competition on the delegation decision and in turn the impact of delegation on prices and incentives the theory builds on the simplest framework of competition in two dimensions prices and sales agents effort specifically we are interested in answering the following questions 1 does competition affect the price delegation decision and if yes why 2 how do prices vary under price delegation and no price delegation scenarios 3 do the incentives to the sales representatives vary under the delegation and no delegation scenarios to address these issues we build a game theoretic model that consists of two firms selling through their sales representatives these representatives are company employees sales are a function of prices and selling efforts the risk neutral firms decide whether or not to delegate the pricing decision to risk averse sales representatives the wages to the sales representatives consist of salary plus a commission on gross margins the commission on gross margins can be adjusted either through communicated marginal cost of production which we call virtual marginal cost or directly the firm and the sales representative are assumed to have the same information about the market that is there is no information asymmetry with competition in two dimensions the strategic nature of decision variableprice depends on the relative intensity of competition with unobservable contracts and risk averse sales representatives firms delegate the pricing decision when price competition is intense part of the uncertainty in demand is absorbed by the firm by keeping virtual marginal cost greater than the marginal cost of production the competing firm infers this through the risk aversion of the sales representatives under price delegation the sales representatives wages are higher and they set a price that is higher than what the firms would have set themselves this leads to softening of price competition that is to the advantage of both firms when the effort competition is dominant however the firms prefer to make the pricing decision themselves because this reduces the intensity of effort competition among agents a single instrument commission structure in which the firms adjust the virtual marginal cost is compared to a two instrument commission structure in which the firms can adjust the commission rate as well the virtual marginal cost under no price delegation the two incentive schemes are the same however under price delegation the risk premium with the two instrument scheme is lower however the prices and efforts are higher with the single instrument scheme when price competition is intense the increase in risk premium with the single instrument scheme is more than compensated for by the increase in profits this is the benefit of softening price competition through higher prices

strategic union delegation and strike activity we develop a model of wage determination with private information in which the union has the option to delegate the wage bargaining to either surplus maximizing delegates or to wage maximizing delegates such as senior union members we show that the wage outcome in case of surplus maximizing delegates is not necessarily smaller than the wage outcome in case of wage maximizing delegates even when the wage bargaining with private information is close to one with complete information however if it is commonly known that the union is stronger than the firm and the demand is sufficiently elastic then delegating to wage maximizing delegates definitely increases the wage at equilibrium the maximum delay in reaching an agreement is greater whenever the union chooses wage maximizing delegates instead of surplus maximizing delegates and remains finite even when the period length shrinks to zero

foundations of portfolio theory prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

increases in risk and linear payoffs this paper is concerned with the effect of increases in risk on optimal decision variables for the class of linear payoffs the authors show that for this class of payoffs one can extend the class of admissible increases in risk and obtain the desirable comparative statics properties they propose the definition of a relatively weak increase in risk and apply it to the case of the competitive firm with constant marginal costs the standard portfolio model and the coinsurance problem copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

trade execution costs and market quality after decimalization this study assesses trade execution costs and market quality for nyse and nasdaq stocks before and after the 2001 change to decimal pricing several theoretical predictions are confirmed quoted bid ask spreads declined substantially on each market with the largest declines for heavily traded stocks the percentage of shares receiving price improvement increased on the nyse but not on nasdaq however those trades completed at prices within or outside the quotes were improved or disimproved by smaller amounts after decimalization and trades completed outside the quotes saw the largest reductions in trade execution costs as a class effective bid ask spreads as a percentage of share price arguably the most relevant measure of execution costs for smaller trades averaged 0 33 on a volume weighted basis after decimalization for both nyse and nasdaq stocks there is no evidence of systematic intraday reversals of quote changes on either market as would be expected if decimalization had damaged liquidity supply

stackelberg equilibria in managerial delegation games abstract managerial compensation packages do not only influence managers behavior but also have an impact on competing firms in a managerial delegation game investigating the latter aspect it is shown that the inherent prisoner s dilemma situation can be resolved without changing the normally studied setup or timing in the first stage owners choose an incentive function for their managers in the second stage they choose the weights assigned to that function besides profits and in the third stage managers play a cournot game solving this continuous optimization problem with the implicit function theorem shows that choosing an incentive from the set of multiplicative incentives i e any generalized affine transformation of the product of both firms quantities which includes e g relative profit ensures that the stackelberg outcome is among the set of equilibrium outcomes furthermore it is the unique outcome if the rival owner opts for one of the well known incentives like sales revenue or market share the general approach used allows demonstrating that with no other linear incentive a stackelberg outcome results and that incentives like profit to cost ratio should be avoided selecting a multiplicative incentive is a dominant strategy of the game

