split award auctions for supplier retention to stay abreast of current supply market pricing it is common for procurement managers to frequently organize auctions among a pool of qualified suppliers the supply base sole awards can alienate losing suppliers and cause them to defect from the supply base to maintain the supply base and thereby control the high costs of finding and qualifying new suppliers buyers often employ split awards which in turn inflate purchase costs this results in a trade off that we investigate in an infinite horizon stationary setting in which the relative cost position of each supplier is randomly drawn in every period we characterize the optimal split award that minimizes long run costs purchasing and qualification and show that maintaining a constant supply base size using a qualify up to policy is optimal for the buyer we find that neither the extent of multisourcing nor the buyer s value of split awards compared with winner take all auctions are monotonic in the qualification cost and that split award auctions can increase ex ante system buyer and supplier benefits simultaneously to our knowledge this is the first paper studying split award auctions for supply base maintenance and it will hopefully galvanize further research on this important topic this paper was accepted by yossi aviv operations management

aggregation and pairwise aggregation of demand when the distribution of income is fixed abstract this paper derives necessary and sufficient conditions for pairwise aggregation of the demand functions of a group of consumers conditions under which the mean demand for each pair of consumers satisfies the slutsky restrictions when the distribution of income is fixed the sufficient conditions imply existence of a representative competitive consumer whose demand is the mean demand of the group the necessary conditions imply that such a representative consumer exists for every fixed income distribution only if the consumers have homothetic preferences or alternatively if for each price vector all the consumers income expansion paths lie in the same plane

measuring trade strategy in the presence of non tradeables theory and some evidence for the caribbean this article models trade policies in the presence of non tradeables and investigates trade strategy interventions and outcomes where the price of non tradeables endogenously adjusts to trade interventions trade regime bias and neutrality issues are examined within a three sector open economy model the theoretical framework is operationalised using empirical evidence for trinidad and barbados the robustness of partial equilibrium measures of protection for classifying trade strategies is challenged and evidence on alternative general equilibrium or true measures of protection is reported true or revealed trade strategies are shown to differ from those apparently intended by policy makers

consumer demand and the life cycle allocation of household expenditures the purpose of this paper is to estimate the parameters of household preferences that determine the allocation of goods within the period and over the life cycle using micro data in doing so the authors are able to identify important effects of demographics labor market status and other household characteristics on the intertemporal allocation of expenditure they test the validity of the life cycle model using excess sensitivity tests and find that controlling for demographics and labor market status variables can largely explain the excess sensitivity of consumption to anticipated changes in income

allocation inflexibilities female labor supply and housing assets accumulation are women working to pay the mortgage this article uses data from the 1986 canadian family expenditures survey to estimate a life cycle consistent model of household labor supply and commodity demand that incorporates a mortgage qualification constraint based on earnings both the parametric and nonparametric implications of the model suggest that the labor supply of a nontrivial percentage of married women is constrained by mortgage commitments the results of generalized selectivity models of female labor force participation and labor supply show that the positive effect of a high debt service ratio exceeds the negative effect of young children

strategic trade policy learning by doing effects and economic development abstract this paper examines the general equilibrium consequences of temporary and permanent trade policy interventions in circumstances where the price of non tradeables endogenously adjusts to trade policy changes and where there may be learning by doing externality effects in the tradeables goods sector using a simple multisector dynamic model the paper demonstrates the difficulties of designing mixed and selective interventions such that the ex post real exchange rate and welfare outcomes are in line with the ex ante intent

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

intra industry trade and the shifting of protection across sectors abstract recent work on commercial policy has focussed on the incidence of protection across sectors this work has focussed on the relative price effects of intervention and has been developed in a setting of inter industry trade this paper focusses on the incidence of protection in a setting of intra industry trade a three sector general equilibrium model is developed and incidence is explored in a variety of settings the analysis suggests that the non tradeable sector may bear the major burden of protection in a setting of intra industry trade

