quality competition with motivated providers and sluggish demand we study incentives for quality provision in markets where providers are motivated semi altruistic prices are regulated and firms are funded by a combination of block grants and unit prices competition is based on quality and demand adjusts sluggishly health or education are sectors in which the mentioned features are the rule we show that the presence of motivated providers makes dynamic competition tougher resulting in higher steady state levels of quality in the closed loop solution than in the benchmark open loop solution if the price is sufficiently high however this result is reversed if the price is sufficiently low and below unit costs sufficiently low prices also imply that a reduction in demand sluggishness will lead to lower steady state quality prices below unit costs will nevertheless be welfare optimal if the providers are sufficiently motivated

equilibrium resource management with altruistic overlapping generations abstract we imbed a classic fishery model where the optimal policy follows a most rapid approach path to a steady state into an overlapping generations setting the current generation discounts future generations utility flows at a rate possibly different from the pure rate of time preference used to discount their own utility flows the resulting model has non constant discount rates leading to time inconsistency the unique markov perfect equilibrium to this model has a striking feature provided that the current generation has some concern for the not yet born the equilibrium policy does not depend on the degree of that concern

international economic structures government interests and international coordination of macroeconomic adjustment policies analysts have commonly argued that there has been a decline in international coordination of the kinds of policies that governments can use to manage the international payments imbalances that emerge when different governments pursue different macroeconomic policies the decline typically has been attributed to a posited decline in american hegemony in contrast this article argues that international coordination of macroeconomic adjustment policies trade and capital controls exchange rate policies balance of payments financing and monetary and fiscal policies was at least as extensive for much of the 1980s as it had been in the 1960s there was however a shift away from coordination of balance of payments financing and other policies that have limited direct consequences for domestic economic and political conditions and a concurrent shift toward coordination of monetary and fiscal policies that are critically important for domestic politics and economics this change is best explained as a consequence of changes in the structure of the international economy most important international capital market integration encouraged governments to coordinate monetary and fiscal policies because balance of payments financing and exchange rate coordination alone are insufficient to manage the enormous payments imbalances that emerge when capital is able to flow internationally in search of higher interest rates and appreciating currencies

divestment investment sanctions and disinvestment an evaluation of anti apartheid policy instruments pressure for divestment and mandatory disinvestment sanctions directed against south africa are an instance of domestic interest groups in one country seeking policy change in another the link from shareholder divestment to disinvestment by firms is tenuous however since south africa active firms do not seem to suffer as a consequence of divestment pressure and legislated sanctions are likely to have unpredictable and sometimes perverse effects on the extent of apartheid practices

the new industrial relations british electricians new style agreements this study analyzes the response of the british electricians union to economic adversity and to new managerial strategies as embodied in the union s novel agreements in three japanese owned british electronics firms these agreements provide that the union is the sole bargaining representative in each firm most british plants by contrast have multiple union representation most of the new style agreements also contain a no strike clause final offer arbitration of interest disputes and measures to increase labor flexibility reduce the diversity in conditions among plant office and managerial employees and enhance employee participation in major company decisions the author views these agreements as evidence that fundamental changes in collective bargaining relationships are taking place

capital accumulation games of infinite duration abstract consider a market in which firms accumulate capital according to the nerlove arrow capital accumulation equation each player chooses a path of investment and thus an induced path of capital to maximize his total discounted profits which depend on his own capital and the capital stocks of his rivals existence is proved for such a nonzero sum infinite horizon differential game and conditions under which the game converges to a particular stationary point regardless of the initial conditions are shown thus the game possesses the property of conditional global asymptotic stability

pricing competition with inventory considerations in a hazard rate prone market of durables abstract this paper addresses bertrand type pricing competition between two firms producing partially differentiated durables over a finite planning horizon the demand for durables characterized by increasing returns of scale to a price reduction is led by the hazard rate while the effect of inventories on pricing of non durables is widely recognized the management and marketing literature typically overlooks this effect in regard to horizontally competing firms for durables in this paper we show that the pricing trajectory of durables may significantly alter when inventory dynamics are accounted for in particular the price may hike upwards before dropping gradually grow or even stay at the same level over the entire product life while it would only decline if inventories and related costs are disregarded furthermore the well known optimal pricing strategy of following the pattern of sales does not necessarily confirm even for symmetric equilibria when the competing firms have either an inventory surplus or shortage

