investment and coordination in oligopolistic industries we examine investment by firms in 24 chemical product industries to determine whether firms invest preemptively to achieve persistent increases in market share or whether there is evidence of behavior to maintain market share the data indicate that investment reduces the probability that rival firms will expand capacity but the effect is temporary large firms tend to maintain market share while smaller firms tend to invest simultaneously with rivals the role of preemptive investment is limited to that of permitting a firm to invest with a lower probability of redundant investment by rivals preemption does not allow a persistent increase in market share but instead acts as a means by which firms may coordinate capacity investment to help avoid episodes of industry overcapacity

a review of wta wtp studies abstract willingness to accept wta is usually substantially higher than willingness to pay wtp these constructs have been studied for roughly 30 years and with a wide variety of goods this paper reviews those studies we find that the less the good is like an ordinary market good the higher is the ratio the ratio is highest for non market goods next highest for ordinary private goods and lowest for experiments involving forms of money a generalization of this pattern holds even when we account for differences in survey design ordinary goods have lower ratios than non ordinary ones we also find that ratios in real experiments are not significantly different from hypothetical experiments and that incentive compatible elicitation yields higher ratios

resolving differences in willingness to pay and willingness to accept reply gwendolyn c morrison 1997 raises a logical point regarding our experimental test of the divergence between willingness to pay wtp and willingness to accept wta measures of economic value shogren et al 1994 she argues that our design does not provide a true test of the existence of a fundamental endowment effect since we did not control for the potential of a pivoting indifference map daniel kahneman et al 1990 she concludes that even though our ev idence shows that the mean wtp and wta bids for market goods with close substitutes e g candy bars and coffee mugs converge after market experience the endowment effect might still be alive and well albeit at statisti cally insignificant levels

cournot duopoly with two production periods and cost differentials abstract saloner 1987 analyzes a cournot model with two production periods before the market clears if costs do not vary across periods any point on the outer envelope of the reaction functions between the firms stackelberg outputs is attainable with a subgame perfect nash equilibrium spne saloner s analysis is generalized by allowing for cost differences across periods the continuum of equilibria vanishes for any cost differential if costs fall slightly over time there are multiple leader follower equilibria otherwise the model generates a unique spne where both firms produce their single period cournot outputs in the period when production is cheaper

alternative models of individual behaviour and implications for environmental policy abstract most insights of environmental economics are in line with the standard neoclassical economic model of rational behaviour formulated in terms of maximization of utility in general or of profits in particular the standard theory of environmental policy is a case in point however the maximization hypothesis and its methodological foundation have been criticized on many grounds related to a lack of either logical or empirical content moreover over the years a great many alternative models of behaviour have been proposed both criticism and alternatives are surveyed here attention is devoted to relevant insights from the philosophy of science the notion of methodological individualism and other criticism the alternative behavioural models include bounded rationality and satisficing lexicographic preferences habitual behaviour incommensurability and multicriteria evaluation and various models of behaviour under uncertainty major implications of the criticism and alternative models of individual behaviour for environmental policy theory are outlined

behavioral economics for environmental policy abstract the predictions of widely prescribed global and country level environmental policies at present are based mainly on mainstream economic models which treat individual actors to be unboundedly rational in their decision making in recent years however behavioral and experimental economists have found that the individual actors in many circumstances act within a bounded rationality framework suggesting that predictions based on the unbounded rationality models would be less valid while some of mainstream economists have already started adopting the bounded rationality based models in their academic discourse many environmental economists seem to be reluctant to use these alternative models of rationality in their research and policy prescriptions this paper highlights the implications of using bounded rationality models in environmental research in general and policymaking in particular

excess capacity as a barrier to entry an empirical appraisal this paper examines excess capacity barriers to entry and investment dynamics in a sample of thirty eight chemical product industries logit and log linear models of investment behavior are estimated and specific case examples are considered the results show that incumbents rarely built excess capacity pre emptively in an effort to deter entry in general entrants and incumbents exhibited similar investment behavior

