project based mechanisms for emissions reductions balancing trade offs with baselines project based mechanisms for emissions reductions credits like the clean development mechanism pose important challenges for policy design because of several inherent characteristics participation is voluntary so it will not occur without sufficient credits evaluating reductions requires assigning an emissions baseline for a counterfactual that cannot be measured some investments have both economic and environmental benefits and might occur anyway uncertainty surrounds both emissions and investment returns and parties to the project are likely to have more information than the certifying authority the certifying agent is limited in its ability to design a contract that would reveal investment intentions as a result rules for benchmarking emissions may be systematically biased to overallocate and they also risk creating inefficient investment incentives this paper evaluates in a situation with asymmetric information the efficacy of the main baseline rules currently under consideration historical emissions an average industry emissions standard and expected emissions

towards an attention based view of the firm the central argument is that firm behavior is the result of how firms channel and distribute the attention of their decision makers what decision makers do depends on what issues and answers they focus their attention on what issues and answers they focus on depends on the specific situation and on how the firm s rules resources and relationships distribute various issues answers and decision makers into specific communications and procedures the paper develops these theoretical principles into a model of firm behavior and presents its implications for explaining firm behavior and adaptation 1997 by john wiley sons ltd

competitive tension the awareness motivation capability perspective this paper investigates competitive tension or the strain between a focal firm and a given rival that is likely to result in the firm taking action against the rival drawing on the awareness motivation capability perspective we show how perceived competitive tension as constructed from managers and industry stakeholders competitor assessments is influenced by the independent and interactive effects of three factors relative scale rival s attack volume and rival s capability to contest our results provide a new avenue for studying competitors and the relationship between competitor analysis and interfirm rivalry in science there is a steady state in which opposing forces hold each other in check until the build up of tension turns the static relationship into dynamic interplay the point when the steel cable snaps the steam chamber s pressure valve opens or one psychological force overwhelms the other in business practice a similar phenomenon exists when tension that one opponent imposes on another triggers rivalrous actions competitor analysis is central to strategy and organization research hitt ireland hoskisson 2005 porter 1980 previous research has explored a number of important issues including conjecture variation amit domowitz fershtman 1988 competitor identification porac thomas 1990 and blind spots zajac bazerman 1991 and has made advances in such areas as theoretical integration of competitor analysis and interfirm rivalry chen 1996 fundamental questions such as who a focal firm s competitors are and how much competition the firm faces from each rival have been implicitly or explicitly addressed by a variety

trading for the future signaling in permit markets abstract permit markets are celebrated as a policy instrument since they allow i firms to equalize marginal costs through trade and ii the regulator to distribute the burden in a politically desirable way these two concerns however may conflict in a dynamic setting anticipating the regulator s future desire to give more permits to firms that appear to need them firms purchase permits to signal their need this raises the price above marginal costs and the market becomes inefficient if the social cost of pollution is high and the government intervenes frequently in the market the distortions are greater than the gains from trade and non tradable permits are better the analysis helps to understand permit markets and how they should be designed

long run carbon emission implications of energy intensive infrastructure investments with a retrofit option abstract investments in long lived fossil fuel intensive infrastructure can have large effects on carbon emissions over a long future period we simulate a 2 period model of infrastructure investment with subsequent retrofit to purge its carbon emissions under uncertainty about climate and retrofit costs the energy intensity chosen upon investment depends on current and expected future energy and environmental costs and on future retrofit cost simulations of a simplified but realistic model indicate that energy consumption and carbon emissions can be highly excessive when future energy and climate costs are not considered at the time infrastructure investments are made and charged at globally suboptimal rates when operated often by more than 50 when energy costs are undervalued at this rate both ex ante and ex post good anticipated retrofit options reduce ex post energy costs but lead to ex ante choice of more energy intensive infrastructure which could more than fully offset the energy reducing effect of the retrofit these results are of particular importance for emerging economies with large current and anticipated energy related investments where long term climate policy goals may be seriously jeopardized by policy makers facing too low energy prices now and in the future