transformations of the commodity space behavioral heterogeneity and the aggregation problem aggregation in exchange markets is studied by imposing restrictions on distributions of the households characteristics approximate bounds for market demand price elasticities that depend upon specific measures of behavioral heterogeneity are provided increasing behavioral heterogeneity makes aggregate expenditures more independent of prices this has strong consequences for the prevalence in the aggregate of the weak axiom of revealed preference of gross substitutability and on uniqueness and stability of the walrasian exchange equilibrium these strong macroeconomic regularities are obtained essentially through distributional assumptions as no rationality requirements are imposed on individual demand functions other than homogeneity and walras law journal of economic literature classification numbers d11 d41 d50 el 1992 academic press lnc there are still quite a few unpleasant gaps nowadays between macroanalysis and microanalysis of socioeconomic systems a leading instance drawn from social choice theory is arrow s celebrated impossibility theorem 1 which states that any attempt to aggregate individual preferences into a consistent social ordering or a collective choice procedure satisfying a few appealing requirements is bound to fail the impossibility arises however only if one insists that the procedure should work for every possible environment or in other words for all distributions of individual preferences a possible resolution of the problem is therefore to identify broad classes of distributions of preferences for which aggrega the bulk of the research reported in this paper was essentially done at yale university during the fall semester of 1990 i thank all my colleagues for their support and comments especially martin shubik herbert scarf and truman bewley i also had very useful conversations with jorgen weibull mike jerison andreu mas colell christian gouri6roux camille bronsard guy laroque bruno jullien and bernard caillaud i am much indebted to ai klevorick for his comments on an earlier draft but my greatest debt is to werner hildenbrand whose pioneering insights and stubborn insistance have over the years kept quite a few of us struggling beyond the fads of the moment with the aggregation problem our profession is fortunate indeed to have him around

simple auctions for supply contracts this paper studies an optimal procurement mechanism for a newsvendor like problem where the buyer s newsvendor s purchase price of the supplies is not fixed but determined through interaction with candidate suppliers the buyer has priors on the suppliers costs but does not know their costs exactly recent literature has shown how the buyer can implement the optimal procurement mechanism by announcing a revenue function specifying a payment for each quantity the buyer may purchase then auctioning off the supply contract with the specified revenue function in this paper we show that a simple modified version of the standard open descending auction for a fixed quantity is also an optimal mechanism for obtaining supplies what distinguishes this mechanism is its simplicity and familiarity for the suppliers open descending auctions are very easy to run and ubiquitous in practice whereas auctioning supply contracts with a specified revenue function is much less observed and more difficult to explain

auctioning supply contracts this paper studies a procurement problem with one buyer and multiple potential suppliers who hold private information about their own production costs both the purchase quantity and the price need to be determined an optimal procurement strategy for the buyer requires the buyer to first design a supply contract that specifies a payment for each possible purchase quantity and then invites the suppliers to bid for this contract the auction can be conducted in many formats such as the english auction the dutch auction the first priced sealed bid auction and the vickrey auction the winner is the supplier with the highest bid and is given the decision right for the quantity produced and delivered applying this theory to a newsvendor model with supply side competition this paper establishes a connection between the above optimal procurement strategy and a common practice in the retail industry namely the use of slotting allowances and vendor managed inventory also discussed in the newsvendor context are the role of well known supply contracts such as returns contracts and revenue sharing contracts in procurement auctions the scenarios where the buyer and suppliers may possess asymmetric information about the demand distribution and how the cost of supply demand mismatch is affected by supply side competition finally this paper compares the optimal procurement strategy with a simpler but suboptimal strategy where the buyer first determines a purchase quantity and then seeks the lowest cost supplier for the quantity in an auction

engel curves leading to the weak axiom in the aggregate for every range of admissible incomes the authors characterize the class of engel curves with the property that if an economy has first a price independent distribution of income and second preferences which are identical across consumers and generate engel curves in the class then the corresponding aggregate demand function satisfies the weak axiom of revealed preference this class is defined by two simple conditions the no torsion condition says that in the relevant range of income the engel curve is contained in a plane through the origin the uniform curvature condition says that in addition the engel curve is either convex or concave to the origin copyright 1987 by the econometric society

trade strategy and revealed trade bias an evaluation for a small industrializing economy abstract the traditional classification of trade strategies into import substitution is and export promotion ep is based on the traditional two sector trade model in the context of a three sector model including nontradeables there is potentially greater analytical richness and apparently greater possibility of a wider range of ex ante trade strategies included among these possibilities is a mixed is ep strategy which generates a protradeable bias this paper investigates the properties of a general equilibrium model and the necessary commercial policy interventions required to bring about particular changes in relative prices detailed evidence on revealed trade regime biases within the tradeables good sectors and between tradeables and nontradeables is provided for barbados the evidence indicates that ex post classification of trade strategy may differ significantly from the ex ante or intended strategy and that use of partial equilibrium estimates of effective protection of tradeables alone is likely to be an inappropriate means of classifying trade strategies