guns and butter and government popularity in britain britain under the government of prime minister thatcher provides a unique opportunity to probe the effects of both war and macroeconomic performance on government popularity monthly ratings for thatcher and conservative party support june 1979 to july 1985 are examined by way of box tiao intervention models the model that best captures the impact of the falklands war of 1982 is of the gradual temporary variety popularity gains accrued through the three month war shrink in a geometric fashion nevertheless they prove to be worth over five percentage points for the conservative party a year later in the 1983 election macroeconomic performance meanwhile is found to have an asymmetric effect on government popularity with unemployment strongly significant but inflation not significant at all apparently the british public is punishing failure on employment while letting success on inflation go unrewarded qualifications of the positive effect of war and the negative effect of macroeconomic performance are suggested

open loop and feedback models of dynamic oligopoly abstract a simple method of estimating the degree of oligopoly power in dynamic markets using either open loop or feedback subgame perfect strategies is developed new theoretical results are presented for families of oligopoly models differences between discrete time and continuoustime models and open loop and feedback models are demonstrated the effects of increasing the number of firms or adjustment costs are examined

a dynamic model of oligopoly in the coffee export market a linear quadratic dynamic feedback oligopoly model that nests various market structures is used to estimate the degree of competitiveness and the adjustment paths of the two largest coffee exporters brazil and colombia their estimated behavior is relatively competitive this subgame perfect dynamic model is compared to a standard static oligopoly model and the open loop model the dynamic generalization of the standard static model both classical and bayesian tests of open loop and feedback dynamic models are reported

the economics of predation what drives pricing when there is learning by doing predatory pricing a deliberate strategy of pricing aggressively in order to eliminate competitors is one of the more contentious areas of antitrust policy and its existence and efficacy are widely debated the purpose of this paper is to formally characterize predatory pricing in a modern industry dynamics framework that endogenizes competitive advantage and industry structure our framework encompasses important phenomena such as learning by doing network effects switching costs dynamic demand and certain types of adjustment costs due to its prominent role in legal cases involving alleged predation we examine learning by doing in more detail we first show that predation like behavior arises routinely in our learning by doing model equilibria involving predation like behavior typically coexist with equilibria involving much less aggressive pricing to disentangle predatory pricing from mere competition for efficiency on a learning curve we next decompose the equilibrium pricing condition and develop alternative characterizations of a firm s predatory pricing incentives we finally measure the impact of these incentives on industry structure conduct and performance we show that forcing a firm to ignore the predatory incentives in setting its price can have a large impact and that this impact stems from eliminating equilibria with predation like behavior along with the predation like behavior however a fair amount of competition for the market is eliminated

endogenous timing in duopoly games stackelberg or cournot equilibria abstract simultaneous versus sequential play is studied in an extended game in a preplay stage players decide whether to select actions in the basic game at the first opportunity or to wait until observing their rivals first period actions in one extended game players first decide when to select actions without committing to actions in the basic game the equilibrium has a simultaneous play subgame unless payoffs in a sequential play subgame pareto dominate those payoffs in another extended game deciding to select at the first turn requires committing to an action both sequential play outcomes are the equilibria only in undominated strategies

duopoly with both ruin and entry duopoly is modeled here as a prisoner s dilemma repeated in continuous time firms wish to maximize discounted flows of dividend payments which are paid when capitalization levels permit a firm is ruined when its capitalization falls below zero but each ruined firm is immediately replaced by a new entrant attempting to ruin a rival is not necessarily an attractive strategy here since the postentry game against the new rival may be a less favorable one on the other hand firms that are close to ruin have little to lose by playing aggressively and hence are attractive targets of aggression themselves equilibria are constricted that reflect these considerations