agency relationships in family firms theory and evidence does owner management necessarily eliminate the agency costs of ownership drawing on agency literature and on the economic theory of the household we argue that private ownership and owner management expose privately held owner managed firms to agency threats ignored by jensen s and meckling s 1976 agency model private ownership and owner management not only reduce the effectiveness of external control mechanisms they also expose firms to a self control problem created by incentives that cause owners to take actions which harm themselves as well as those around them jensen 1994 p 43 thus shareholders have incentive to invest resources in curbing both managerialand owner opportunism we extend this thesis to the domain of the family firm after developing hypotheses which describe how family dynamics and specifically altruism exacerbate agency problems experienced by these privately held owner managed firms we use data obtained from a large scale survey of family businesses to field test our hypotheses and find evidence which suggests support for our proposed theory finally we discuss the implications of our theory for research on family and other types of privately held owner managed firms

unemployment insurance and male unemployment duration in canada a model of unemployment duration is estimated with weekly micro data on canadian men entitlement provisions in the unemployment insurance program and demand conditions are found to have a significant effect on the probability of leaving unemployment the probability of a worker leaving unemployment declines with the duration of unemployment holding unemployment insurance entitlement constant when entitlement is allowed to vary the probability of leaving first falls and then generally rises with unemployment duration these results are robust with respect to allowing for person specific unobserved heterogeneity and alternative specifications of duration dependence

on the design of optimal grandfathering schemes for emission allowances to meet its commitment under the kyoto protocol the eu plans to implement an emissions trading system whith grandfathering of allowances besides having distributional impacts the choice of the grandfathering scheme may affect efficiency if firms anticipate how future allocations depend on upcoming decisions in this paper we determine central design rules for optimal grandfathering within a simple two period model we find that for small open trading systems where allowance prices are exogenous first best second period grandfathering schemes must not depend on firm specific decisions in the first period second best schemes correspond to a ramsey rule of optimal tax differentiation and are generally based on both previous emissions and output however ofr closed emissions trading systems i e endogeneous allowance prices firstand second best rules coincide and must not depend on previous output levels they consist of an assignment proportional to the emissions in the first period plus a term which does not depend on firm specific decisions in either of the two periods

is there really a green paradox abstract in the absence of a co2 tax the anticipation of a cheaper renewable backstop increases current emissions of co2 since the date at which renewables are phased in is brought forward and more generally future emissions of co2 will decrease the effect on global warming is unclear green welfare falls if the backstop is relatively expensive and full exhaustion of fossil fuels is optimal but may increase if the backstop is sufficiently cheap relative to the cost of extracting the last drop of fossil fuels plus marginal global warming damages as then it is attractive to leave more fossil fuels unexploited and thus limit co2 emissions we establish these results by analyzing depletion of non renewable fossil fuels followed by a switch to a clean renewable backstop paying attention to timing of the switch and the amount of fossil fuels remaining unexploited we also discuss the potential for limit pricing when the non renewable resource is owned by a monopolist finally we show that if backstops are already used and more backstops become economically viable as the price of fossil fuels rises a lower cost of the backstop will either postpone fossil fuel exhaustion or leave more fossil fuel in situ thus boosting green welfare however if a market economy does not internalize global warming externalities and renewables have not kicked in yet full exhaustion of fossil fuel will occur in finite time and a backstop subsidy always curbs green welfare

emissions trading with updated allocation effects on entry exit and distribution allocation of emissions allowances may have significant distributional and efficiency effects it is well known that cost efficiency may be achieved if allowances are auctioned or distributed in a lump sum manner e g based on emissions levels before the start of the system grandfathering bohringer and lange eur econ rev 49 2041 2055 2005 show that a cost effective outcome can also be achieved if the base year for allocation is continually updated updating given that banking and borrowing are prohibited in this paper we examine whether updating alters the entry and exit conditions for firms compared to grandfathering and how it affects profits for new and existing firms we find that the two schemes function surprisingly similar first the incentives to entry and exit are identical second the total value of free quotas to existing firms based on emissions before the system starts is also identical without any auctioning with updating initial claims for free allowances have a shorter lifetime compared to grandfathering but quota prices are higher as firms anticipate the effect of current emissions on future claims to free allowances the two effects exactly cancel each other out if there is some combination of auction and free allocation the total value of free quotas will always be highest under grandfathering if the auction rate is the same entry and exit incentives are still equal