anomalies and stated preference techniques a framework for a discussion of coping strategies this paper introduces a symposium on the issue of how stated preference sp research can best cope with anomalies i e systematic deviations from the predictions of standard economic theory in survey responses it proposes a framework for constructive debate recognising i the legitimate aspirations of sp research ii the relevance of evidence from sources other than best practice sp and iii the precautionary value of investigating strategies for coping with suspected anomalies even if questions about the robustness of anomalies have not been finally resolved five alternative coping strategies discussed in more detail in the symposium are briefly introduced

regulation moral hazard and insurance of environmental risks abstract a large class of major environmental risks are subject to severe moral hazard problems the purpose of this paper is to study the potential conflicts between cost minimization and safety care the intuition is that regulatory efforts or sheer competition inducing a greater focus on cost minimization may tilt the agents trade off towards taking too much risk here we study the problem in the context o regulation of a natural monopoly and see how high powered incentives may conflict with safety care we address the issue of moral hazard in environmental risk with adverse selection limited liability risk aversion and multiprincipals

mutually exclusive investment with technical uncertainty a firm which faces technical uncertainty as in pindyck 1993 can choose between two mutually exclusive investment projects projects 1 and 2 the added option to exercise project 2 makes the firm less likely to exercise project 1 an increase in the degree of technical uncertainty the investment rate or the investment value upon completion for project 2 encourages the firm to exercise project 2 by increasing the trigger level of the expected cost of project 2 this however ambiguously affects the firm s incentive to exercise project 1 as the firm would rather implement project 1 2 in a region where the expected cost of project 2 is relatively high low

household willingness to pay for expanding fuel cell power generation in korea a view from co2 emissions reduction abstract the fuel cell fc is accepted as the state of the art instrument for reducing co2 emissions in the field of power generation in korea therefore the korean government has planned to expand fc power generation from 565 gwh in 2013 to 13 449 gwh by 2027 this article aims to assess the public value or acceptability of this expansion in terms of reducing co2 emissions to this end we derive the public s additional willingness to pay wtp for the expansion using a contingent valuation survey of 1000 korean households for the purpose of mitigating the response effect in eliciting their wtp and increasing statistical efficiency in analyzing the wtp data we employ a one and one half bounded dichotomous choice question format furthermore we use the spike model so as to model zero wtp responses the mean additional monthly wtp for the expansion is computed to be krw 1407 usd 1 37 per household expanding the value to the national population gives us krw 310 5 billion usd 304 4 million per year we can conclude that korean households are ready to shoulder some of the financial burden of expanding fc power generation to reduce co2 emissions

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

a rule of one a rule ofone one rational person is enough to make a market one irrational person is enough to break a game let me explain the power of the market as an exchange institution rests in its ability to move resources from lowto highvalued uses the market works if one person is rational enough to look for arbitrage opportunities among the other irrational players he buys low and sells high the market collects and disseminates this information such that others

the impact of lead time on capital investments abstract we study equilibrium investment strategies of firms competing in stochastic dynamic market settings and facing two types of investment structures investment with significant lead time or time to build and investment without or minor lead time we investigate how investment behavior changes when investment is subject to time to build versus when it is not we characterize equilibrium investment strategies under several information structures and compare results to the social optimum we offer some new results the model predicts that controlling for demand and production and investment costs investments and outputs can be higher in progressive industries which often exhibit time to build than in fast paced industries where time to build is insignificant furthermore for both investment types investment with or without time to build we offer a novel equilibrium in which firms incrementally invest this behavior is driven by demand uncertainty and capacity constraints also expected outputs are lower than cournot outputs as firms face uncertainty moreover the amount of uncertainty has different effects over investment types

valuing non marketed goods the case of elk permit lotteries abstract permit allocation methods offer a way of estimating the value of non marketed elk hunting applicants compete for elk hunting permits in colorado by acquiring preference points that have a monetary cost and by distributing themselves among hunts until their marginal values are equalized we infer the marginal value of permits from the opportunity costs incurred to acquire these permits and use a hedonic regression analysis to estimate the impact of various hunt characteristics on permit value