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

excess capacity and collusion in this paper the authors analyze a restricted class of equilibria in the dynamic model of j p benoit and v krishna 1987 in which firms choose their scale of operation before engaging in a repeated game of price competition benoit and krishna established that all firms carry excess capacity in all collusive equilibria as the authors are interested in the relationship between excess capacity and collusion in price they examine equilibria in which firms tacitly collude in price but not in investment decisions copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the learning curve market dominance and predatory pricing sufficient conditions for id and iid are given in the case of two step learning in which a firm reaches the bottom of its learning curve after just two sales however examples are also constructed for the two step learning case in which neither id nor iid holds it is also shown that in equilibrium iid implies that learning is privately disadvantageous although it is socially advantageous finally introducing avoidable fixed costs and possible exit into the model yields a new theory of predatory pricing based on the learning curve hypothesis

adjustment to stagflation and neoliberal reforms in japan the united kingdom and the united states the implications of the japanese case for a comparative analysis of party competition this article explains why the stagflation and neoliberal reforms that reinforced party polarization in the united kingdom and the united states instead led to party convergence in japan in japan industry centered adjustment and bureaucratic coordination distributed the costs of policy changes across societal groups and facilitated party convergence whereas the lack of such societal and state institutions in the united kingdom and the united states led to policy changes with polarizing consequences focusing on industry centered adjustment brings the unions back into japanese politics and provides an alternative to the pluralism neocorporatism dichotomy of organizing societal interests bureaucratic coordination not only includes the opposition in the framework but also provides a more nuanced view than is assumed in the debate over whether the ruling party of the bureaucracy dominates the japanese state when combined these conceptualizations of market and state go a long way toward explaining the dyn

privatization and the british electorate microeconomic policies macroeconomic evaluations and party support despite much scholarly research on the link between macroeconomic evaluations and political behavior relatively little is known about the influence of government economic policy on this process margaret thatcher s recent sales of public assets privatization in britain provide a unique opportunity to examine the link between microeconomic activity measured by privatization macroeconomic evaluations and voting by applying multivariate analysis to data collected during the 1983 and 1987 general elections we show that privatization measured by share purchases and council house ownership stimulates positive judgments about the country s economy however the effect of privatization on the vote is almost entirely indirect via these retrospective judgments about the economy while privatization has undoubtedly benefited the conservatives electorally the evidence on council house purchases suggests that the impact may be temporary

games with strategic complementarities new applications to industrial organization this paper provides an introduction to the analysis of games with strategic complementarities and applications to industrial organization oligopoly pricing comparative statics and a taxonomy of strategic behavior in two stage games

bourgeois revolutions the policy consequences of resurgent conservatism much of the literature on reform politics has focused on social democratic governments this article reexamines the dynamics of reform by concentrating on conservative governments in four advanced

racial discrimination dualistic labor markets and foreign investment abstract this paper presents a model of racial discrimination in a stylized two sector dual economy model with direct foreign investment racial discrimination is analyzed both in terms of preferences and in terms of regulations that favor one ethnic group at the expense of another the focus is on the gains to white labor that accrue from restrictions on employment of black labor both in a closed economy and in one open to direct foreign investment

dynamic oligopoly in the rice export market a linear quadratic dynamic oligopoly model is used to estimate the competitiveness of the rice export market the model nests various market structures using either open loop or feedback strategies the estimated feedback model implies a less competitive market structure than the estimated open loop model the rice export market is oligopolistic but it is closer to competitive than collusive copyright 1989 by mit press

a theory of dynamic oligopoly iii cournot competition abstract we study the markov perfect equilibrium mpe of an alternating move infinite horizon duopoly model where the strategic variable is quantity we exhibit a pair of difference differential equations that when they exist differentiable mpe strategies satisfy for quadratic payoff functions we solve these equations in closed form and demonstrate that the mpe corresponding to the solution is the limit of the finite horizon equilibrium as the horizon tends to infinity we conclude with a discussion of adjustment costs and endogenization of the timing

dynamic duopoly with adjustment costs a differential game approach abstract this paper develops a differential game model of duopoly in which firms incur costs associated with how fast they change their level of output the analysis solves for a subgame perfect equilibrium to the model in which the steady state level of output lies strictly between the static cournot and perfect competition solutions furthermore we demonstrate that the limit game in which the speed of adjustment parameter approaches zero does not tend toward the static cournot equilibrium

