what drives deregulation economics and politics of the relaxation of bank branching restrictions this paper investigates private interest public interest and political institutional theories of regulatory change to analyze state level deregulation of bank branching restrictions using a hazard model we find that interest group factors related to the relative strength of potential winners large banks and small bank dependent firms and losers small banks and the rival insurance firms can explain the timing of branching deregulation across states during the last quarter century the same factors also explain congressional voting on interstate branching deregulation while we find some support for each theory the private interest approach provides the most compelling overall explanation of our results

the informal sector and the political economy of development this paper takes an initial step in integrating insights from two sets of literature which have focused on central aspects of development with unfortunate independence it highlights politically valuable resources which are identified in the political economy literature and shows that the informal sector literature provides ample evidence that these resources in general are i scarcely available to informal entities ii poorly valued in their possession and iii more often collectively unexploited by them overall there seems to be an important though neglected bias in how the political system in less developed countries formulates crafts and implements policy

individual versus joint taxation in models with household production in a recent paper piggott and whalley 1996 challenge the conventional wisdom that says that the individual rather than the household should be the unit of taxation and argue instead for joint taxation their point of departure is a point well taken the literature on which this wisdom is based in particular boskin and sheshinski 1983 ignores the existence of household production the general argument is a nice one in the theory of the second best in the absence of taxation of market wage income the marginal rates of technical substitution between primary and secondary labor in market and in household production would be equal to each other and the marginal rate of substitution between the market and household good would be equal to the marginal rate of transformation between them thus achieving pareto efficiency introduction of income taxation leads to a distortion of the relation between the marginal rate of substitution and the marginal rate of transformation which is the focus of concern in the literature 2 and given the differing econo

a utility consistent combined discrete choice and count data model assessing recreational use losses due to natural resource damage abstract a two stage budgeting approach can often be taken when analyzing consumer choice situations in this paper we examine the particular situation where a consumer makes purchases of a discrete commodity of which there are a number of brands in the first stage the consumer decides how many purchases to make in the second stage the consumer decides how to allocate these purchases across brands our econometric approach to this type of situation uses a utility consistent combined discrete choice and count data model the second stage which is specified as a multinomial choice model produces a price index for the commodity which is used to estimate the first stage which is specified as a count data model we apply the model to recreational demand behavior in alaska in order to estimate the welfare losses suffered by recreational users due to the exxon valdez oil spill these results may provide useful input to government agencies attempting to estimate the appropriate level of taxes fines or regulations for deterring damage to the environment

divide and rule the economic and legal implications of the proposed ownership unbundling of distribution and supply companies in the dutch electricity sector abstract in machiavelli s theory of power the concept of divide and rule forms the main theme the ruler has absolute power and to maintain and increase such power all means are justified when viewed against the background of this theory the current debate in the netherlands on the unbundling of energy electricity gas companies can be observed as an example of divide and rule in which the dutch minister of economic affairs plays a central role yet contrary to machiavelli in his time the dutch government does in fact aim principally at the greater welfare of the dutch people it is therefore noteworthy that while important steps in the decision to unbundled have been taken there is no evidence that the dutch people will indeed benefit from the envisaged unbundling

the political economy of regulations and trade wine trade 1860 1970 dramatic changes in the 1860 1970 wine trade provide insights on the political economy of regulations and policy instrument choice and trade an invasion of phylloxera in the 1870s turned france from the world s leading exporter to a massive importer of wine and grapes when french production recovered a combination of tariffs safety regulations and quality standards were introduced to protect its french producers causing dramatic changes in global wine and grape production and trade including in spain italy turkey greece algeria tunisia and morocco changes in wine regulations were caused by relative income and loss aversion factors in political economy tariffs were the preferred policy instruments as they directly restrict imports bring in revenues have low transaction costs and are preferred political instruments when there are information imperfections safety regulations and quality standards including labelling and input prohibitions reduce asymmetric information for consumers or undesirable externalities and simultaneously protected domestic producers regulations were often targeted at imported products wine and raisins when tariffs were ineffective or constrained by institutions such as on colonial wine hence tariffs and quality regulations were jointly used in wine policy both as complements and as substitutes in policy design

outsourcing retail pricing to a category captain the role of information firewalls it has been argued that retailers lack both the resources and capabilities to maximize category performance retailers may seek category management cm advice from a manufacturer referred to as a category captain cc a cc s recommendations affect all brands in the category not just her own despite an increase in the number of cc collaborations retailers are still concerned about manufacturer opportunism and militant behavior by manufacturers not selected as ccs whereas government agencies are worried about anticompetitive behavior that could harm consumers the federal trade commission recommends strictly enforced information firewalls within a cc s organization as a best practice guideline in this study we develop an empirical model and use policy simulations to quantify the impact of cc arrangements with information firewalls on retailers manufacturers and consumers we show how these effects could be influenced by the deactivation of vertical and horizontal information firewalls within the cc s organization

vertical contracts in the video rental industry a large body of theoretical work has explored the channels through which vertical contracts can induce efficiency improvements however it is also important to study vertical contracts empirically in order to gain insight into the relative size of different types of efficiency gains in this paper i empirically analyse a contractual innovation in the vertically separated video rental industry prior to 1998 video stores obtained inventory from movie distributors using simple linear pricing contracts in 1998 revenuesharing contracts were widely adopted i investigate the effect of the introduction of revenue sharing contracts on firms profits and consumer welfare i analyse a new panel data set of home video retailers that includes information on individual retailers contract and inventory choices as well as rentals and contract terms for 246 movie titles and 6137 retailers in the u s during each week of 1998 and 1999 and the first half of 2000 a structural econometric model of firms behaviour is developed that describes the nature of firms contract choices estimates from this model indicate that both upstream and downstream profits increase by 10 under the revenue sharing contract for popular titles for less popular titles the effects can be even larger i also estimate that consumers benefit when revenue sharing contracts are adopted

the lens of contract private ordering james buchanan 2001 p 29 avers that mutuality of advantage from voluntary exchange is the most fundamental of all understandings in economics he further contends that this fundamental understanding is better realized by examining economics through the lens of contract rather than the lens of choice buchanan 1975 because the latter has been the reigning paradigm in economics during the 20th century lionel robbins 1932 melvin w reder 1999 the lens of contract is understandably less fully developed interest in contractual approaches has nevertheless been building up whence the gap between these two has been closing this paper sketches some of these developments with emphasis on private ordering

the welfare effects of third degree price discrimination in the author examines third degree price discrimination by an upstream monopolist in an intermediate good market discrimination is motivated by the fact that downstream firms differ in their abilities to integrate backward into supply of the input the author shows that under reasonable specifications of equilibrium price discrimination leads to all buyers facing higher input prices in other cases discrimination raises some prices and lowers others the author derives conditions under which discrimination lowers welfare by reducing total output and shows that in some markets discrimination will raise welfare by preventing socially inefficient backward integration copyright 1987 by american economic association