the additionality problem with offsets optimal contracts for carbon sequestration in forests abstract carbon offsets are a frequently discussed tool for reducing the costs of an emissions reduction policy however offsets have a basic problem stemming from asymmetric information sellers of offsets have private information about their opportunity costs leading to concerns about whether offsets are additional non additional offsets can undermine a cap and trade program or if the government purchases them directly result in enormous government expenditures we analyze contracts for carbon sequestration in forests that mitigate the asymmetric information problem landowners are offered a menu of two part contracts that induces them to reveal their type under this scheme the government is able to identify ex post how much additional forest each landowner contributes and minimize ex ante its expenditures on carbon sequestration to explore the performance of the contracting scheme we conduct a national scale simulation using an econometric model of land use change the results indicate that for an increase in forest area of 61 million acres government expenditures are 5 3 billion lower under the contracting approach compared to a uniform subsidy offered to all landowners this compares to an increase in private opportunity costs of just 110 million dollars under the contracts thus the contracting scheme is preferable from society s perspective

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

fishing in different pools job search strategies and job finding success in canada in the early 1980s this article examines the job search methods of jobless workers and emphasizes sample selectivity in choice of job search strategies especially use of public employment agencies longitudinal data from the labour force survey of canada for 1981 1983 and 1986 indicate that job search methods change with the business cycle and that many people find jobs without any reported search the determinants of job search success also vary substantially over the business cycle implying a substantial social return to public employment agencies at the 1983 trough of the recession but no noticeable benefits when aggregate unemployment is relatively low

liquidity provision and the organizational form of nyse specialist firms we examine the influence of nyse specialist firm organizational form on the nature of liquidity provision we compare closely held firms whose specialists provide liquidity with their own capital to widely held firms whose specialists provide liquidity with diffusely owned capital we argue that specialists using their own capital have a greater incentive and ability to reduce adverse selection costs but face a greater cost of capital differences in the proportion of spreads due to adverse selection costs large trade frequency the sensitivity between depth and spreads and price stabilization support this argument recent studies by cao choe and hatheway 1997 and corwin 1999a document differences across specialist firms in execution costs trading halts due to order imbalances and market stabilization why these differences in liquidity provision exist however is not well understood we argue that differences in liquidity provision arise from differences in specialist firm organizational form firms that make markets with capital supplied by their specialists owner specialist firms offer economies with respect to asymmetric information costs while firms that make markets with diffusely owned capital employee specialist firms offer economies with respect to capital costs our empirical results support this argument since march 1997 the nyse has allowed listing firms to choose which specialist firm handles their stock from a pool provided by the nyse allocations committee new york stock exchange 1997 like the choice of debt dividend or compensation policies the choice of a specialist firm po

scale and transfers in international emissions offset programs abstract voluntary emissions offset programs between developing and industrialized countries suffer from adverse selection because participants will self select into the program in contrast pure subsidies for mitigation lead to full participation and hence efficiency but require large financial transfers which make them unattractive to industrialized countries we present a simple model to demonstrate the impact of three policy options on the performance of offset programs 1 baseline scale increases 2 offset discounting and 3 setting stringent baselines with baseline scale increases entire political jurisdictions such as regions or nations are assigned a single aggregate baseline and must choose whether to participate as one entity we find that increasing scale both improves efficiency and reduces transfers from offset buyers to sellers offset discounting means paying less than the value of abatement and can be paired with trading ratios between offsets and allowances in a cap and trade system we show that discounting is inefficient but can make offsets more attractive to industrialized countries setting stringent baselines also involves a tradeoff between efficiency and transfers we finally show that pareto efficient policies that are individually rational for buyers and sellers entail some combination of discounting and or stringent baselines offset policies are never first best but can be efficiency improving especially with increased scale

incentives and prices in an emissions trading scheme with updating abstract emissions trading schemes where allocations are based on updated baseline emissions give firms less incentive to reduce emissions for a given quota or allowance price nevertheless according to bohringer and lange on the design of optimal grandfathering schemes for emission allowances europ econ rev 49 2005 2041 2055 such allocation schemes are cost effective if the system is closed and allocation rules are identical across firms in this paper we show that the cost effective solution may be infeasible if marginal abatement costs grow too fast moreover if a price cap or banking borrowing is introduced the abatement profile is no longer the same as in the case with an auction or lump sum allocation in addition we show that with allocation based on updated emissions the quota price will always exceed marginal abatement costs possibly misguiding policy makers and investors about abatement costs numerical simulations indicate that the quota price most likely will be several times higher than marginal abatement costs unless a significant share of allowances is auctioned