overconfidence compensation contracts and capital budgeting a risk averse manager s overconfidence makes him less conservative as a result it is cheaper for firms to motivate him to pursue valuable risky projects when compensation endogenously adjusts to reflect outside opportunities moderate levels of overconfidence lead firms to offer the manager flatter compensation contracts that make him better off overconfident managers are also more attractive to firms than their rational counterparts because overconfidence commits them to exert effort to learn about projects still too much overconfidence is detrimental to the manager since it leads him to accept highly convex compensation contracts that expose him to excessive risk

endogenous market structures and contract theory delegation principal agent contracts screening franchising and tying abstract i study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry traditional results change substantially when the market structure is endogenous rather than exogenous they concern 1 contracts of managerial delegation to non profit maximizers 2 incentive principal agent contracts in the presence of moral hazard on cost reducing activities 3 screening contracts in case of asymmetric information on the productivity of the managers 4 vertical contracts of franchising in case of hold up problems and 5 tying contracts by monopolists competing also in secondary markets firms use always these contracts to strengthen price competition and manage to obtain positive profits in spite of free entry

retail contracting theory and practice we summarize a number of regularities that arise in the empirical literature on contractual relationships between manufacturers and their exclusive resellers we do this using studies of traditional and business format franchise relationships as well as studies of salesforce integration decisions some of the patterns that we uncover are consistent with a standard incentive cum insurance theory of organization while others are not we brie y review some theoretical extensions that seem promising in terms of reconciling seeming con icts between theory and practice i introduction manufacturers of retail products must decide whether to sell their products to consumers themselves vertical integration or to sell via independent retailers vertical separation when manufacturers do not perform the sales function internally but want exclusive retailers they usually choose some form of franchising 1 many theories attempt to explain the choice of retail organizational form moreover a considerable body of empirical evidence concerning this choice is accumulating we attempt to evaluate this econometric evidence and relate it to the theories to accomplish this task we assess studies of franchising arrangements as well as studies of sales force organization in industrial settings the paper is organized as follows in the next section we highlight a number of regularities that arise in the empirical literature on retail contracting in particular we nd that i risk is positively related to the use of high powered incentives vertical separation ii the importance of the agent s eiort in production is positively related to the use of high powered incentives

portfolio choices and asset prices the comparative statics of ambiguity aversion we investigate the comparative statics of more ambiguity aversion as defined by klibanoff marinacci and mukerji 2005 in the context of the static two asset portfolio problem it is not true in general that more ambiguity aversion reduces the demand for the uncertain asset we exhibit some sufficient conditions to guarantee that ceteris paribus an increase in ambiguity aversion reduces the demand for the ambiguous asset and raises the equity premium for example this is the case when the set of plausible distributions of returns can be ranked according to the monotone likelihood ratio order we also show how ambiguity aversion distorts the price kernel in the alternative portfolio problem with complete markets for contingent claims

the strategic choice of managerial incentives do firms with separate owners and managers maximize profits we address this question for an oligopoly where managers compete in quantities or prices as in the cournot or bertrand models and owners choose their managers incentives we find that there is a strategic aspect in the problem of selecting incentives and that profit maximizing behavior does not result in particular in the oligopoly we study the behavior of firms competing in quantity price more closely resembles perfectly competitive collusive behavior than cournot bertrand behavior

the commitment value of contracts under dynamic renegotiation we examine why different renegotiation processes can lead to opposite results regarding the commitment value of third party contracts in the presence of asymmetric information our main result is that a contract loses all strategic value if renegotiation is allowed during the production stage rather than only before production begins this result casts serious doubt on the relevance of previous findings which emphasize how contracts can have commitment value even in the presence of renegotiation our analysis can also be used to understand the differences between many of the results in the renegotiation literature