the tax unit and household production comment in a recent paper published in this journal piggott and whalley 1996 challenge the conventional wisdom that taxing individuals rather than households is preferred from an efficiency point of view p 398 they argue that once household production is taken into account things are more complicated since tax design should also not distort the input of family members time in household production they support their view by providing computational results these results seem to demonstrate that welfare can indeed be enhanced if households are taxed as a unit and not as individuals this comment sets out to show however that their analysis contains some quite critical points in our opinion if piggott and whalley s approach is followed through to its end it only enforces the conventional view piggott and whalley work with an extended family labor supply model the extension concerns household production expressed by some function n there are two model variants with different degrees of complexity in the first variant a representative household is considered and producer prices are held constant the model serves to demonstrate piggott and whalley s basic line of argumentation within a simple framework the second variant extends the first one in several respects its functional specification is more complex and it is a general equilibrium model with two household types the model is parameterized using australian tax rates and data it is shown that aggregate welfare gains can occur under well designed income tax reforms the reforms are such that the individual tax base is replaced with a household tax base additionally average and marginal tax rates are proportionally adjusted to preserve revenue

comparing tax expenditures and direct subsidies the role of legislative committee structure abstract this paper analyzes the impact of legislative committee structure on policy outcomes comparing a tax committee enacting tax expenditures and a decentralized system of specialized committees undertaking direct spending an endogenous commodity taxation framework is combined with models of legislative bargaining and committee voting the main conclusion is that the tax committee structure gives rise to lower subsidy levels under a wide range of circumstances however it is only under a more restrictive set of assumptions that social welfare is higher in the tax committee regime this theoretical analysis is illustrated by two examples of institutional change in congress

the paradoxes of the successful state abstract three issues are discussed in this paper first i argue that it is impossible to understand the east asian growth miracle without appreciating the importtant role that government policy played in stimulating private investment second i will summarize some of my work on the determinants of policy effectiveness based on a cross country comparison of export subsidy regimes and show that the usual rules of thumb on what makes for good policy uniformity transparency non selectivity etc are quite useless in predicting which policy regimes perform better in practice third i will provide some evidence that the government s social insurance role creates a complementarity between states and markets these three sets of ideas yield a more balanced and nuanced view of the role of the state in economic development than has recently become commonplace

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

the power of the purse and its implications for bureaucratic policy making a dilemma of the power of the purse is thatcutting an agency s budget may make a desired policyinfeasible i examine the implications of thisdilemma with a repeated game in which a bureau choosesunobservable policies after a legislature sets itsbudget the bureau is work averse and has its ownpolicy preferences and therefore may cheat but thelegislature may perform an audit to recover slack funds a main result is that if the legislaturedesires a higher policy level than the agency then itfaces a trade off between good but wasteful policiesand bad but efficient ones

separation of regulators against collusive behavior we show that the separation of powers in regulation may act as a commitment against the threat of regulatory capture splitting regulatory tasks and monitoring technologies among several nonbenevolent regulators may reduce their discretion in engaging in socially wasteful activities when regulators make collusive offers that are accepted by the agent whatever his characteristics competition between regulators relaxes collusion proofness constraints and improves social welfare this result is robust to different specifications of the agent s preferences and to the timing of the game as long as one insists on safe side contracting offers we also discuss how separation affects both allocative efficiency and the distribution of rents in the economy

an analysis of the housing redevelopment process in korea through the lens of the transaction cost framework this paper applies the transaction cost framework to the analysis of the housing redevelopment process in korea the housing redevelopment process involves various identifiable transactions and cos

pay for locally monitored performance a welfare analysis for teacher attendance in ugandan primary schools public sector organizations often rely on reports by local monitors that are costly to verify and that serve twin objectives to incentivize agent performance and to provide information for planning purposes received wisdom has it that pay for locally monitored performance p4lmp will result in collusion and undermine both objectives but simple coasian logic suggests the reverse p4lmp puts transferable money on the table and may enable interested parties to bargain to a more efficient outcome this paper develops a theoretical model that shows why and for which parameters the welfare enhancing coasian scenario exists focusing on education we model how the preferences of a teacher agent and headteacher local monitor affect actual and reported teacher attendance and how these equilibrium outcomes depend on the financial stakes attached to reports to capture the value of information we also consider the welfare of a bureaucracy that makes a costly policy mistake when holding the wrong belief about teacher performance we test the model and estimate the predicted effects using data from a field experiment in ugandan primary schools randomly varying whether head teachers reports of teacher attendance are tied to bonus payments or not consistent with coasian logic p4lmp increased actual and reported teacher attendance by 9 and 15 percentage points respectively and reduced policy mistakes by 7 percentage points relative to unincentivized local monitoring we use these experimental impacts to undertake a detailed cost benefit analysis and conclude even under conservative assumptions that welfare improved when paying for locally monitored performance

contribution to productivity or pork barrel the two faces of infrastructure investment abstract this paper proposes a simultaneous equation approach to the estimation of the contribution of transport infrastructure accumulation to regional growth we model explicitly the political economy process driving infrastructure investments in doing so we eliminate a potential source of bias in production function estimates and generate testable hypotheses on the forces that shape infrastructure policy our empirical findings on a panel of france s regions over 1985 92 suggest that electoral concerns and influence activities were indeed significant determinants of the cross regional allocation of transportation infrastructure investments by contrast we find little evidence of concern for the maximization of economic returns to infrastructure spending even after controlling for pork barrel

the gains from differentiated policies to control stock pollution when producers are heterogeneous we derive optimal input taxes to control stock pollution problems generated by heterogeneous agents the taxes vary over time and in response to differences of asset quality and technology choice we also derive second best policies and compare them to the efficient policy and also among themselves different policies will affect the timing for when and the extent to which conservation technologies are adopted a numerical example based on the california drainage problem shows significant efficiency gains from the optimal policy compared to no intervention but much of the gains are lost with second best interventions the gains from optimal policies do not always increase with the degree of heterogeneity copyright 2008 oxford university press

the old theory of economic policy and the new institutionalism abstract in economics recent emphasis on institutions suggests new policy dimensions for the traditional theory of economic policy which originated with tinbergen and others at the time of the keynesian revolution the paper presents elements of the traditional view instruments targets and policy models and then considers new aspects of policy especially policy for structural change the discussion emphasizes the implications for institutional design of incomplete knowledge and endogenous politics both public and private actors rely on incomplete policy models and the models themselves can become intermediate targets of policy