the nested collective lottery that maximizes welfare under consumption interdependence we develop a generalized lottery mechanism in this article that allows people to choose to succeed separately while retaining both merits fairness and options to succeed jointly of the collective lottery developed by chen et al 2010 we use the rationing of hunting permits in the us and canada as examples to show the applicability of this generalized lottery mechanism

underpricing in public lotteries a critique of user pay and all pay tariffs i introduction a body of literature spanning from medical ethics to public economics has amassed regarding the nonmarket rationing of public resources a dominant focus has surrounded the merits and shortcomings of alternative rationing mechanisms as gauged by their effectiveness distributive justness and allocative efficiency these instruments include administrative criteria such as need merit or seniority based rules queues or waiting lines whereby access to the rationed good or service is determined by arrival times and lotteries whereby chance dictates the distribution of the good while nonmarket rationing in any case may lead to the misallocation of resources compared to rationing solely by price e g glaeser and luttmer 2003 empirical observation reveals that public agencies commonly distribute underpriced goods and services to individual consumers and firms the current study takes nonmarket rationing as given and investigates the properties of alternative lottery mechanisms the use of lot teries dates to biblical times boyce 1994 elster 1992 with modern examples including the military draft fienberg 1971 medical services cookson and dolan 2000 recreational privileges on public lands and waterways scrogin 2005 residential housing following hurricane katrina the white house office of the press secretary 2005 and public school admission and voucher programs berry cullen jacob and levitt 2006 from a design perspective lotteries are intriguing because they can take a variety of forms with each possessing unique incentive and revenue generating properties however given the purported inefficiencies of lottery rationing it is natural to question how they have sustained in allocative situations entailing public resources two explanations have emerged in the literature the first historic explanation is attributed to the fairness of the classic lottery mechanism in which the probability of being drawn is uniform and endogenous to the number of participants because entrants are equally likely to be drawn the mechanism is perceived as being nondiscriminatory empirical evidence presented in kemp and bolle 1999 supports this hypothesis in the rationing of some types of goods and services to individual consumers the fairness of lottery rationing is also consistent with the distributive objective of specific egalitarianism put forth by tobin 1970 and discussed later by elster 1992 whereby specific goods and services are allocated such that a greater degree of equality is attained relative to that of a competitive market while egalitarianism and efficiency would appear to be at odds che and gale 2007 demonstrated that lotteries can be more efficient than markets when individuals face binding wealth constraints in a similar vein wijkander 1988 demonstrated that social welfare can be increased by lottery rationing under certain conditions a second more objective explanation for the sustained use of lotteries is that public agencies may be legally constrained by price controls particularly when rationing to individuals and households taylor tsui and zhu 2003 acting as a self sustaining regulated monopolist the agency is confronted with selecting a rationing mechanism and a pricing policy that are both politically feasible and financially viable compared to need merit and seniority based allocation rules lotteries and queues are administratively simple and low cost to implement alternatively lotteries eschew the waiting time and coordination costs confronted by potential entrants under queuing however the initial distribution under lottery rationing may prove allocatively inefficient collectively the literature suggests that agency objectives may deviate from revenue maximization in distributing some types of scarce public resources with lotteries proving to be superior in some settings to alternative nonmarket rationing mechanisms

context dependent preferences the standard theory of choice based on value maximization associates with each option a real value such that given an offered set the decision maker chooses the option with the highest value despite its simplicity and intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative attractiveness of x compared to y often depends on the presence or absence of a third option z and the market share of an option can actually be increased by enlarging the offered set we review recent empirical findings that are inconsistent with value maximization and present a context dependent model that expresses the value of each option as an additive combination of two components a contingent weighting process that captures the effect of the background context and a binary comparison process that describes the effect of the local context the model accounts for observed violations of the standard theory and provides a framework for analyzing context dependent p