equilibrium contingent compensation in contests with delegation we consider two player contests in which each player hires a delegate who expends his effort to win a prize on the player s behalf endogenizing delegation contracts we focus on the equilibrium contracts between the players and their delegates we first show that each player s equilibrium contract is a no win no pay contract then we examine the delegates equilibrium compensation spreads effort levels probabilities of winning expected payoffs and the players equilibrium expected payoffs we show that economic rents for the delegates may exist

a modified cournot model of the natural gas market in the european union mixed motives delegation in a politicized environment with gazprom gaining prominence as the major supplier of natural gas in the european union the european gas market becomes more politicized we assume that gazprom s interest as a state monopolist is not only to maximize profit but also to seek market power presumably because this contributes to the geopolitical power of russia at large we introduce a modeling tool so called strategic delegation games to analyze the implications of gazprom s operation in the eu by way of illustration we model the case where gazprom competes against two profit maximizing rivals algerian sonatrach and norwegian statoil we prove that if gazprom serves any of a comprehensive type of nonprofit objectives the outcome is beneficial for the eu s consumers as gazprom s behavior shifts volumes up and brings prices down

vertical coordination antitrust law and international trade this paper demonstrates that vertically aligned private or public organizations are capable of generating strategic trade advantage similar to that acquired through direct government export subsidization the model considers two forms of vertical coordination that lead to advantageous trade positions in international markets upstream vertical restraint and downstream equity sharing such practices are commonly employed both by state trading agencies and by private firms in nations with lenient antitrust laws the finding has important implications under new world trade organization wto rules intended to reduce government intervention in international transactions recent reforms in the wto favor nations that sanction highly refined vertical linkages between firms while nations with stringent antitrust legislation have an incentive to negotiate for greater harmonization of international laws

ex tridenti mercatus sea power and maritime trade in the age of globalization this paper tests an implication of the hypothesis that hegemons provide increased global stability and thus promote international commerce specifically we measure the influence of naval power projections on global trade during the latter 19th and early 20th centuries a time of relative peace and robust commercial activity we use archival data on the navies of britain france the united states and germany capturing longitudinal measures of ship deployment tonnage and ship personnel first we develop an empirical naval arms race model and demonstrate that the navies of britain and france in particular responded rigorously to each other we then use our estimates of naval power projected around the world by britain and france to measure their effects on bilateral trade in a panel data gravity model results indicate that while navies had some positive impact on their own nation s trade other nations trade suffered our results show that rather than bolster globalization the first global arms race damaged commercial interests and lowered trade potential around the world

strategic trade and delegated competition abstract strategic trade theory has been criticized on the grounds that its predictions are overly sensitive to modeling assumptions applying recent results in duopoly theory this paper considers three stage games in which governments choose subsidies firms owners choose incentive schemes for their managers and then the managers compete in the product market we show that if firms owners have sufficient control over their managers behavior then the optimal strategic trade policy does not depend on the mode of product market competition i e whether firms compete by setting prices or quantities

monitoring of workers and product market competition the role of works councils i introduction technological advancement allows firms to closely monitor their workers actions more than ever before for instance firms can acquire worker monitoring software to monitor activities on computers or cell phones such software enables firms to assess whether workers play games on their computers or surf the internet instead of working productively and even to track workers exact locations similarly firms scan emails or use video surveillance to monitor their workers behavior unsurprisingly the growing use of monitoring technologies has led to a debate on how closely firms should be allowed to monitor their workers actions and on whether government intervention is needed to protect workers privacy at first sight it appears that this debate centers around two different kinds of arguments economic arguments e g higher worker productivity in favor of extensive worker monitoring against ethical issues according to which workers privacy must be protected schmitz 2005 however demonstrates that this is not necessarily true in a contract theoretical model he finds that firms employ monitoring technologies not to increase efficiency but rather to reduce rents that must be paid to the workers in the case of imperfect monitoring he concludes that monitoring technologies may lead to inefficiencies and thus calls for laws protecting workers privacy whereas worker protection in the united states is rather weak in this respect it is typically stronger within the european union in germany for instance works councils are important institutions that provide workers with power on the firm level particularly with respect to working conditions within the system of co determination works councils have legally guaranteed influence on management decisions concerning working conditions within a firm for instance the law prescribes that worker representatives must consent to any introduction of technologies that monitor the workers effort and output 1 given these rights of works councils it may be puzzling that firm owners do not more strongly oppose this limitation of their control rights in this paper we offer an explanation to resolve this puzzle by analyzing the interaction between internal organization and market conduct we argue that works councils and their right to block monitoring of workers can act as a commitment device of firms to mitigate product market competition as relaxed competition increases profits and because workers receive an information rent from their co determination rights workers and firms have aligned interests in establishing works councils at the expense of consumers we derive these results in a simple model of two competing firms where each firm faces a moral hazard problem with its workforce that could be solved by installing a monitoring technology without monitoring inducing high effort by workers is more costly as a result effort levels will be lower and so will be output this may serve a similar purpose as quantity reduction in a cartel and it may thereby increase firm profits 2 however similar to quantity reduction in a cartel also with respect to monitoring there is a danger that a single firm deviates and installs the monitoring technology consequently the deviator can produce higher output more cheaply and free rides on the lower output of its competitor thus firms would like to ex ante commit not to use a monitoring technology usually no such commitment is possible however works councils may serve this unintended purpose because they must give their consent to monitoring technologies this provides them with a property right on the information rent arising in case of nonmonitoring to receive their consent the firm must offer the workers compensation for the foregone rent this additional cost of monitoring makes deviation from a nonmonitoring situation less attractive implying that works councils may serve as the desired commitment device