mitigation incentives with climate finance and treaty options abstract future greenhouse gas ghg mitigation action of current non climate policy np countries is considered to take two alternative forms 1 climate finance payments received in return for future reductions in its ghg emissions below a defined baseline and 2 join a climate treaty whereby the required emissions reductions are formally binding it is assumed that baselines defining climate finance payments and required emissions reductions under a treaty depend positively on current emissions it is then shown that making such future options available reduces current ghg mitigation in np countries leading to higher emissions in the short run this effect is stronger when future climate finance payments are higher the required relative emissions reductions under a treaty are greater when commitments under a treaty are longer lasting and mitigation targets depend more on current emissions such short run increases in emissions can sometimes more than fully eliminate the effect of the subsequent policy when climate finance and treaties are both future alternatives more generous climate finance can make it harder and more expensive to induce the country to join a climate treaty

competitive behavior and nonfinancial objectives entry exit and pricing decisions in closely held firms because of the predominance of the assumption of profit maximization as the goal of the firm and its decision makers especially in the competitive strategy literature research has yet to investigate how differences in objectives might influence competitive actions such as entry exit and pricing decisions this represents an important gap in the literature given the fundamental role of objectives in decision making and widespread evidence that many firms especially those that are closely held are motivated by nonfinancial objectives in addition to an interest in financial returns to further our understanding of firms competitive strategy decisions we discuss how the presence of nonfinancial objectives in closely held firms leads to a weakening of the relationship between economic indications of profitability and competitive behaviors using a unique data set of nearly 4 000 closely held and non closely held establishments engaged in local competition in the texas hotel industry we find that the e

the impact of discounting emission credits on the competitiveness of different cdm host countries discounting the value of emission credits has been proposed as a possible approach for addressing some of the shortcomings of the clean development mechanism cdm it could be used to compensate for non additional cdm projects to increase the incentive for advanced developing countries to move from the cdm to own mitigation commitments and to improve the competitiveness of less developed countries as hosts for cdm projects we assess the impact of discounting on the distribution of cdm projects in host countries with a special focus on least developed countries ldcs cdm specific abatement cost curves are built for 4 regions china india other advanced asian countries and ldcs abatement costs are estimated using the information provided in the project documentation of 108 projects from 17 subtypes in 16 host countries abatement potentials are derived from the current cdm pipeline for each region for ldcs we additionally include an optimistic potential estimation by adding to the current pipeline the potential found by a world bank study for ldcs in sub saharan africa we then assess the effect of two emission credit discounting schemes on these abatement cost curves credit discounting is differentiated by host countries based on an index composed of per capita gdp and per capita emissions in the first scheme it only affects the most advanced cdm host countries in the second one it also affects china we find that discounting has an impact on the competitiveness of individual cdm host countries in the carbon market as it affects their abatement cost curves it could become an instrument for incentivising advanced developing countries to leave the cdm and engage in other farther reaching climate related commitments as a result of the resulting emission credit cost increases however even with discounting ldcs remain unimportant in terms of abatement potential if the financial technical and institutional barriers to cdm development in these countries are not overcome

emissions trading with offset markets and free quota allocations we study optimal climate policy for a policy bloc of countries facing a market where emissions offsets can be purchased from a non policy fringe of countries such as with the cdm policy bloc firms benefit from free quota allocations which are updated according to either firms past emissions or outputs we show that the resulting abatement and its allocation between policy bloc and fringe are both inefficient when all quotas are traded freely at a single price the policy bloc chooses to either not constrain the offset market leading to suboptimal policy bloc mitigation or ban offsets completely the former latter case occurs when free allocation of quotas is not very generous and the offset market is large small it is preferable for policy bloc countries governments to instead buy offsets directly from the fringe at a quota price below marginal damage cost of emissions while the policy bloc quota price will be above this cost with maximization of global welfare and a unified quota price this price is higher and offsets constrained in fewer cases but the solution still inefficient full efficiency then requires a higher quota price in the policy bloc than in the fringe