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

small states in big trouble state reorganization in australia denmark new zealand and sweden in the 1980s in australia denmark new zealand and sweden in the 1980s coalitions of politicians fiscal bureaucrats and capital and labor in sectors exposed to international competition allied to transform the largest single nontradables sector in their society the state particularly the welfare state they exposed state personnel and agencies to market pressures and competition to reduce the cost of welfare and other state services the impetus for change came from rising foreign public and private debt rising public debt levels and expensive welfare states interacted to create a tax wedge between employers wage costs and workers received wages this undercut international competitiveness worsening current account deficits and leading to more foreign debt accumulation two factors explain variation in the degree of reorganization in each country differences in their electoral and constitutional regimes and the willingness of left parties to risk splitting their core constituencies introduction of market pressures is an effort to go beyond the liberalization of the economy common in industrial countries during the 1980s and both to institutionalize limits to welfare spending and to change the nature of statesociety relations away from corporatist forms of interest intermediation in short not just less state but a different state

government partisanship labor organization and macroeconomic performance governments of the left and right have distinct partisan economic policies and objectives that they would prefer to pursue their propensity to do so however is constrained by their desire for reelection we argue that the ability of governments to further their partisan interests and preside over reelectable macroeconomic outcomes simultaneously is dependent on the organization of the domestic economy particularly the labor movement we hypothesize that there are two different paths to desirable macroeconomic performance in countries with densely and centrally organized labor movements leftist governments can promote economic growth and reduce inflation and unemployment conversely in countries with weak labor movements rightist governments can pursue their partisan preferred macroeconomic strategies and achieve similarly beneficial macroeconomic outcomes performance will be poorer in other cases these hypotheses are supported by analysis of pooled annual time series data for 16 advanced industrial democracies between 1967 and 1984

endogenous sequencing of firm decisions abstract when firms are symmetrically informed a stackelberg leader prefers to be leader rather than a cournot duopolist however when the leader has superior information about demand the leader may earn lower ex ante profits than it would earn if it was choosing quantities simultaneously with the follower in this paper i give the firm with superior information the option of delaying its quantity decision until the decision period of the less informed firm so that decisions are made simultaneously surprisingly in the unique stable outcome the informed firm moves first regardless of its private information journal of economic literature classification numbers c72 c73 d82 l10

strategic incentives in dynamic duopoly abstract we compare steady states of open loop and locally stable markov perfect equilibria mpe in a general symmetric differential game duopoly model with costs of adjustment strategic incentives at the mpe depend on whether an increase in the state variable of a firm hurts or helps the rival and on whether at the mpe there is intertemporal strategic substitutability or complementarity a full characterization is provided in the linear quadratic case then with price competition and costly production adjustment static strategic complementarity turns into intertemporal strategic substitutability and the mpe steady state outcome is more competitive than static bertrand competition

provision of a public good with multiple dynasties carbon emissions create externalities across countries and generations these externalities depend on the degree of contemporaneous cooperation and intergenerational altruism i study the relative importance of these features in determining equilibrium climate policy by imbedding an olg framework with intergenerational altruism into a differential game among dynasties each representing a coalition of nations there is an isomorphism between pure and paternalistic altruism i illustrate the multiplicity of equilibria using an analytic linear in state model equilibrium steady states are more sensitive to small changes in cooperation than altruism consideration of large changes in altruism and cooperation can reverse this ranking