option prices for groundwater protection abstract this paper reports results from a contingent valuation study of households willingness to pay pay to prevent uncertain future nitrate contamination of a potable supply of groundwater the functional form of the corresponding logit model is derived from utility maximization theory probability of future demand change in the probability of future supply and an attitudinal score for interests in the well being of future generations are significant positive determinants of option prices several implications of these results for aquifer management policy are highlighted

explicit investment rules with time to build and uncertainty abstract we establish explicit socially optimal rules for an irreversible investment decision with time to build and uncertainty assuming a price sensitive demand function with a random intercept we provide comparative statics and economic interpretations for three models of demand arithmetic brownian geometric brownian and the cox ingersoll ross committed capacity that is the installed capacity plus the investment in the pipeline must never drop below the best predictor of future demand minus two biases the discounting bias takes into account the fact that investment is paid upfront for future use the precautionary bias multiplies a type of risk aversion index by the local volatility relying on the analytical forms we discuss in detail the economic effects for example the impact of volatility on the optimal investment is negligible in some cases it vanishes in the cir model for long delays and in the gbm model for high discount rates

production and spatial distribution of switchgrass and miscanthus in the united states under uncertainty and sunk cost abstract the u s cellulosic biofuel mandate has not been enforced in recent years uncertainty surrounding the enforcement of the mandate in addition to high production and harvest cost have contributed to a delay in the widespread planting of bioenergy crops such as switchgrass and miscanthus previous literature has shown that under uncertainty and sunk cost an investment threshold is further increased due to the value associated from holding the investment option in this paper we extend the previous literature by applying a real option switching model to bioenergy crop production first we calculate the county level break even price which triggers a switching away from traditional field crops corn soybeans and wheat to bioenergy crops under various scenarios differing by commodity prices production cost and biomass price expectations we show that the resulting break even prices at the county level can be substantially higher than previously estimated due to the inclusion of the option value in a second step we identify counties that are most likely to grow switchgrass or miscanthus by simulating a stochastic biomass price over time our results highlight two issues first switchgrass or miscanthus are not grown in the midwest under any scenario under low agricultural residue removal rates biomass crops are mostly grown in the southeast second under the assumption of a high removal rates bioenergy crops are not grown anywhere in the u s since the cellulosic biofuel mandate can be covered by agricultural residues

are preferences for skewness fixed or fungible are individual preferences for skewness fixed or fungible using preference reversals as a case study we find evidence that preferences remained stable as reversals disappear due to arbitrage across both market like and non market contexts

resolving the commitment versus flexibility trade off the role of resource accumulation lags we examine how time consuming resource accumulation influences the classic strategy trade off between commitment and flexibility in particular using 1975 95 data from the worldwide petrochemical

can defaults save the climate evidence from a field experiment on carbon offsetting programs individual preferences for environmental policies can be influenced by the frame in which choices and decisions are presented in this paper we present results of a field experiment on the contributions to carbon offsetting programs under two alternative treatments for the default option the opt in treatment asked subjects to pay for the policy proposal while the opt out treatment asked subjects if they wanted to be excluded from payment for the policy proposal the results show that the frame of the default option had a significant effect on the amount of money paid for the policy proposal subjects were more likely to accept the policy proposal if the default option was the opt out treatment the results have implications for the design of environmental policies

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

two cheers and a qualm for behavioral environmental economics behavioral economics can gain more in roads into environmental economics if we better understand why exchange institutions fail more effectively reduce health risks and environmental conflicts encourage more coordination and cooperation design better incentive systems more accurately estimate economic measures of value and promote more protection at less cost behavioral economics deserves two cheers for advancing ideas of context dependence and social preferences which we illustrate with two examples of recent research