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

budgetary policy with unified and decentralized appropriations authority the divestiture of the house appropriations committee in the1880 s has received considerable attention of an empiricalnature this paper presents a formal model of legislativedecisionmaking using a common agency formulation to representinterest group lobbying of legislators this framework is usedto analyze the effects of decentralizing appropriationsauthority the conditions under which decentralization leadsto higher spending are characterized it is argued that theconventional view that divestiture caused higher levels ofspending only holds if decentralization created barriers tolobbying and political bargaining across different committees in addition the role of specialized committee knowledge isexamined

price discrimination or price stabilization debating with models of u s dairy policy two views on u s dairy policy are first that it is an instance of the capture theory of economic regulation that it serves the interests of dairy producers at the expense of consumers and taxpayers by raising dairy product prices and second 2 that dairy policy to correct market failure is an instance of governmental action that dairy policy serves the joint interests of producers consumers and taxpayers this paper discusses several analytical issues which have been important in the debate between these views

who bears the cost of a change in the exchange rate pass through accounting for the case of beer abstract nominal exchange rates are remarkably volatile they ordinarily appear disconnected from the fundamentals of the economies whose currencies they price these facts make up a classic puzzle about the international economy if prices do not respond fully to changes in the nominal exchange rate who bears the cost of such large and unpredictable changes foreign firms domestic firms or domestic consumers this study presents a new analysis of the sources of incomplete pass through and then uses this analysis to re examine its implications for social welfare i develop and estimate a structural model that analyzes the sources of local currency price stability for a particular industry the model enables counterfactual simulations that quantify the relative importance of firms local cost components and markup adjustments in the incomplete transmission of exchange rate shocks to prices and the effect of the exchange rate shock on domestic and foreign firms profits and on consumer surplus the model is applied to a panel dataset of one industry with retail and wholesale prices for upc level products i find that markup adjustments by manufacturers and the retailer explain roughly half of the incomplete transmission and local cost components account for the other half foreign manufacturers generally bear a greater cost or reap a greater benefit following an exchange rate induced marginal cost shock than do domestic consumers domestic manufacturers or the domestic retailer

price discrimination and social welfare studies the effect of price discrimination on social welfare using methods from duality theory features of the reservation model presented quasi linear utility and consumers surplus upper and lower bounds on welfare change bounds on welfare change with optimal price discrimination from ebsco

paying politicians theory and evidence this paper looks at the theory behind the idea that paying politicians better will improve their performance the paper lays out a political agency model with adverse selection and moral hazard where politicians are subject to two period term limits this model provides a number of predictions about how the pay of politicians affects agency problems we also consider what happens when the pool of politicians is endogenous the main ideas in the model are confronted with data on u s governors jel d72 j33

price discrimination and bargaining empirical evidence from medical devices many important issues in business to business markets involve price discrimination and negotiated prices situations where theoretical predictions are ambiguous this paper uses new panel data on buyer supplier transfers and a structural model to empirically analyze bargaining and price discrimination in a medical device market while many phenomena that restrict price discrimination are suggested as ways to decrease hospital costs e g mergers group purchasing organizations and transparency i find that 1 non discriminatory pricing actually works against hospitals because competition is more intense under price discrimination and 2 results depend ultimately on a previously unexplored bargaining effect

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

coalition formation in international environmental agreements and the role of institutions abstract the aim of this paper is to discuss the role played by international institutions in achieving effective international environmental agreements we emphasise the strategic nature of environmental negotiations and use a game theoretic model of coalitional bargaining to illustrate the main issues we argue that international institutions can intervene in the framing of the strategic interactions between countries i e setting the rules of the negotiation game and can influence the actual agreement reached when different outcomes of the negotiation game can be equilibria

cost pass through and inverse demand curvature in vertical relationships with upstream and downstream competition this paper provides two characterizations of the retailer s markup relative to the manufacturer s markup in vertical relationships with homogeneous manufacturers and homogeneous retailers we first show that retailer s relative markup is equal to the ratio of the retail pass through to the wholesale pass through multiplied by the number of manufacturers relative to the number of retailers we then provide its expression in terms of the inverse demand curvature

navigating institutional change the accord rogernomics and the politics of adjustment in australia and new zealand this article uses a transactions approach to examine the ability of governments to develop and sustain negotiated solutions to major economic challenges where actors are embedded in long term repeated interaction have long time horizons and invest in monitoring and enforcement technologies effective political exchange is more likely in good transactions environments policy bargains will be more easily renegotiated and therefore more flexible and durable to examine the expectations the author looks to the puzzle posed by events in australia and new zealand 1983 1996 facing similar macroeconomic crises and with historically similar wage bargaining institutions and levels of union density both elect labor governments which then make opposite choices a negotiated solution emerged in australia but not in new zealand relying on the secondary literature and interviews with key actors the author finds support for the transactions approach findings here point to ways in which to broaden the study of

estimation of random coefficient demand models two empiricists perspective we document the numerical challenges we experienced estimating random coefficient demand models as in berry levinsohn and pakes 1995 using two well known data sets and a thorough optimization design the optimization algorithms often converge at points where the first and second order optimality conditions fail there are also cases of convergence at local optima on convergence the variation in the values of the parameter estimates translates into variation in the models economic predictions price elasticities and changes in consumer and producer welfare following hypothetical merger exercises vary at least by a factor of 2 and up to a factor of 5

when ideas trump interests preferences world views and policy innovations the contemporary approach to political economy is built around vested interests elites lobbies and rent seeking groups which get their way at the expense of the general public the role of ideas in shaping those interests is typically ignored or downplayed yet each of the three components of the standard optimization problem in political economy preferences constraints and choice variables rely on an implicit set of ideas once the manner in which ideas enter these frameworks is made explicit a much richer and more convincing set of results can be obtained in particular new ideas about policy or policy entrepreneurship can exert an independent effect on equilibrium outcomes even in the absence of changes in the configuration of political power