profit sharing with workers facilitates collusion among firms we show how profit sharing by firms with workers facilitates collusion among firms in a dynamic oligopoly environment with uncertain demand we first show that firm profits can always be increased by tying wages to market conditions the optimal agreement takes the form of an option and features partial sharing because increased sharing raises the expected price wage differential but reduces price wage variability we then show that given any cartel there exist market conditions such that simply giving some expected profit to workers raises expected firm profits via the transfer s impact on the incentive to cheat on the cartel

herding in delegated portfolio management when is comparative performance information desirable abstract we address the issue of investors asset allocation decisions when portfolio management is delegated to an agent contrary to predictions from traditional financial theory it is shown that investors may not induce their manager to allocate funds to the asset with the highest return instead they may herd in their asset allocation decision and induce trade in a particular asset because another manager is trading in it and despite the presence of a more profitable alternative doing so allows investors to write an efficiency improving relative performance contract on the other hand herding leads investors to design wage contracts strategically resulting in more aggressive and thus less profitable trade in equilibrium we show that herding occurs when the cost of information is high information precision is low and when managers are sufficiently risk averse moreover when investors can decide whether or not to disclose information about their manager s performance they will not do so

dynamic analysis in the viner model of mercantilism abstract this paper models the central theme of mercantilism in jacob viner s interpretation power vs plenty in a framework of modern theory of international finance it is shown that in the viner model of mercantilism a nation with strong mercantilist sentiment ends up with large foreign asset accumulation and high consumption in the long run an import tariff leads to more foreign asset holding and more total consumption furthermore in the viner model the harberger laursen metzler effect exists unambiguously a permanent terms of trade deterioration causes a current account deficit in the short run

how to compete cournot versus bertrand in a vertical structure with an integrated input supplier we study whether a quantity or a price contract is chosen at equilibrium by one integrated firm and its retail competitor in a differentiated duopoly using a similar vertical structure arya et al 2008 show that bertrand competition is more profitable than cournot competition which contrasts with conventional wisdom in this article we first demonstrate that such a result is robust to the endogenous determination of the type of contract second by introducing managerial incentives in the model we find that delegation to managers may lead each firm to choose a quantity contract and as long as products are sufficiently differentiated entails conflicting choices causing nonexistence of equilibrium in pure strategies significantly high product substitutability reconciles firms objectives under delegation leading unique or multiple equilibria with symmetric types of contracts to arise

on intrabrand and interbrand competition the strategic role of fees and royalties abstract we examine oligopolistic markets with both intrabrand and interbrand competition we characterize equilibrium contracts involving a royalty or wholesale price and a fee when each upstream firm contracts with multiple downstream firms royalties control competition between own downstream firms at the expense of making them passive against rivals when the number of downstream firms is endogenous each upstream firm chooses to have only one downstream firm this result is in sharp contrast to previous literature where competitors benefit by having a larger number of independent downstream firms under only fixed fee payments we discuss why allowing upstream firms to charge per unit payments in addition to fixed fees dramatically alters their strategic incentives