economic targets and loss aversion in international environmental cooperation in the standard emission problem each countryi s ruling party decides on an optimal level of emissions by analyzing the cost and benefit to the country however such policy decisions are often influenced by political partiesi incentives to be elected voters tend to give higher priority to economic issues than they do to environmental ones as a result political parties have additional incentives to reach a critical economic benefit level at a cost of higher emission level in order to satisfy votersi expectations in economic issues therefore this study explores the implications of political parties being averse to insufficient economic performance relative to a critical economic target level on sustaining an international environmental agreement on emission levels in doing so we allow countries to have asymmetric concerns about economic targets as well as asymmetric technology levels we find that stronger concerns about economic targets deter the most cooperative emission levels countries could jointly sustain furthermore technological asymmetry could either deepen or offset this impact these results suggest that efforts on achieving substantial international environmental agreements should be supported at the citizen level to eliminate the adverse effects

the effect of time to build on strategic investment under uncertainty we show that time to build which creates a lag between the decision to invest and production is an important element of industry structure we study a multiperiod investment game where there is demand uncertainty adding time to build to the model alters the classic tradeoff between making strategic commitments and exploiting the option to wait furthermore time to build gives rise to novel equilibria in which firms invest incrementally which contrasts with most prior work on multiperiod investment games in which firms invest only once we show how time to build affects firm heterogeneity investment timing the option value of waiting the evolution of prices and social welfare copyright 2003 by the rand corporation

home production meets time to build an innovation in this paper is to introduce a time to build technology for the production of market capital into a model with home production our main finding is that the two anomalies that have plagued all household production models the positive correlation between business and household investment and household investment s leading business investment over the business cycle are resolved when time to build is added

economic targets and loss aversion in international environmental cooperation economic targets in environmental coopeartion in the standard emission problem each country s ruling party decides on an optimal level of emissions by analyzing the cost and benefit to the country however such policy decisions are often influenced by political parties incentives to be elected voters tend to give higher priority to economic issues than they do to environmental ones as a result political parties have additional incentives to reach a critical economic benefit level at a cost of higher emission level in order to satisfy voters expectations in economic issues therefore this study explores the implications of political parties being averse to insufficient economic performance relative to a critical economic target level on sustaining an international environmental agreement on emission levels in doing so we allow countries to have asymmetric concerns about economic targets as well as asymmetric technology levels we find that stronger concerns about economic targets deter the most cooperative emission levels countries could jointly sustain furthermore technological asymmetry could either deepen or offset this impact these results suggest that efforts on achieving substantial international environmental agreements should be supported at the citizen level to eliminate the adverse effects

technological competition uncertainty and oligopoly abstract in an oligopoly context the present technological choice of a firm which expects to receive private revelant information just prior to the uncertain market stage has both a flexibility value and a strategic commitment value in contrast to some common wisdom ideas we provide a natural two stage competition framework in which an increase in uncertainty always raises the commitment value of the technological choice of the firm and may decrease its flexibility value when the increased uncertainty takes the form of more variable beliefs the first result tends to reinforce therefore the findings of the strategic commitment literature under certainty

global warming with green and brown consumers in this paper i investigate how much green polluters mitigate the familiar dynamic tragedy of the commons global warming green consumers feel penalized pain for any consumption in excess of the social optimum this can arise for example from kant s categorical moral imperative interplays among and between green and brown consumers are investigated as differential games green preferences the heterogeneity of consumers and the irreversibility of emissions lead to discontinuous strategies associated with these are a number of non trivial and even puzzling features e g the possibility of another green paradox

flexibility premium of emissions permits abstract investments in abatement technology are often characterised by irreversibility and significant implementation lags whereas emissions permits can be traded at any time as such abatement and emissions permit trading systems are hardly perfect substitutes we formally study the flexibility of emissions permits and propose a unified framework to rationalise the impact of both investment divestment lags and irreversibility in relation to the price of emissions permits using option pricing concepts we reformulate the technology adoption problem in terms of the technology s characteristics irreversibility and implementation lags and offer a conceptual quantification of the flexibility premium of emissions permits