structural analysis of manufacturer pricing in the presence of a strategic retailer consumer goods manufacturers usually sell their brands to consumers through common independent retailers theoretical research on such channel structures has analyzed the optimal behavior of channel members under alternative assumptions of manufacturer retailer interaction vertical strategic interaction research in empirical industrial organization has focused on analyzing the competitive interactions between manufacturers horizontal strategic interaction decision support systems have made various assumptions about retailer pricing rules e g constant markup category profit maximization the appropriateness of such assumptions about strategic behavior for any specific market however is an empirical question this paper therefore empirically infers 1 the vertical strategic interaction vsi between manufacturers and retailer 2 the horizontal strategic interaction hsi between manufacturers simultaneously with the vsi and 3 the pricing rule used by a retailer the approach is particularly appealing because it can be used with widely available scanner data where there is no information on wholesale prices researchers usually have no access to wholesale prices even manufacturers who have access to their own wholesale prices usually have limited information on competitors wholesale prices in the absence of wholesale prices we derive formulae for wholesale prices using game theoretic solution techniques under the specific assumptions of vertical and horizontal strategic interaction and retailer pricing rules we then embed the formulae for wholesale prices into the estimation equations while our empirical illustration is using scanner data without wholesale prices the model itself can be applied when wholesale prices are available early research on the inference of hsi among manufacturers in setting wholesale prices using scanner data e g kadiyali et al 1996 1999 made the simplifying assumption that retailers charge a constant margin this assumption enabled them to infer wholesale prices and analyze competitive interactions between manufacturers in this paper we show that this model is econometrically identical to a model that measures retail price coordination across brands hence the inferred cooperation among manufacturers could be exaggerated by the coordinated pricing category management done by the retailer we find empirical support for this argument this highlights the need to properly model and infer vsi simultaneously to accurately estimate the hsi when using data at the retail level functional forms of demand have been evaluated in terms of the fit of the model to sales data but recent theoretical research on channels lee and staelin 1997 tyagi 1999 has shown that the functional form has serious implications for strategic behavior such as retail passthrough while the logit and linear model implies equilibrium passthrough of less than 100 lee and staelin call this vertical strategic substitute vss the multiplicative model implies optimal passthrough of greater than 100 vertical strategic complement vsc because passthrough rates on promotions have been found to be below or above 100 chevalier and curhan 1976 armstrong 1991 we empirically test the appropriateness of the logit vss and the multiplicative vsc functional form for the data we perform our analysis in the yogurt and peanut butter categories for the two biggest stores in a local market we found that the vss implications of the logit fit the data better than the multiplicative model we also find that for both categories the best fitting model is one in which 1 the retailer maximizes category profits 2 the vsi is manufacturer stackelberg and 3 manufacturer pricing hsi is tacitly collusive the fact that the retailer maximizes category profits is consistent with theoretical expectations the inference that the vsi is manufacturer stackelberg reflects the institutional reality of the timing of the game retailers set their retail prices after manufacturers set their wholesale prices note that in the stores and product categories that we analyze the two manufacturers own the dominant brands with combined market shares of about 82 in the yogurt market and 65 in the peanut butter market the result is also consistent with a balance of power argument in the literature the finding that manufacturer pricing is tacitly collusive is consistent with the argument that firms involved in long term competition in concentrated markets can achieve tacit collusion managers use decision support systems for promotion planning that routinely make assumptions about vsi hsi and the functional form the results from our analysis are of substantive import in judging the appropriateness of assumptions made in such decision support systems

blockchain and the evolution of institutional technologies implications for innovation policy abstract for the past century economists have proposed a suite of theories relating to industrial dynamics technological change and innovation there has been an implication in these models that the institutional environment is stable however a new class of institutional technologies most notably blockchain technology lower the cost of institutional entrepreneurship along these margins propelling a process of institutional evolution this presents a new type of innovation process applicable to the formation and development of institutions for economic governance and coordination this paper develops a replicator dynamic model of institutional innovation and proposes some implications of this innovation for innovation policy given the influence of public policies on transaction costs and associated institutional choices it is indicated that policy settings conductive to the adoption and use of blockchain technology would elicit entrepreneurial experiments in institutional forms harnessing new coordinative possibilities in economic exchange conceptualisation of blockchain related public policy an innovation policy in its own right has significant implications for the operation and understanding of open innovation systems in a globalised context

comparative politics and public finance we propose a model with micropolitical foundations to contrast different political regimes compared to a parliamentary regime the institutions of a presidential congressional regime produce fewer incentives for legislative cohesion but more separation of powers these differences are reflected in the size and composition of government spending a parliamentary regime has redistribution toward a majority less underprovision of public goods and more rents to politicians a presidential congressional regime has redistribution toward powerful minorities more underprovision of public goods but less rents to politicians the size of government is smaller under a presidential regime this last prediction is consistent with cross country data

revisiting legal realism the law economics and organization perspective the contrast between american legal realism which ran itself into the sand schlegel 1979 p 459 and the law and economics movement which is perhaps the most important development in legal thought in the last quarter century posner 1986 p xix is dramatic that the one foundered while the other flourished is explained in large measure by the absence of an intellectual framework for legal realism and the use by law and economics of the powerful framework of neoclassical economics

optimal central banker contracts and common agency this paper considers the contracting approach to centralbanking in a simple common agency model we suggest thatcentral banker contracts that do not consider the possibilityof more than one principal existing are incomplete contracts such incomplete contracts can be a poor form ofmonetary policy delegation under common agency we develop amodel with two principals society government and ageneric interest group whose objective conflicts withsociety s ex ante preferences by incorporating an inflationarybias we determine when the government offered orinterest group offered contract dominates the central banker sdecision the results largely depend on whether theinterest group offered contract is written in terms of outputor inflation

estimating multiple discrete choice models an application to computerization returns buyers in many markets face multiple discrete choices they can purchase multiple units as well as multiple brands at the same time this paper presents a multiple discrete choice model for the analysis of differentiated products demand users maximize profits by choosing the number of units of each brand they purchase i estimate the model using micro level data on the demand for personal computers i use the estimated demand structure to assess the welfare gains from computerization and technological innovation in peripherals the estimated return on investment in personal computers is 92 moreover a 10 increase in the performance to price ratio of microprocessors leads to a 2 2 gain in the estimated user surplus the personal computer pc market is of interest to industrial organization economists because of its size the continual technological change and above all because of the farreaching implications of pcs on the economy as a whole several distinct features make pc demand difficult to model pcs are a differentiated durable good in constant technological evolution moreover buyers make multiple discrete choices firms according to our data spread their purchases of pcs over different brands at the same time they buy pcs in blocks several units of each brand that they have chosen the aim of the paper is to present a model that captures these features and to use this model to estimate the welfare gains from computerization classical discrete choice models allow one choice among mutually exclusive alternatives in contrast the proposed framework allows users to demand multiple units and multiple brands the model can be applied to other cases of multiple discrete choices e g the composition of airline fleets car holdings per household the fields of the faculty in economics departments household cereals consumption or any other good consumed in more than one variety during a relevant time period although pervasive multiple discrete choice problems have received little attention because of their complexity a central issue regarding the pc market is the current controversy in the economics literature about the computerization puzzle this puzzle stems from the empirical finding that computerization has had no effect on firm productivity griliches and siegel 1991 and morrison and berndt 1990 contrary to those results hendel 1994 and lichtenberg 1995 using more disaggregate data than most previous studies report excess returns to computerization this indicates that data aggregation may have created the computerization puzzle in this paper i present a model consistent with the basic

the evolution of price dispersion in the european car market car prices in europe are characterized by large and persistent differences across countries the purpose of this paper is to document and explain this price dispersion using a panel data set extending from 1980 to 1993 we first demonstrate two main facts concerning car prices in europe i the existence of significant differences in quality adjusted prices across countries with italy and the u k systematically representing the most expensive markets 2 substantial year to year volatility that is to a large extent accounted for by exchange rate fluctuations and the incomplete response of local currency prices to these fluctuations these facts are analysed within the framework of a multiproduct oligopoly model with product differentiation the model identifies three potential sources for the international price differences price elasticities generating differences in markups costs and import quota constraints local currency price stability can be attributed either to the presence of a local component in marginal costs or to markup adjustment that is correlated with exchange rate volatility the latter requires that the perceived elasticity of demand is increasing in price we find that the primary reason for the higher prices in italy is the existence of a strong bias for domestic brancs that generates high markups for the domestic firm fiat in the u k higher prices are mainly attributed to better equipped cars and or differences in the dealer discount practices the import quota constraints are found to have a significant impact on japanese car prices in italy france and the u k with respect to local currency price stability a large percentage of the documented price inertia can be attributed to local costs and a smaller fraction to markup adjustment that is indicative of price discrimination based on these results we conjecture that the emu will substantially reduce the year to year volatility observed in the car price data but without further measures to increase european integration it will not completely eliminate existing cross country price differences