the politics of structural change swedish social democracy and thatcherism in comparative perspective the 1930s and the 1980s were decades of significant political economic change in the capitalist democracies depression and the rise of the industrial working class created opportunities for the establishment of social democracy in the 1930s stagflation and the decline of the working class made possible waves of radical rightist reform however this article suggests that only governments that do not have to concentrate myopically on the exigencies of winning the next election have the political space to undertake structural changes the benefits of which may only be manifest in the medium term in turn successful reforms are likely to entail changes in underlying social structural conditions such as the strengthening or weakening of organized labor movements that both expand the electoral constituencies of the government s partisanpreferred policies and improve their macroeconomic efficacy these propositions are examined with respect to the construction social democracy in sweden in the 1930s and the

r d competition versus r d cooperation in oligopolistic markets with evolving structure this paper considers investment behavior of duopolistic firms subject to technological progress it is assumed that initially both firms offer a homogeneous product but after a stochastic waiting time they are able to implement a product innovation production capacities of both firms are product specific it is shown that firms anticipate a future product innovation by under investing if the new product is a substitute to the established product and higher profits and over investing in case of complements and lower profits compared to the corresponding standard capital accumulation game this anticipation effect is stronger in the case of r d cooperation furthermore since due to r d cooperation firms introduce the new product at the same time this leads to intensified competition and lower firm profits right after the new product has been introduced in addition we show that under r d competition the firm that innovates first overshoots in new product capacity buildup in order to exploit its temporary monopoly position taking into account all these effects the result is that if the new product is neither a close substitute nor a strong complement of the established product positive synergy effects in r d cooperation are necessary to make it more profitable for firms than r d competition

optimal dynamic volume based price regulation abstract we consider a model of optimal price regulation in markets where demand is sluggish and asymmetric providers compete on quality using a spatial model which is suitable to investigate the health care and education sector we analyse within a dynamic set up the scope for price premiums or penalties on volume under the assumption of symmetric cost information we show that the socially optimal time path of quality provision off the steady state can be replicated by a simple dynamic pricing rule where the dynamic part of the rule is ex ante non discriminatory in the sense that the price premium or penalty on volume is common across providers despite their differing production costs whether the price schedule involves a penalty or a premium on volume relates to two concerns regarding production costs and consumer benefits which go in opposite directions price adjustments over time occur only through the price penalty or premium not time directly which highlights the simplicity and thus applicability of this regulation scheme

a dynamic model of quality competition with endogenous prices abstract we develop a dynamic model of price and quality competition in order to analyze the effects of competition on quality provision and to which extent an unregulated market is able to provide a socially optimal quality level our model combines a differential game approach with a hotelling spatial competition framework and our analysis applies in particular to industries such as long term care health care child care and education if providers nursing homes hospitals schools nurseries use closed loop decision rules which imply strategic interaction over time we show that although increased competition leads to higher quality in the steady state quality provision is nevertheless lower than under open loop rules and also suboptimally low from a welfare perspective thus our analysis identifies dynamic strategic interaction between competing providers as a potential source of inefficiency in quality provision

markov puppy dogs and related animals abstract it is shown that steady state markov perfect equilibria of discrete time infinite horizon quadratic adjustment cost games differ from equilibria of their infinitely repeated counterpart games with zero adjustment costs even though no adjustment costs are paid in the steady state in contrast to continuous time games the limit of these equilibria as adjustment costs approach zero is the same as the equilibria of their static counterpart games a classification scheme is presented and it is shown that the taxonomy is identical to that of analogous two stage games such as those analyzed by fudenberg and tirole american economic review papers and proceedings 1984 74 361 366 this classification is useful in that it implies that steady state equilibria need not be explicitly calculated to analyze qualitatively the effects of adjustment costs in strategic environments it is also argued that estimated conjectural variations parameters may capture a well defined property of strategic interaction in a dynamic game

a dynamic analysis of investment in process and product innovation with learning by doing this paper investigates the optimal control problem of a monopolist s investments in process and product innovation under learning by doing in a dynamic setting we show that i there exists the saddle stable steady state under monopolist optimum and social optimum ii the learning rates of product and process innovation affect not only the monopolist s process or product innovation investments but also the complementarity substitutability relationship between product and process innovation iii the social incentive towards both product and process innovation is always larger than the private incentive characterizing the profit seeking monopolist these results are valuable complement and development to the results drawn from the standard product and process innovation model