firm scale and the endogenous timing of entry a choice between commitment and flexibility abstract this paper presents a model of stochastic oligopoly with demand uncertainty where firms endogenously choose entry timing we examine two extreme types of market structure and show that the equilibrium correspondence that connects them is continous with two identically sized firms there are symmetric cournot type equilibria where the probability of early entry declines with greater uncertainty and for low uncertainty two asymmetric equilibria with one large firm with a continuum of nonatomic firms there is a unique stackelberg equilibrium we conclude that the behavior of a dominant firm with a finite fringe can be approximated by stackelberg equilibrium journal of economic literatureclassification numbers d21 l11

willingness to pay and compensation demanded experimental evidence of an unexpected disparity in measures of value aside from possible income effects measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be equivalent unexpectedly wide variations between these sums however have been noted in survey responses to hypothetical options this paper reports the results of a series of experiments that confronted people with actual money payments and cash compensations the results indicate that the compensation measure of value seems to exceed significantly the willingness to pay measure which would appear to call into some question various rules of entitlement damage assessments and interpretations of indifference curves

the welfare costs of rationing by waiting with price controls and rationing by waiting rational consumers increase the quantity boughtperpurchase this individually rational response is socially wasteful and the cost of making it is a deadweight loss this cost plus the value of time spent in queues may exceed the total rent transferred from suppliers to consumers by price controls i e the value of resources spent competing for the rent may exceed the rent itself this point is illustrated by an empirical application to gasoline price controls rent seeking exhausts an estimated 116 percent of the rent trangerred the efficiency of the price system is often illustrated lby pointing to the obvious wastes associated with alternative allocation mechanisms for example the queues that accompany price controls and first come first served allocations although rationing by waiting wastes resources in a dramatically visible fashion the magnitude of the waste and the factors that determine it seldom have been examined empirically moreover existing theory on the subject is incomplete unless the first come first served rule is precisely specified consumers will compete for available supplies in ways other than waiting in the model developed below queues cause consumers to compete by increasing amounts bought per trip to the market the analysis demonstrates that such individually rational adjustments only increase the welfare cost of rationing by waiting and thus are socially self defeating the theoretical model is illustrated empirically by estimating the welfare costs of a market wide ceiling on gasoline prices this application was motivated by the availability of two key pieces of information the value of time spent in gasoline queues and the effect of waiting lines on amounts bought per purchase this information was obtained from a survey of motorists conducted during the era of federal gasoline price regulations to focus on competition among consumers one of the inefficiencies that results from price controls is ignored the supply reduction leading to the

investment and competition this paper examines how industry structure affects corporate investment patterns real options theory shows that deferring irreversible investment in the face of uncertainty is valuable theory also shows that the value of waiting to invest falls if investment opportunities are contestable consistent with these theories we find that firms in monopolistic industries exhibit lower investment q sensitivity and are slower to invest than firms in competitive industries however we find that investment q sensitivity and investment speed are highest in oligopolistic industries suggesting that the value of investing strategically can outweigh the value of waiting indeed oligopolistic industries experience less entry and more exit than other industries

optimal pricing of public lotteries and comparison of competing mechanisms this article establishes optimal pricing rules for rationing indivisible units of rival and otherwise nonexcludable goods by lottery or a hybrid of a lottery and outright sale by posted price given the distributional objective of maximizing expected consumer surplus the solutions to unconstrained and constrained versions of the pricing problem may be expressed in classic inverse elasticity form with the lottery price appearing as an entry fee user fee or a combination of the two numerical analysis of a rich class of private value distributions indicates that sizable gains in expected consumer surplus can be realized over competitive pricing and zero pricing

rationed access and welfare case of public resource lotteries pressures on public lands and waterways are resulting increasingly in the rationing of public access by lottery upon accounting for the uncertainties of random rationing discrete choice models lend themselves to analyzing participation in public resource lotteries and estimating welfare changes key to valuing lotteryrationed rights is accounting for changes in access probabilities that result from policy changes the empirical application models the discrete choices of more than 18 000 participants in a new mexico lottery system for elk harvest rights welfare estimates are obtained from simulated policy changes that affect individually and jointly the access probability and indirect utility