ownership structure and corporate strategy one question viewed from two different worlds in their response to our paper amihud and lev 1999 and denis denis and sarin 1999 claim that disciplinary differences don t matter and that methods and evidence should speak for themselves in contrast we argue that important differences exist between financial economics and strategic management leading to differing beliefs norms methods and interpretations of empirical results using a strategic management perspective to review the evidence presented by amihud and lev in their earlier study 1981 and in their and denis et al s critiques of our work 1999 we find no reason to revise our original conclusion there is little theoretical or empirical basis for believing that monitoring by a firm s principals influences its diversification strategy and acquisition decisions copyright 1999 john wiley sons ltd

does money matter abstract the desire to attain personal wealth has long been regarded as the foremost motive for entrepreneurship other goals and values however may also contribute to entrepreneurial motivation thus the extent to which money matters relative to other motives is an empirical question in this study we examine the role of wealth as the motive for the decision to found new ventures three focal questions guide our research 1 does money matter more relative to other decision dimensions in deciding to start a new high technology venture 2 does money matter more to entrepreneurs compared to non entrepreneurs and 3 does money matter in absolute terms that is does a decision model that focuses solely on the motive of wealth attainment parsimoniously predict entrepreneurs start up decisions we conducted in depth interviews with 51 entrepreneurs and a control group of 28 senior managers who decided not to start ventures non entrepreneurs in the high technology industry in british columbia to address our research questions the motives we examined are wealth attainment and an aggregate of other dimensions identified by entrepreneurs and managers we considered three components of values participants ratings of the importance of various decision dimensions their rating of the salience of these dimensions and their satisfaction with prior levels of attainment on those decision dimensions we assessed beliefs as participants perceived probability of attaining their desired level of a particular decision dimension in each of three alternatives the position held at the time the venture decision was made the venture itself and the next best career alternative at that time the data were analyzed to compare entrepreneurs values and beliefs regarding wealth with an aggregate of other decision dimensions our relative hypotheses and with those of non entrepreneurs our comparative hypotheses our findings do not support the common perception that money is the only or even the most important motive for entrepreneurs decisions to start new ventures wealth attainment was significantly less important to entrepreneurs relative to an aggregate of 10 other decision dimensions and entrepreneurs did not rate wealth as any more important than did non entrepreneurs non entrepreneurs rated wealth as no more important than other motives wealth attainment was also significantly less salient to entrepreneurs decisions to venture than were other motives non entrepreneurs reported that wealth was significantly more salient to their decision against founding a venture than other dimensions in fact non entrepreneurs rated wealth attainment as significantly more salient to their decision against founding than entrepreneurs rated it for their decision to proceed with starting a high technology business a significant number of entrepreneurs started businesses even when they believed that doing so offered them a lower probability of obtaining their most desired level of wealth than did one of their other alternatives satisfaction ratings and stated beliefs also dispute classical predictions just prior to making the decision to venture the entrepreneurs in our study were as satisfied with wealth as they were with other decision dimensions the non entrepreneurs were actually more satisfied with wealth attainment than with other dimensions a comparison of the groups revealed no difference in satisfaction with wealth attainment levels entrepreneurs did believe that their chances of attaining their desired level of wealth were much greater through founding a new high technology venture than through their other alternatives this difference in beliefs however was not significantly greater than their optimistic beliefs about chances of attaining desired levels of other dimensions it was significantly higher compared to the non entrepreneurs belief difference measures for wealth in fact the entrepreneurs stated beliefs regarding the chances of attaining their desired levels of all dimensions were higher than those of the non entrepreneurs suggesting that entrepreneurs were simply more optimistic at the time of their decision than non entrepreneurs salience findings suggest that these optimistic beliefs about wealth did not motivate the founding decision alone we can distinguish those people who successfully started ventures by their regard for wealth as a less salient factor and their beliefs in higher chances of a venture producing monetary and other returns other motives such as innovation vision independence and challenge were more important and much more salient to this sample of entrepreneurs our findings have implications for practice teaching and research venture capitalists who partially base their assessment of entrepreneurs on the extent to which they are motivated to make a great deal of money may benefit from reconsideration of this criterion we have evidence of one group of high technology entrepreneurs who achieved success without placing much decision weight on attainment of personal wealth nascent entrepreneurs and those who teach entrepreneurship can use this empirical finding to argue two main points 1 not all entrepreneurs found a business for personal wealth reasons and 2 one need not be motivated by personal wealth attainment to be a successful entrepreneur similarly theoretical models that assume money is the primary motive for entrepreneurial activity require re examination future research in entrepreneurship should focus less on wealth attainment and more on other motives for the venturing decision a multiple attribute decision model may be able to more fully explain venturing decisions