intertemporal price competition alternating price competition between firms selling differentiated products to nonhomogeneous consumers can yield two different types of equilibria one which we call disciplined arises when products are close substitutes another which we call spontaneous emerges when products are more differentiated in disciplined equilibria an implicit threat to cut price further in response to an initial price cut supports quite collusive outcomes which become less collusive as product differentiation increases in spontaneous equilibria no such threat is needed consumers in the smaller market tend to pay a higher price as do consumers served by the more efficient firm copyright 1990 by the econometric society

optimal pricing with costly adjustment evidence from retail grocery prices in many theoretical models it is assumed that there are costs associated with adjusting prices in this paper the existence type and magnitude of such costs are investigated empirically a discrete choice dynamic programming model that nests fixed and variable costs is developed and econometric estimates of the adjustment cost function are obtained the data used to implement the model consist of weekly retail prices and sales of three brands of saltine crackers sold by four chains of grocery stores in a small u s town the study has several distinguishing characteristics first the data are highly disaggregate at the level of brand and store second variables are sampled at weekly intervals third the model nests fixed and variable adjustment costs and can therefore determine their relative importance finally the discrete choice model is both structural and dynamic

limiting the unintended consequences of institutional change students of institutional change pay insufficient attention to the conditions under which institutional reform produces unintended procedural and policy consequences the authors contend that the b

product innovation incentives by an incumbent firm a dynamic analysis we employ a dynamic framework to study how product innovation activities of a firm are influenced by its investments in production capacity of an established product and vice versa the firm initially has capacity to sell an established product additionally it also has the option to undertake an r d project which upon completion allows the firm to introduce a new vertically and horizontally differentiated product to the market thereby extending its current product range the breakthrough probability of detecting the new product depends on both the value of the firm s r d stock and its current r d investment it is shown that the initial production capacity for the established product influences the intensity of r d activities of the firm in particular there are constellations such that for large initial production capacity for the established product the firm never invests in r d and the new product is never introduced for small initial capacity the firm keeps investing in r d implying that eventually the new product is always introduced finally for an intermediate range of initial capacity levels the firm initially invests in product r d but then reduces these investments to zero in this scenario the new product is introduced with a positive probability which is however substantially smaller than 1 from a technical perspective this analysis gives the example of a new type of skiba threshold phenomenon in the framework of a multi mode optimization model

capacity investment preemption and commitment in an infinite horizon model the commitment value of capacity is analyzed in an infinite horizon duopoly model the paper focuses on the role of alternative behavioral assumptions about the ability of firms to commit to investment paths each firm s investment strategy in a feedback nash equilibrium is shown to be a decreasing function of its rival s current capacity this creates an incentive for a firm to expand its capacity to preempt subsequent rival investment in a precommitment equilibrium there are no incentives to invest preemptively as a consequence steady state capacity levels are greater in a feedback nash equilibrium than in a precommitment equilibrium copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

dynamic duopoly prices and quantities we study a dynamic model of duopoly in which firms choose both prices and quantities if quantity capacity choices are relatively inflexible firms generally carry excess idle capacity in equilibrium because of this enforcement cost firms are unable to achieve monopoly levels this contrasts with models in which which firms compete in either prices or quantities alone on the other hand if capacities are flexible firms may be able to sustain monopoly behaviour