incentive schemes as strategic variables an application to a mixed duopoly abstract in the context of asymmetry of information between firms owners and their managers we investigate the use of incentive contracts as strategic variables in a duopoly with a public and a private firm by giving the public manager an incentive scheme based on a linear combination of profit and sales revenue we show that welfare can be improved furthermore we show that the government should not privatize the public company

margin adequacy and standards an analysis of the crude oil futures market this article proposes two value based standards for setting the initial margin requirements on futures positions based on the observation that the distributions of the payoffs to futures traders and the potential losses to the futures clearinghouse can be described in terms of the payoffs to barrier options using both margin standards we examine the adequacy of initial margin requirements in the crude oil futures market our results suggest that on average the initial margin requirements set by the new york mercantile exchange exceed the minimum margins required under our option based standards for adequacy

should multiproduct firms provide divisional or corporate incentives abstract this paper points out some of the implications of the internal organization of a multiproduct firm for its market conduct in particular we study the strategic use of organizational forms based on corporate incentives versus forms based on divisional incentives the equilibrium internal organization is determined in a model with full information it is shown that firms provide corporate incentives when goods are substitutes and divisional incentives when goods are complements and the result holds both in the case of quantity setting and price setting

do rent seeking groups announce their sharing rules i introduction rent seeking can be seen all around us firms or coalitions of firms expend resources to influence government officials who have authority to award monopoly rights self interested pressure groups lobby for government subsidies foreign producers exert effort to avoid imposing tariffs or quotas on their products interest groups or lobbyists contribute to the election of politicians who promise to advance favorable legislation research and development rd then the groups announce their decisions simultaneously before choosing their sharing rules we examine the groups decisions on releasing sharing rule information their sharing rules and the effort levels and payoffs of the individual players in equilibrium we formally consider the following three stage game in the first stage each group decides and announces whether it will release to the rival group the information about its sharing rule which will be determined in the second stage in the second stage the players in each group jointly choose their sharing rule and then each group releases the information about its sharing rule if it decided to do so in the first stage in the third stage all the players in both groups choose their effort levels simultaneously and independently at the end of this third stage the winning player is chosen and the winner shares the prize with the other players in his group according to the sharing rule on which they agreed in the second stage solving the game we find the following first the case where both groups release their sharing rule information never occurs in equilibrium second the case where neither group releases its sharing rule information occurs only if the players are evenly matched third when the players are unevenly matched one group releases its sharing rule information and the other does not

divisionalization and strategic managerial incentives in oligopoly under uncertainty abstract this paper argues that divisionalization and incentive contracting are complementary rent shifting tools in the presence of demand uncertainty the role for divisionalization arises if managers know the state of demand prior to making output decisions and if incentive contracts are linear and non state contingent in this context incentive contracts achieve expected stackelberg outcomes but have no impact on the firm s responsiveness to demand shocks divisionalization on the other hand has the strategically beneficial effect of making the firm more responsive to demand shocks

modeling the bid ask spread measuring the inventory holding premium the need to understand and measure the determinants of market maker bid ask spreads is crucial in evaluating the merits of competing market structures and the fairness of market maker rents this study develops a simple parsimonious model for the market maker s spread that accounts for the effects of price discreteness induced by minimum tick size order processing costs inventory holding costs adverse selection and competition the inventory holding and adverse selection cost components of spread are modeled as an option with a stochastic time to expiration this inventory holding premium embedded in the spread represents compensation for the price risk borne by the market maker while the security is held in inventory the premium is partitioned in such a way that the inventory holding and adverse selection cost components as well as the probability of an informed trade are identified the model is tested empirically using nasdaq stocks in three distinct minimum tick size regimes and is shown to perform well both in an absolute sense and relative to competing specifications