testing for aggregation bias in linear models this paper discusses alternative methods of testing for aggregation bias and proposes direct tests of the discrepancy of the macroparameters from the average of the corresponding microparameters and derives tests of aggregation bias in the general case where the parameters of interest may possibly be nonlinear functions of the microparameters the paper also develops a durbin hausman type misspecification test of the disaggregate model these tests are then applied to disaggregate and aggregate specifications of employment functions for the u k economy disaggregated by forty industries copyright 1990 by royal economic society

incidence theory and the shifting of protection across sectors the south asian experience using the theoretical framework of a simple general equilibrium model this paper examines whether strategies aimed at protecting or promoting manufacturing industries indirectly taxed the agricultural and service sectors a panel data set consisting of five south asian countries over a 26 year time period is employed in the analysis three different estimation procedures are used to account for factors that are country specific and those that are common to all countries the results indicate that the agricultural sector indirectly felt the brunt of the net protection provided to manufactures due to the shifting of protection across sectors the service sector on the other hand indirectly benefited from the general equilibrium spillover effects

demographic effects in demand analysis estimation of the quadratic expenditure system using microdata the purpose of this paper is to estimate a complete theoretically plausible system of demand equations on microdata using the rich detail of these data to investigate the impact of demographic variables on demand behavior the system which we estimate is the quadratic expenditure system qes introduced by howe pollak and wales we evaluate four methods for incorporating demographic variables into the demand system three of these procedures imply parameter restrictions while the fourth does not tests on the restrictions imply that for our data unrestricted estimation yields significantly greater explanatory power

beyond import substitution and export promotion a new typology of trade strategies there is considerable confusion in the literature as to what exactly is meant by export promotion or outward orientation this article identifies five mutually exclusive trade strategies and defines the underlying sectoral and market orientations of each it then measures empirically the strategies of six developing countries the empirical findings indicate that some of the successful east asian countries actually pursued an infant industry based exporter oriented protected export promotion strategy not the commonly perceived static comparative advantage based export promotion strategy their protectionist policies are not mere exceptions but integral elements of their export oriented strategy

the economics of missing markets information and games part 1 out of equilibrium beliefs and out of equilibrium behaviour david m kreps the role of common knowledge assumptions in game theory adam brandenburger and eddie dekel repeated games a survey h sabourian information dynamics and equilibrium frank hahn part 2 the economics of parallel research partha dasgupta strategy variables and theories of industrial organization christopher doyle bargaining theory david canning imperfect competition and international trade k gatsios part 3 missing markets consequences and remedies david m newberry rational expectations information and asset markets margaret bray decision making in the presence of risk mark j machina part 4 theoretical modelling of banks and bank runs luca anderlini optimal multi unit auctions eric maskin and john riley labour contract theory tim worrall part 5 intertemporal general equilibrium models timothy j kehoe sunspots stephen burnell an introduction to nonlinear dynamics and its application to economics david kelsey part 6 some micro and macro implications of inventories j p thomas keynes s liquidity preference theory a suggested reinterpretation louis makowski

choice between disaggregate and aggregate specifications estimated by instrumental variables methods a choice criterion is proposed for discriminating between disaggregate and aggregate models estimated by the instrumental variables method the criterion based on prediction errors represents a generalization of criteria developed in the context of classical regression models the article also derives general tests for aggregation bias in the instrumental variables context the criterion and the tests are applied in an analysis of u k employment demand it is shown that a model disaggregated by 40 industries predicts aggregate employment better than an aggregate model and that significant biases exist in estimates of the long run wage and output elasticities obtained from the aggregate model

econometric analysis of aggregation in the context of linear prediction models this paper deals with the problem of aggregation where the focus of the analysis is whether to predict aggregate variables using macro or micro equations the grunfeldgriliches prediction criterion for choosing between aggregate and disaggregate equations is generalized to allow for contemporaneous covariances between the disturbances of micro equations and the possibility of different parametric restrictions on the equations of the disaggregate model a new test is proposed of the hypothesis of perfect aggregation which tests the validity of aggregation either through coefficient equality or through the stability over time of the composition of the regressors across the micro units the tools developed in the paper are then applied to employment demand functions for the uk economy disaggregated by 40 industries firstly a set of unrestricted log linear dynamic specifications are estimated for the disaggregate equations and then linear parameter restrictions are imposed as appropriate corresponding unrestricted and restricted aggregate equations are estimated two different levels of aggregation are considered aggregation over the 23 manufacturing industries and aggregation over all 40 industries of the economy in both cases the hypothesis of perfect aggregation is firmly rejected for the manufacturing industries the prediction criterion marginally favors the aggregate equation but over all industries the disaggregated equations are strongly preferred