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

exchange rate evidence on the effectiveness of united nations policy this paper analyzes the effectiveness of international interventions through their impact on exchange rates if a specific intervention actually increases decreases a country s economic and political stability then its currency should appreciate depreciate estimates suggest that peacekeeping forces in lebanon caused long run appreciations while economic sanctions imposed upon south africa only caused temporary depreciations in both cases repeated u n resolutions condemning or demanding actions that were not backed by actual interventions did not cause changes in the exchange rate the results in this paper are supportive of predictions from the public choice approach applied to international organizations and policies

rules discretion and reality both with respect to inflation and productivity macroeconomic performance in the last decade or so has been disappointing promises of policymakers to improve things have been frequently thwarted not only in terms of inflation and growth but also in terms of achieving targets for such summary measures of policy as the budget deficit or the money supply moreover critics have charged that policy failures are to blame for many of our economic difficulties the net effect has been to raise the practical question of whether the political process as now constituted can produce good economic policies the last decade or so has also been marked more than coincidentally by substantial professional criticism of conventional neokeynesian macro models and the theory of policy associated with them one of the major punch lines of this research is that activist macroeconomic policy is misguided indeed at best it is seen as ineffective and at worst highly counterproductive as a consequence the so called new classical economists argue that policymakers should avoid activism or discretion and instead be guided by simple rules the issue of rules vs discretion has of course been a source of long standing professional debate and while the new classical economists have provided some additional intellectual ammunition for rules this hardly serves to explain the apparent popular resurgence in advocacy of rules recent interest in rules is reflected in the emphasis on monetary targeting in proposed legislation even constitutional amendments for controlling the federal budget and in attempts to untarnish the gold standard this paper reviews the current state of the rules vs discretion debate i the nature of policy some preliminaries

dynamic oligopoly with capacity adjustment costs abstract the literature on strategic investment emphasized the case of completely irreversible investment this paper considers an oligopoly model in which investment is reversible and capacity is subject to adjustment costs an n player linear quadratic differential game is analyzed existence and characterization results for perfect equilibrium feedback strategies are provided feedback strategies provide incentives for each player to invest strategically so as to preempt subsequent expansion by rivals a larger set of perfect equilibria is constructed by using memory dependent trigger strategies equilibria of this type are shown to support joint value maximization for some initial states and asymmetric steady states

dynamic demand and noncompetitive intertemporal output adjustments abstract this paper integrates dynamics on the demand and on the supply side which are characteristic for many goods in particular fuels due to costly adjustments furthermore firms often pursue a quantity strategy and decide on output adjustments additional capacities etc instead of fixing prices e g opec moved from posting prices to adjusting output in 1986 this paper provides a corresponding framework surprisingly ignored in the literature and derives intertemporal market equilibria cooperative and noncooperative in open loop and in markov strategies the equilibrium in markov strategies is different mostly opposite to the much discussed sticky price models the qualitative properties are non trivial and some of them are even surprising e g increased demand sluggishness can raise supply

optimal firm growth under the threat of entry the paper studies the incumbent entrant problem in a fully dynamic setting we find that under an open loop information structure the incumbent anticipates entry by overinvesting whereas in the markov perfect equilibrium the incumbent slightly underinvests in the period before the entry the entry cost level where entry accommodation passes into entry deterrence is lower in the markov perfect equilibrium further we find that the incumbent s capital stock level needed to deter entry is hump shaped as a function of the entry time whereas the corresponding entry cost where the entrant is indifferent between entry and non entry is u shaped

economic man social woman the case of the gender gap in support for the canada united states free trade agreement do differences in basic values and concerns underlie differences in the issue positions of women and men this article uses a decomposition approach to assess the contribution of male female differ

the social construction of an imperative why welfare reform happened in denmark and the netherlands but not in germany this article seeks to explain why denmark and the netherlands made dramatic progress reforming their welfare systems in the 1990s and why germany had a relatively slow start some possible explanations found to be incomplete are institutional differences in welfare programs the uniqueness of circumstances for example german unification and the balance of political power in governing institutions an important part of the puzzle is an increasing perception of the need to reform that was more widespread in denmark and the netherlands the social construction of an imperative to reform in these countries generated a political consensus that was elusive in germany but that may be developing under gerhard schroder s government