the political economy of inflation labour market distortions and central bank independence using the citizen candidate model we study the government s choice of institutions for the labour market and the central bank and derive the implications for inflation and employment we derive conditions for the existence of equilibria in which the labour market is distorted and the central bank is dependent or independent under a range of conditions affecting central bank dependence the post election cycle in inflation and employment and inflation bias our results imply that average inflation and inflation variability are lower under an independent central bank whereas employment variability can be lower or higher consistent with evidence for oecd countries many democratic societies delegate key tasks to non elected and independent institutions a prominent example being independent central banks the belief in the advantage of central bank independence is nursed by the cross country evi

empirical evidence on the role of non linear wholesale pricing and vertical restraints on cost pass through abstract how a cost shock is passed through to final consumer prices may relate to nominal price stickiness and rigidities the existence of nonadjustable cost components strategic markup adjustments or other contract terms along the supply distribution chain this paper presents a simple framework to assess the potential role of nonlinear pricing contracts and vertical restraints such as resale price maintenance or wholesale price discrimination in the supply chain in explaining the degree of pass through from upstream cost shocks in the ground coffee category to downstream retail prices we find that resale price maintenance increases pass through rate

third degree price discrimination in oligopoly all out competition and strategic commitment price discrimination by imperfectly competitive firms may intensify competition leading to lower prices for all consumers the tradeoff of consumer groups welfare that is characteristic of monopolistic discrimination need not arise this escalation of competition may make firms worse off and as a result firms may wish to avoid the discriminatory outcome under conditions similar to those in which unambiguous price and welfare effects may arise unilateral commitments not to price discriminate including the adoption of everyday low pricing or no haggle policies may raise firm profits by softening price competition

an empirical analysis of the relationship between brand loyalty and consumer price elasticity this empirical paper explores the relationship between consumer brand preference or loyalty and price elasticity in purchase behavior this behavior is conceptualized as resulting from two distinct but related decisions namely a brand choice decision and a purchase quantity decision we argue that loyal consumers will be less price sensitive in the choice decision than nonloyal consumers however this direction is expected to be reversed in the quantity decision with loyal consumers expected to be more price sensitive than nonloyal consumers we model the choice and quantity decisions jointly using the limited dependent variable framework described in krishnamurthi and raj the data used are diary panel data on a frequently purchased product class from burke and caffeinated ground coffee scanner data from iri we show that loyals are less price sensitive than nonloyals in the choice decision but more price sensitive in the quantity decision managerial implications of the differing elasticities are disc

modeling opec behavior theories of risk aversion for oil producer decisions abstract theories of opec such as price leadership cartel or game theoretic models suggest an incentive for opec members to expand their production capacity well above current levels in order to maximize revenues yet individual opec members consistently explore for and develop oil fields at a level well below their potential the cause of low oil exploration and development efforts among opec members and even some non opec members may have to do with risk aversion this paper describes an alternative theory for opec behavior based on risk aversion using a two piece non neumann morgenstern utility function similar to fishburn and kochenberger 1979 decision science 10 503 518 and friedman and savage 1948 journal of political economy 56 the model shows possible low oil production behavior

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

constrained discretion in uk monetary and regional policy mcvittie e and swales j k 2007 constrained discretion in uk monetary and regional policy regional studies 41 h m treasury claims that the notion of constrained discretion which directs the effective operation of uk monetary policy applies equally to other delegated and devolved policies such as the use of regional development agencies in the delivery of english regional policy a transaction cost politics perspective is used to argue that the delegation of responsibility for monetary stabilization raises principal agent issues quite different to those encountered in the delegation of the responsibility for regional regeneration in particular the effectiveness and transparency that characterize present day monetary policy cannot be expected in regional policy further the institutional arrangements that accompany the operation of regional development agencies in england should be critically reviewed mcvittie e et swales j k 2007 la notion de discretion entravee dans les poli

meso economic filters along the policy chain understanding the links between policy reforms and rural poverty in latin america abstract the paper clarifies the meso economy concept by defining it as comprising both the market mechanisms and administrative procedures through which policy decisions and market signals trickle down to the household level three main bodies of literature are reviewed the policy oriented literature in which the meso economy was initially considered the transaction cost approach analyzing market and policy failures and the micro economy level of agricultural household models the paper develops a synthesis of macro meso and micro economic perspectives which focuses on the roles played by three levels of filters intervening along the policy chain implications for policy and research are drawn

local government consolidations the impact of political transaction costs local government in norway comprises a large number of small municipalities cost efficiency can be improved by consolidating local authorities and central government has designed a framework to stimulate voluntary mergers existing theories suggest that political transaction costs will impede consolidations 1 generous grants compensate diseconomies of scale central government has promised small municipalities that grant levels will be maintained but policy promises may not be credible 2 property rights to local revenues are nullified when consolidations have been implemented high revenue municipalities will therefore go against merger with a poorer neighbor 3 a consolidated local council may be composed of different political parties and it may therefore pursue other policies than an existing council expected changes in party strength can lead municipalities to oppose a proposed consolidation 4 senior politicians are less likely to support mergers particularly if they come from small polities

common agency contracting and the emergence of dqopen science dq institutions the cold war s ending has brought mounting pressures to recognize national science and technology research systems yet by comparison with what has been learned already concerning institutional arrangements and business strategies affecting corporate rd investments surprisingly little is known about the economic origins and effects of the corresponding institutional infrastructures shaping the world of academic science and the organization and conduct of publicly supported rd more generally the desirability of closing this particular lacuna in the economics and economic history literatures has been just as evident to economists concerned with extending the analysis of modern institutions as to those who have begun to approach the whole area of science and technology studies from the perspectives and methods of industrial organization economics 1 even before the new economics of science had begun to direct attention to such a program douglass north 1990 p 75 saw a significant challenge and a promising opportunity in explicit exploration of the connecting links between institutional structures and incentives to acquire pure knowledge the research reported here has accepted that challenge see also the other papers in this session timothy lenoir 1998 christophe lecuyer 1998 and marjory s blumenthal 1998 it is focused upon key episodes in the institutional evolution of public science and its complex and changing relationship to the other organizational spheres of contemporaneous scientific activity those in which research was conducted under proprietary rules for industrial profit goals and defense related science and engineering knowledge was sought under conditions of restricted access to information concerning methods findings and their actual and potential applications