inefficiency as a strategic device in group contests against dominant opponents i introduction many strategic situations in economics and politics can be understood as contests rd nitzan and ueda 2009 a private good nitzan 1991a 1991b nitzan and ueda 2009 or a mixed good esteban and ray 2001 nitzan and ueda 2011 to a large extent the intensity of free riding or conversely the motivation for individuals to exert effort in a contest is shaped by the intra group incentive scheme or governance structure in standard contests incentives are inseparably linked to the sharing rule i e to the usually exogenous procedure by which the rents acquired in the contest are distributed within the group 1 in a number of economic applications however incentives to exert effort appear to be separate or are even willfully separated from the sharing rule phenomena such as team spirit akerlof and kranton 2005 identification with the group sherif 1966 bornstein and ben yossef 1994 peer pressure kandel and lazear 1992 or social norms to contribute to the social good elster 1989 are examples for this separation alternatively groups could apply selective incentive schemes based on relative performance lazear and rosen 1981 or marginally align individual and group incentives nitzan and ueda 2009 in all these scenarios individuals behave cooperatively i e in the interest of the entire group even if the final distribution of rents follows a standard sharing rule mechanisms to induce cooperation often are costly sanchez pages and straub 2010 may only work under restrictive conditions che and gale 2003 require strategic coordination among individuals hardin 1995 or cannot be ensured to be obeyed unanimously oliver 1980 this might explain why they do not emerge universally or automatically the point we make in this article is even stronger even if there existed perfect and costless solutions to within group free riding problems which will henceforth be called intra group efficient incentive schemes igeis they might not always be adopted why would a group for which an igeis is freely available not wish to utilize it but rather adopt an apparently inefficient governance structure by definition an igeis internalizes all within group externalities and seems to be a safe way to increase one s payoffs however this reasoning ignores repercussions that arise in strategic environments like contests suppose for example that the competing groups have sufficiently unequal strengths say due to unequal sizes or different comparative advantages then the weaker group may refrain from implementing a costless igeis to avoid the contest from heating up adoption of an igeis makes a group more efficient and consequently more aggressive in the contest on one hand higher efforts constitute a cost on the other they affect the share of the rent that this group can hope to acquire or the likelihood of succeeding in the contest 2 an igeis clearly enhances a group s prospects if the other group did not change its behavior however if members of the opponent group reply with a sufficiently strong increase in their contest efforts this diminishes and may potentially more than offset the gains from one s own increased efforts whether this happens depends on the direction of the strategic interaction between groups the detrimental firing back effect can only become relevant if the other group s efforts are sufficiently strong strategic complements to one s own efforts

the elementary economics of social dilemmas a social dilemma is in essence a prisoners dilemma in a continuous strategy space i discuss a number of social dilemmas that have caught my attention offer an elementary diagrammatic synthesis of them and discuss some of the economic insights that the diagrams capture including incentives for pre commitment finally i model pre commitment via delegation and link results to the literature on the evolution of preferences l economie elementaire des dilemmes sociaux un dilemme social est essentiellement un dilemme du prisonnier dans un espace continu de strategie l auteur discute d un certain nombre de dilemmes sociaux qui ont retenu son attention il en propose une synthese graphique elementaire et discute certaines des suggestions economiques qui decoulent de ces diagrammes comme par exemple les incitations a se pre engager finalement l auteur construit un modele de pre engagement par delegation et relie ses resultats a la litterature sur l evolution des references

delegation and firms ability to collude abstract in a model of repeated cournot competition under complete information we show that delegation has no effect on cartel stability if managers collude while it may hinder cartel stability when owners collude in setting the incentive schemes if owners can choose whether to delegate or keep control of their respective firms and both groups of individuals collude or play non cooperatively in their respective variables according to the level of intertemporal discount factor then if managers are not able to collude in output levels owners delegation decision is non monotone in the discount factor

economic growth convergence and agricultural economics after nearly two centuries of lagging behind the industrial countries growth in many developing countries has surged since the early 1990s this outperformance has major implications for almost all areas of agricultural economics and if continued will likely do so into the future this article aims to identify the key ways in which the changes in rich and poor country growth rates matter for agricultural economists as a basis for formulating better research agendas a key impact arises through sharp increases in demand for agricultural resources as demand for livestock products increases this changing structure of food demand has important implications for nutrition studies and policies with the emergence of a double burden of malnutrition on the supply side growth in developing countries tends to increase domestic food supply which is also boosted by increases in research and development spending growth in developing countries both stimulates and benefits from increases in infrastructure investment evaluation of which requires new analytical tools negative impacts include the contribution of increased demand for livestock products to global greenhouse gas emissions in terms of trade policy growth in developing country is tending to lead to convergence of agricultural policies with the pattern of assistance seen in today s developed countries raising concerns about the future need to deal with collective action problems particularly those that increase the volatility of world prices