swinging for the fences the effects of ceo stock options on company risk taking and performance we unpack the concept of managerial risk taking distinguishing among three of its major elements the size of an outlay the variance of potential outcomes and the likelihood of extreme loss we

ownership form managerial incentives and the intensity of rivalry this study investigates how differences in ownership form between franchised and company owned units affect managerial incentives and competitive pricing in different oligopolistic contexts we arg

competition in a multimarket environment the case of market exit studies of competition typically have two underlying assumptions that competition occurs within the boundaries of industries or markets and that all firms in a market or industry are affected equally by competitive pressures the concept of multipoint competition challenges both assumptions multipoint theory addresses how different levels of contact between firms across multiple markets affect competition in individual markets its main argument is that high levels of contact between firms across markets will induce mutual forbearance causing multipoint competitors to refrain from aggressively attacking each other the restraint stems from the fact that high levels of intermarket contact enable a firm to respond to an aggressive action by a multipoint rival in markets other than the one in which the action takes place that possibility raises the potential costs of aggressive moves and serves as a credible deterrent especially if a firm can respond in several markets in addition multipoint competiti

the relationship between unemployment spells and reservation wages as a test of search theory the theory of stationary job search predicts that controlling for other factors that affect the probability of leaving unemployment duration and reservation wages are likely to be positively associated the paper tests this prediction for british cross sectional data from 1982 using an estimating equation implied by search theory simultaneity is crucial in the evaluation of this prediction with single equation and instrumental variable estimates differing markedly perhaps surprisingly given the extreme paucity of both job interviews and offers in the sample the main finding is that reservation wages play a significant role in the determination of duration

strategic climate policy with offsets and incomplete abatement carbon taxes versus cap and trade abstract this paper provides a first analysis of a policy bloc of fossil fuel importers which implements an optimal climate policy faces a non policy fringe of other fuel importers and an exporter bloc and purchases offset from the fringe we compare a carbon tax and a cap and trade scheme for the policy bloc in either case accompanied by an efficient offset mechanism for reducing emissions in the fringe the policy bloc is shown to prefer a tax over a cap since only a tax reduces the fuel export price and by more when the policy bloc is larger offsets are also more favorable to the policy bloc under a tax than under a cap the optimal offset price under a carbon tax is below the tax rate while under a cap and free quota trading the offset price must equal the quota price the domestic carbon and offset prices are both higher under a tax than under a cap when the policy bloc is small when the policy bloc is larger the offset price can be higher under a cap fringe countries gain by mitigation in the policy bloc more under a carbon tax since the fuel import price is lower

reported vs actual job search by unemployment insurance claimants this study compares self reported job search contacts of unemployment insurance recipients with independently verified job search contacts for the total sample reported contacts averaged 2 61 per week compared with actual contacts of only 1 78 per week nearly one fifth of the sample made no job contacts for the single weeks analyzed the separate equations estimated for reported and actual job contacts suggest that systematic misreporting may distort the conclusions particularly for the impact of unemployment insurance benefits on search intensity that would result from analyzing reported rather than actual contacts some implications of the findings for reported unemployment rates also are explored

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

living by the golden rule multimarket contact in the u s airline industry this paper examines empirically the effects of multimarket contact on pricing in the u s airline industry the analysis of the time series and cross sectional variability of airline fares in the 1000 largest domestic city pair routes reveals the presence of statistically significant and quantitatively important multimarket effects fares are higher in city pair markets served by carriers with extensive interroute contacts these findings are consistent with the claims of industry experts that airlines live by the golden rule i e that they refrain from initiating aggressive pricing actions in a given route for fear of what their competitors might do in other jointly contested routes during his testimony mr steven b elkins senior director of marketing systems development for northwest airlines cited an example in which northwest lowered fares on night flights that were flying with empty seats in a number of routes from minneapolis and upper midwest cities to various west coast cities he said that continental airlines swiftly responded by cutting prices in important northwest markets mr elkins s memo advises northwest pricing analysts we will live by the golden rule in his testimony he explained that the golden rule in that context was that i did not want my pricing analyst initiating actions in another carrier s market like chicago for fear of what that other carrier might do to retaliate wall street journal october 9 1990 p b1