opportunism in multilateral vertical contracting nondiscrimination exclusivity and uniformity comment an input supplier selling to competing downstream firms would benefit from publicly committing at the outset to all contracts efficient commitment however would require complete contracts the authors study instead bilateral contracting without commitment regarding others terms each firm then fears that the supplier might opportunistically renegotiate another s contract to increase bilateral profit at the firm s expense the authors show that nondiscrimination clauses generally cannot curb such third party opportunism even with symmetric firms to reassure firms crude forms of commitment may be adopted this could explain the pervasiveness of exclusivity arrangements and the striking uniformity and intertemporal rigidity of franchise contracts copyright 1994 by american economic association

competition and incentives with motivated agents a unifying theme in the literature on organizations such as public bureaucracies and private nonprofits is the importance of mission as opposed to profit as an organizational goal such mission oriented organizations are frequently staffed by motivated agents who subscribe to the mission this paper studies incentives in such contexts and emphasizes the role of matching the mission preferences of principals and agents in increasing organizational efficiency matching economizes on the need for high powered incentives it can also however entrench bureaucratic conservatism and resistance to innovations the framework developed in this paper is applied to school competition incentives in the public sector and in private nonprofits and the interdependence of incentives and productivity between the private for profit sector and the mission oriented sector through occupational choice jel d23 d73 h41 l31 the late twentieth century witnessed a historic high in the march of market capitalism with unbridled optimism in the role of the profit motive in promoting welfare in the production of private goods moreover this generated a broad consensus on the optimal organization of private good production through privately owned competitive firms when it comes to the provision of collective goods no such consensus has emerged debates about the relative merits of public and private provision still dominate this paper suggests a contracting approach to the provision of collective goods it focuses on two key issues how to structure incentives and the role of competition between providers at its heart is the idea that organizations that provide collective goods cohere around a mission 2 thus production of collective goods can be viewed as mission oriented

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

credibility and reputation building in the developmental state a model with east asian applications abstract we use a game theoretic model to analyze the role of credibility reputation and investment coordination in a developmental state our model focuses on why a soft state serving narrow social groups so often obtains in less developed countries and under what conditions a hard or developmental state can emerge the model highlights the dilemma that although state and private sector alike may want economic growth both must simultaneously invest to achieve it but the equilibrium outcome analogous to the prisoner s dilemma is investment by neither even when initial conditions are favorable and a state is potentially developmental with the genuine capability to elicit private sector investment this may not materialize and an equilibrium of low or no investment will prevail to avoid this deadlock and foster growth the successful developmental state must demonstrate commitment by promoting its developmental credentials through a process of reputation building a consequent incentive to act tough together with seeming advantages of authoritarianism in implementing the developmental state may help to explain why it is often associated with an authoritarian political system

incentive contracts and elections for politicians with multi task problems abstract we consider a model with a politician facing a multi task problem while in office the reelection mechanism distorts the allocation of effort in favor of tasks whose outcomes can be measured more precisely than others we show that a combination of elections and incentive contracts can alleviate this inefficiency the incentive contract does not require direct information about the performance of the politician and is self financing across terms

the theory of the firm as governance structure from choice to contract the propositions that organization matters and that it is susceptible to analysis were long greeted by skepticism by economists one reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why the prevalence of the science of choice approach to economics has also been an obstacle as developed herein the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract this paper examines economic organization from a science of contract perspective with special emphasis on the theory of the firm

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

liberalizing a distribution system the european car market we quantify the competitive effects of liberalizing the selective and exclusive distribution system in the european car market based on a model of oligopoly pricing with differentiated products we consider two possible competitive effects from liberalization i the creation of international intrabrand competition cross border trade which will result in a reduction of international price discrimination and ii a possible cumulative effect arising from a strengthening of national intrabrand competition which would result in reduced double marginalization we find that the reduction in international price discrimination mainly redistributes consumer gains across countries it has a positive but modest effect on total welfare if liberalization also has the cumulative effect of reducing double marginalization the welfare effects are much higher finally we find that the effects of liberalization on the manufacturers profits are either small or positive this finding implies that international price discrimination and softening competition through a double marginalization mechanism should not be interpreted as main profit motives for the previous distribution system but only as unintended side effects hence the industry rationale for maintaining the previous distribution system should be sought in other areas jel f15 l42

the effects of third degree price discrimination in oligopoly retail firms and restaurants commonly offer senior citizen discounts i suspect this practice is not motivated by altruism rather the behavior can be better explained as profit maximizing price discrimination these firms are setting a low price in a market which probably has high elasticity of demand but why should the demand of senior citizens be more elastic than average one possibility is that elderly people have below average income and they would not eat out if restaurant prices were high perhaps a more plausible explanation is that retired people simply have more time on their hands to spend commuting across town to take advantage of discounts the purpose of these discounts may then be to lure senior citizens away from other restaurants rather than to get them out of the house the analysis of third degree price discrimination has a long history a c pigou 1920 joan robinson 1933 and two articles on the subject have recently appeared in this review richard schmalensee 1981 hal varian 1985 the industry structure in these analyses is monopoly but an explicit model of some form of competition is obviously needed to study discriminatory discounts meant to attract customers from rival firms and even discounts meant to get people out of the house may have an oligopoly analysis which is qualitatively different from their monopoly anlysis in this paper i present a simple duopoly model of a differentiated products industry i show that a firm s price elasticity of demand in a market can be expressed as the sum of two parts the industry demand elasticity and the cross price elasticity the first measures the tendency of consumers in a market to stay home when the price goes up the second the tendency to switch suppliers in the monopoly case in which the crossprice elasticity is zero and the collusive case in which the cross price elasticity is irrelevant discrimination between markets is due to differences in industry demand elasticity in the noncooperative oligopoly case equilibrium price differentials can be accounted for both by differences in cross price elasticity as well as differences in industry demand elasticity total industry output when the firms can discriminate between two markets is compared to what it would be if discrimination were impossible which regime has larger output depends on the sum of the adjustedconcavity condition and the elasticity ratio condition the first predominates when the rival products are poor substitutes and the firms have approximate monopoly power while the second predominates at the other extreme where the products are close substitutes and the firms have almost no market power the adjusted concavity condition compares the relative curvature of demands in the two markets and was originally discovered by robinson 1933 in her analysis of monopoly price discrimination the elasticity ratio condition compares the relative difference in industry demand elasticity between the two markets with the relative difference in cross price elasticity according to the elasticity ratio condition a discriminatory discount due to high industry elasticity of demand would be more likely to increase total output than one due to high cross price elasticity the effect of discrimination on profit is also discussed the distinction made here department of economics university of wisconsin madison madison wi 53706 this paper is a revision of part of my doctoral dissertation i am grateful to steve matthews ken judd and john panzar for guidance in this research i also thank seminar participants at wisconsin the justice department and the 1986 econometric society meetings in new orleans and the discussant martin perry the excellent comments of the referees improved the exposition of the paper