true protection concepts and their role in evaluating trade policies in ldcs in many ldcs it is not uncommon to find incentives designed to encourage import substitution activities coexisting alongside incentives aimed at encouraging export activities this article evaluates a recent approach to evaluating commercial policy which among other things highlights some of the implications of simultaneously pursuing import substitution and export promotion the study develops a model which emphasises the incidence of protection and identifies the concept of true protection empirical results for a number of ldcs are discussed and the implications of these results evaluated in addition the article contrasts this approach with the effective protection approach to evaluating commercial policy

household economies of scale in consumption theory and evidence household economies of scale arising from the existence of househo ld public goods increasing returns in household production and or bulk discounts are incorporated into a utility theoretic model of household demands individuals are assumed to be identical and symmetrically treated within households economies of scale parameters for five goods are estimated using the quadratic expenditu re system and data from the u s consumer expenditure survey on expenditures by all adult households results suggest the existence o f significant economies of scale in the consumption of all of the included goods with economies being especially pronounced in the consumption of shelter copyright 1988 by the econometric society

split awards procurement and innovation in many procurement settings it is possible for a buyer to split a production award between suppliers in this article we develop a model of split award procurement auctions in which the split choice is endogenous we characterize the set of equilibrium bids and allocations for optimizing agents in an environment in which suppliers are fully informed about each other s costs split award equilibria simultaneously exhibit strong collusive features and cost efficiency properties despite the former property of the equilibria upstream investment considerations may lead a buyer to prefer a split award auction format to a winner take all auction format

multiple sourcing and procurement process selection with bidding events we examine the procurement process selection problem of a large industrial buyer who employs reverse auctions for awarding procurement contracts we contrast two classes of commonly used strategies under multiple sourcing namely single stage reverse auctions and two stage processes where price quantity adjustments between the buyer and the suppliers follow a first stage reverse auction deriving bounds of efficiency for these two classes of procurement processes under convex supplier production costs we present insights on the conditions under which each class is preferable for the buyer considering the effect of contracting and processing costs a single stage process is likely to be preferable to a two stage process when the number of bidding suppliers is high especially when capacity is rigid a two stage process with one information transfer in the second stage may be the preferred procurement mode when production is highly scalable i e when the marginal production cost increase with increased production is small when the number of suppliers is low the effect of a decrease in production scalability depends on the current scalability level for high scalability levels a decrease in production scalability may decrease the efficiency of both single stage and simple two stage processes whereas for low scalability levels it tends to increase efficiency for both of these process classes a decrease in production costs makes employing simple processes more attractive when production is highly scalable or when supplier capacity is rigid for intermediate production scalability however a cost decrease may make employing two stage processes with multiple information transfers in the second round preferable for the buyer

heterogeneity biases distributional effects and aggregate consumption an empirical analysis using stratified microdata using stratified microdata from the canadian famex 78 86 surveys this paper investigates whether observed heterogeneity in marginal propensities to consume across strata actually hinders the aggregation process despite significant heterogeneity in marginal responses the divergences between aggregate predicted consumption and the predictions from a model that uses average strata responses are found to be small whenever the strata demands are approximatively linear at the mean and the commodity group considered is not a luxury good on the other hand some cross sectional estimates obtained by pooling the strata are shown to be contaminated by unwanted cross moments further the analysis reconciles the fact that while there exists significant heterogeneity in consumer demands the related distributional effects in the aggregate equation have not been found to be important