an endogenous policy model of hierarchical government endogenous policy models usually neglect that government policies are frequently the result of decisions taken at different tiers by different agents each enjoying some degree of autonomy in this paper policies are the outcome of the choices made by two agents within a hierarchy a legislator decides on the budget to be successively spent by a bureaucrat both agents are lobbied by one or two interest groups the combination of sequential decisionmaking and lobbying implies that the interaction between the agent at one tier and the interest group s depends on the exchange between the same interest group s and the agent at the other tier our results concerning multi tier lobbying and legislatorial oversight substantially qualify the conventional wisdom related to one tier lobbying in particular the reaction of the legislator to lobbying at the bureaucratic tier may make lobbying wasteful even when there is no competition from other lobbies moreover the legislator benefits from lobbying only when there is competition between interest groups at the upper tier it is also shown that competition for influence at the bureaucratic tier may work as a perfect substitute for legislatorial oversight extensions of the model indicate its usefulness for the analysis of decisionmaking in other multilevel governance structures like federations or firms

the making of economic policy a transaction cost politics perspective economic policymaking as a political process the normative approach to policy analysis the positive view of political economy a synthesis the policy process in real time a theme transaction costs the transaction cost politics framework political outcomes and economic efficiency transaction cost analysis in politics mechanisms to cope with transaction costs in politics national differences two case studies to illustrate transaction cost politics tax and expenditure reform in the united states the gatt and national trade politics some reflections and suggestions some lessons for the policy process the role of the economist concluding comments appendix multiprincipal multitask agencies

a theory of jurisdictional assignments in bureaucracies 1 what determines the allocation of tasks among government agencies this paper develops a formal model of task allocation that argues that jurisdictions are strategically designed to achieve legislative goals in the model agencies choose unobservable policies and political outcomes are a noisy indicator of these choices the legislature therefore faces a compliance issue when the agencies policy preferences are different from its own the legislature exerts control by defining agency jurisdictions setting ex ante budgets and choosing ex post contractual inducements the principal result is that tasks will be consolidated under a single roof when that agency prefers lower levels of policy than the legislature in other cases separating tasks prevents resources from being allocated in a manner undesirable for the legislature

incentives choice and accountability in the provision of public services this paper discusses a theoretical framework to study the issues of competition and incentives without relying on the standard profitoriented market model in the context of the debates about public service reform in the u k it uses the idea that the production of public services coheres around a mission and discusses how decentralized service provision can raise productivity by matching motivated workers to their preferred missions our focus on competition and incentives cuts across traditional debates about public versus private ownership and allows for the possibility of involving private non profits we also address concerns about the consequences of allowing more flexibility in mission design and competition on inequality

an empirical investigation of the welfare effects of banning wholesale price discrimination rand 054 rand2007 cls 1994 07 13 v1 2u standard latex document class rand rand 054 dispatch 12 7 2008 ce n a journal msp no no of pages 26 pe sharon rand journal of economics vol 40 no 1 spring 2009 pp 20 45 an empirical investigation of the welfare effects of banning wholesale price discrimination sofia berto villas boas economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination if downstream cost differences exist then discrimination shifts production inefficiently toward high cost retailers so a ban increases welfare if differences in price elasticity of demand across retailers exist discrimination may increase welfare if quantity sold increases so a ban reduces welfare using retail prices and quantities of coffee brands sold by german retailers i estimate a model of demand and supply and separate cost and demand differences simulating a ban on wholesale price discrimination has positive welfare effects in this market and less if downstream cost differences shrink or with less competition introduction wholesale price discrimination means that an upstream firm sets different prices for the same product for various downstream retailers wholesale price discrimination is commonly practiced in many markets examples include markets such as petroleum distribution steel heavy trucking tobacco and pharmaceuticals in several countries milk and other dairy products are sold using government administered or sanctioned discriminatory pricing schemes wholesale price discrimination practices are also used for services such as loans insurance and advertising 1 competition authorities have been concerned with wholesale price discrimination the european union treaty s article 82 c prohibits practices where a dominant firm would place trading partners at a competitive disadvantage the u s robinson patman act forbids discriminat ing in price between different purchasers where the effect may be to lessen competition unless the university of california berkeley sberto are berkeley edu i thank the editor igal hendel and two anonymous referees for many helpful comments and max auffhammer cyndi berck peter berck gal hochman silke januszewski forbes george judge kai uwe k uhn diana lazo mark muendler aviv nevo ariel pakes jeff perloff andrew sweeting miguel villas boas and participants at uc san diego university of michigan the inra idei conference in toulouse and the university of british columbia summer conference in industrial organization for their suggestions i thank daniel klapper for letting me have access to the data support from the giannini foundation and from an aes grant are gratefully appreciated see for gasoline markets texaco v hasbrouck 496 us 543 no 87 2048 1990 and the new york state motor fuel marketing practices act for steel chan hall and rust 2003 for heavy trucking volvo trucks north america inc v reeder simco gmc inc docket no 04 905 for tobacco brooke group ltd v brown and williamson tobacco corp 509 us 209 no 92 466 1993 for wholesale pharmaceuticals see http www datcp state wi us trade business unfair comp drug price jsp for dairy markets see for example gardner 1984 and for services see givens 1983 c 2009 rand copyright

on the welfare effects of regulating price discrimination in a model with linear demands and constant variable costs it is shown that a welfare gain is made by restricting the relative rather than absolute prices that a monopolist can charge for a range of products the nature of this class of restrictions is considered one application might occur if cost levels are unknown to the regulatory authority but costs are known to be linear functions of product characteristics copyright 1992 by blackwell publishing ltd

third degree price discrimination in input markets output and welfare if price discrimination is realized the economy shifts from one equilibrium to another it clearly involves welfare effects the price discriminator clearly gains some consumers may also gain from the price cut but others may lose faced with higher prices etc traditionally the change in social welfare is known to be closely related to the change in total output in the case of third degree price discrimination it is well known that an increase in total output is a necessary condition for welfare improvement richard schmalensee 1981 proves this fact in a model in which the monopolist with constant marginal cost can perfectly separate markets further hal r varian 1985 extends this result to the case of interdependent markets permnitting increasing marginal cost of the monopolist and finally the assumption of nondecreasing marginal cost is eliminated by marius schwartz 1990 roughly speaking this proposition says that if there is a welfare gain from price discrimination there has to be some gain to offset the distortion involved on the other hand the vast majority of legal and other policy disputes over the price discrimination concern input markets not final good markets thus it seems important to investigate the situation in which a discriminating monopolist is not a final good supplier but an input supplier and the buyers of the input are downstream producers of a final good as is assumed in this paper if the downstream firms have different technologies their input demand functions will be different and thus the monopolist has an incentive to price discriminate in this scenario michael l katz 1987 and patrick degraba 1990 study the effect of inputmarket price discrimination and show that price discrimination always lowers welfare because it involves the distortion that a lower cost downstream firm is assigned a higher price unfortunately in their simple settings on the technology of downstream industry price discrimination can never change total output of the input or of the final good 1 thus we must say that welfare effect of input market price discrimination remains open to question if it has some effect on total output in particular we are curious as to whether we can obtain some close relationship between the changes in welfare and total output as we have obtained in the final good market settings with this motivation we will construct a model which involves change in total output of the final good in the next section the model and assumptions are provided in section ii after we extend the result of katz 1987 and degraba 1990 we find a relationship between the changes in welfare and total output strikingly it states that an increase in the total output of the final good is a sufficient condition for welfare deterioration this result contrasts with that obtained by schmalensee 1981 varian 1985 and schwartz 1990 from usual models of price discrimination in a final good market section iii concludes the analysis

information sharing in common agency when is transparency good when should principals dealing with a common agent share their individual performance measures about the agent s unobservable effort for producing a public good in a model with two principals who offer linear incentive schemes we show that information sharing always increases total expected welfare if the principal who is less informed about the agent s effort also cares more about the agent s output if the less informed principal cares somewhat but not too much less than the other principal about the agent s output information sharing reduces total expected welfare in our model the efficient information regime emerges as an equilibrium outcome

conflict resolution and social protection in an era of globalisation external dimensions to europe s social policy globalisation has marginalised many nations in the south there are systematic mechanisms via which this occurs it has also raised inequality between nations and polarised the world into rich and poor nations accompanying international economic marginalisation a simultaneous growth in violent internal conflict has taken place in developing countries from both the standpoint of common humanity and security considerations the marginalising and unequalising effects of globalisation need to be abated via measures to protect the vulnerable this will also help to stem the tide of internal conflict in the developing world in this connection europe along with its policies and interventions can be of value

input market price discrimination and the choice of technology recent concerns over the effects of the robinson patman act and so called priceprotection policies such as most favoredcustomer clauses mfc s 2 on market performance have given economists new reasons to examine the welfare effects of third degree price discrimination in order to assess these effects correctly it is imperative that one understand how price discrimination influences market behavior joan robinson s 1933 work launched the formal inquiry into the welfare effects of third degree price discrimination building on the intuition presented by arthur pigou 1932 she showed that if a monopolist faces two independent linear demand curves the use of price discrimination will not affect industry output but will reduce welfare richard schmalensee 1981 extends these results to nonlinear demand curves and shows that an increase in total industry output is a necessary condition for price discrimination to be welfare improving hal varian 1985 broadens these results by deriving upper and lower bounds on the welfare change due to the use of price discrimination he shows that these results can be applied to markets in which there are nonzero cross price effects all of this work examines how the ability of a monopolist to price discriminate will affect the market outcome when all other characteristics of the market are treated as exogenous recently two lines of research have extended this inquiry beyond the case of a monopolist in a market with exogenously fixed parameters the first line considers the case of oligopoly the work of charles holt and david scheffman 1985 and thomas cooper 1986 has shown that restrictions on price discrimination imposed by the use of mfc s can facilitate collusion between oligopolists attempting to restrict output this implies that third degree price discrimination can be welfare improving the second line of research shows that price discrimination by a firm can affect nonprice decisions made by other market participants thus affecting the market outcome michael katz 1987 presents a model in which a large firm s ability to vertically integrate backward into the production of an input allows it to obtain a lower per unit price from the supplier of the input than can be obtained by smaller firms without this ability he shows that third degree price discrimination reduces welfare unless it prevents inefficient backward integration degraba 1987 shows that the use or nonuse of price discrimination by a national firm can affect nonprice decisions made by local firms that compete with the national firm in this situation third degree price discrimination is welfare reducing because it induces local firms to produce a product that is overly differentiated from the product of the national firm in all of the work cited above price discrimination is important when sellers set prices in separate markets or charge different prices to different customers in the same market the following analysis which can be considered a contribution to the second line of research suggests that price discrimination can be important even when a seller faces a single market in which all customers are identical the intuition behind this result is that nonprice decisions made by downstream producers such as the choice of technology can be affected by the use or johnson graduate school of management cornell university ithaca ny 14853 i thank robert frank robert smiley richard thaler and the participants of the jgsm applied microeconomics workshop for their helpful comments see william baldwin 1987 pp 438 40 for a good summary of the debate 2see john kwoka and lawrence white 1989 pp 196 7

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

renegotiation design with multiple regulators abstract one striking feature of the internal organization of governments is the existence of multiple regulators this paper explains this organizational choice as coming from the government s limited ability to commit the separation of powers between two regulators is modeled as a stackelberg common agency game with respect to the case of a single regulator the allocative efficiency and the regulated firm s informational rent are both reduced in the unique equilibrium of this game however when regulators have a limited ability to commit this static cost of regulators separation becomes a dynamic benefit separation makes renegotiation harder and improves commitment journal of economic literature classification numbers d82 l51

multiple discreteness and product differentiation demand for carbonated soft drinks for several of the largest supermarket product categories such as carbonated soft drinks canned soups ready to eat cereals and cookies consumers regularly purchase assortments of products within the category consumers often purchase multiple products and multiple units of each alternative selected on a given trip this multiple discreteness violates the single unit purchase assumption of multinomial logit and probit models the misspecification of such demand models in categories exhibiting multiple discreteness would produce incorrect measures of consumer response to marketing mix variables in studying product strategy these models would lead to misleading managerial conclusions we use an alternative microeconomic model of demand for categories that exhibit the multiple discreteness problem recognizing the separation between the time of purchase and the time of consumption we model consumers purchasing bundles of goods in anticipation of a stream of consumption occasions before the next trip we apply the model to a panel of household purchases for carbonated soft drinks

reply to apps rees and gottried richter in our earlier paper in this journal 1996 we argued that in a model with both market and household production each of which has two factor inputs primary and secondary worker labor individualbased taxation will distort the factor input ratio whereas household or joint taxation which has similar tax rates for the two workers will not there is an added distortion of household production under individual taxation that does not appear in a model with only consumption of goods and leisure and in which ramsey labor supply elasticity considerations point toward individual taxation we used 1974 australian data to analyze a possible move from an existing individual based income tax to an alternative household based tax a move from a status quo separate tax regime to joint taxation we suggested that the added distortion of household production under individual taxation made such a move more likely to be welfareimproving we considered pairwise comparisons of model solutions under prevailing nonoptimal individual tax rates and common household member rates calculated in various ways our results showed that if the dispersion in individual tax rates is large enough the tax induced distortion of household production can be the dominant consideration in the comparison we neither computed nor characterized optimal tax rate configurations in this application the lessons from optimal tax design seemed uninteresting and rather trivial a de novo design of an optimal tax structure across household members would almost certainly