what do we learn about consumer demand patterns from micro data the aim of this paper is to assess the importance of using micro level data in the econometric analysis of consumer demand to do this we utilize a time series of repeated cross sections covering some 4 000 households in each of 15 years employing a number of different aggregation procedures we conclude that aggregate data alone are unlikely to produce reliable estimates of structural price and income coefficients however once certain aggregation factors as well as trend and seasonal components are included an aggregate model is not necessarily outperformed across all demand equations in terms of forecasting ability jel d12 c52 c31 the purpose of this paper is to develop a complete consumer demand system based on a time series of individual household data and to use it to measure the biases introduced into the study of consumer de mand behavior when aggregate data are used in place of the appropriate microeco nomic data we assess the suitability of ag gregate data through the impact on income and price elasticities and by evaluating the ability of both micro and aggregate based models to forecast aggregate consumer de mand the biases introduced by the use of aggregate data depend upon the way that household characteristics interact with in come and price effects and on departures of demand systems from linearity we explore the structure of microeconomic demand sys tems and the role of household characteris tics in the behavior of consumer demand both for the light this may shed on the pattern of future demands and for the im plications this behavior has for issues of aggregation consumer demand patterns typically found in micro data sets vary considerably across households with different household characteristics and with different levels of income we model this variability by making intercept and slope parameters in the budget share equations of our demand sys tem depend on household characteristics and by allowing for nonlinear total log expenditure terms in fact in theory consistent demand systems it is total ex penditure rather than disposable income that is allocated across goods we find that this general framework leads to a well specified data coherent demand system which is a quadratic extension of the popu lar almost ideal model of angus s deaton and john muellbauer 1980 the micro level estimates are shown to be sensitive to the treatment of endogeneity of total expen diture and to the specification of interaction terms with household characteristics in ad dition this specification is also shown to possess many attractive features for the evaluation of aggregate models

optimal income distribution rules and representative consumers this paper derives observable properties of economies with optimal income distribution rules that specify consumers incomes as functions of aggregate income and prices optimality implies that the aggregate demand function is generated by a single representative consumer cf samuelson 1956 we derive an additional implication which when consumers receive fixed shares of aggregate income requires that the consumers demands become more dispersed when aggregate income rises this last condition has empirical support the results relate the representative consumer s preferences to a version of kaldor s compensation criterion and show when both can be used for normative analysis without internal inconsistency

viewpoint measuring the well being of the poor with income or consumption a canadian perspective there is a long tradition of using consumption measures derived from statistics canada s household expenditures surveys to study material well being inequality and poverty we offer an introduction to this research income and consumption measures give different pictures of the patterns of material well being in canada but the differences are not as large as in the us we also provide a comparison to meyer and sullivan s results on data quality canadian expenditure surveys are of high quality unique aspects of these surveys variation in quality control measures over time and the possibility of comparing to income tax data provide important insights into the quality of survey data on income and consumption il existe une longue tradition d utilisation de mesures de consommation derivees de l enquete des depenses des menages de statistiques canada pour mesurer le bien etre materiel l inegalite et la pauvrete les auteurs presentent ces recherches les mesures de revenus et de consommation donnent des portraits differents des patterns de bien etre materiel au canada mais les differences ne sont pas aussi importantes qu aux etats unis on presente une comparaison avec les resultats de meyer et sullivan sur la qualite des donnees les enquetes sur les depenses sont de haute qualite au canada certains aspects uniques de ces enquetes variation dans les mesures de controle de qualite dans le temps et possibilite de comparer les donnees derivees des rapports d impot sur le revenu fournissent des apercus importants sur la qualite des donnees d enquetes sur le revenu et la consommation canadian economics association

incomplete information and optimal market structure public purchases from private providers abstract market structure is endogenized in a normative model of public procurement featuring a social cost of profit product variety economies of scale and incomplete information about cost depending on parameters either sole sourcing or dual sourcing might be optimal however if the social cost of profit is positive but not too large incomplete information biases optimal market structure in favor of sole sourcing on the other hand this bias in favor of sole sourcing may be reversed if the social cost of profit is large an application to the publicly financed treatment for drug abuse motivates the analysis

price quoting strategies of an upstream supplier this paper studies an upstream supplier who quotes prices for a key component to multiple sellers that compete for an end buyer s indivisible contract at most one of the supplier s quotes may result in downstream contracting and hence produce revenue for her we characterize the supplier s optimal price quoting strategies and show that she will use one of two possible types of strategies with her choice depending on the sellers profit potentials relative to their uncertainties secure whereby she will always have business or risky whereby she may not have business addressing potential fairness concerns we also study price quoting strategies in which all sellers receive equal quotes finally we show that the supplier s optimal mechanism resembles auctioning a single quote among the sellers this paper can assist upstream suppliers in their pricing decisions and provides general insights into multitier supply chains pricing dynamics this paper was accepted by martin lariviere operations management