political responses to interdependence what s left for the left heightened economic interdependence in recent years is commonly argued to have generated great pressures for convergence in economic policies across the advanced industrial democracies interdependence has clearly had a great impact on the types of economic policies that governments can pursue they have been unable to pursue independent fiscal and monetary policies since the mid 1970s furthermore all governments have been forced to attempt to promote the competitiveness of national goods and services in world markets and to increase the speed and efficiency with which national producers adjust to changes in global markets there are however different policies consistent with these goals statistical analyses of economic policies since the mid 1970s show that governments of the left and the right continue to be able to enact distinctive supply side policies that promote competitiveness and flexible adjustment and simultaneously further their partisan objectives

opening the window for reform mandates crises and extraordinary policy making under what conditions are governments within established democratic political systems willing and able to launch ambitious reform programs in other words what conjunctural factors generally serve to open the window for reform the central argument of this article is that extraordinary policy making generally becomes possible only when a macro window is opened by a government s achievement of an impressive mandate and or by the onset of a severe socioeconomic crisis the mandate reform hypothesis is tested with data from britain france and the united states then the significance of both mandates and crises is demonstrated through an analysis of eight reform government case studies ranging from the new deal to thatcher s britain

an economic theory of apartheid an economic theory of apartheid apartheid is a regulatory system designed to effect redistributions in favor of white workers and farmers at the expense of black workers and white capitalists this paper uses a competitive interest group theory of the apartheid state to formalize a collective choice analysis of apartheid as endogenous policy the level of apartheid is conceived as a continuous variable that is determined by the relative influence of competing interest groups within the white polity and by the costs of maintaining and defending apartheid institutions some empirical implications of this approach are explored i introduction since south african apartheid embodies essentially a complex web of politically determined restrictions affecting the level of employment and mobility of the black labor force it is not surprising that most economic analyses of apartheid institutions have focused on their evident allocative inefficiency and distributional inequity see nattrass 1981 31 32 some economists have hinted at the possibility of formally modeling the economic social and political institutions of apartheid as endogenous products of a process of collective choice in other words the question has been raised of the existence of an economic rationale for apartheid thus richard porter 1978 and subsequently mats lundahl 1982 have initiated rigorous analysis of what porter terms a south african type economy a competitive market system the operation of which is constrained by state imposed apartheid regulation while the porter lundahl characterization of the south african type economy is an invaluable starting point for an economic analysis of apartheid it falls short of providing a satisfactory explanation for the existence and extent of south african discriminatory policies the inevitable contradiction between economic efficiency and the political requirements of apartheid leads both porter and lundahl to treat the goals of apartheid as exogenously determined by political considerations 1 the purpose of this paper is to show how it is possible to provide an explicitly economic explanation of apartheid institutions apartheid is viewed here as a vector of policies which can be varied in intensity along a continuum thus the level of apartheid regulation is treated as a continuous endogenous variable responsive to the relative influences of interest groups which receive benefits or incur costs associated with apartheid the intention is not to claim originality in recognizing the economic motives for apartheid policy which have been well documented in the literature as indicated in section ii but rather to formalize this approach in section iii and to suggest some methods of testing its implications in section iv the effort to formalize an analysis of apartheid in terms of a competitive interest group model of social choice should be of interest not only to students of south african but also to economists more generally concerned with endogenous public policy the south african case provides a laboratory for this type of analysis because the boundaries which delineate interest groups are very clearly drawn ii a brief political economy of apartheid it has long been recognized by economists and scholars of south africa that the apartheid system representing a comprehensive set of regulations affecting all aspects of economic social and political life arose essentially as a response on the part of the white working class to the threat of black labor market competition 2 although apartheid itself is phenomenon of the post 1948 era of national party rule it is really only the most recent phase of a long history of white labor elitism and black exclusion brought about through the medium of an interventionist statist polity characterized by a racially limited franchise the harnessing of the instruments of state power to further the interests of the white labor force at the expense not only of blacks but also of white capitalists dates from the earliest period of industrialization in south africa which followed the discovery of precious minerals in the 1860s and 1870s

on the markovian efficiency of bertrand and cournot equilibria we characterize and compare closed loop feedback price and quantity strategies within a full fledged dynamic model of oligopolistic competition in which production requires exploitation of a renewable productive asset unlike previous papers on the strategic exploitation of productive assets we allow for imperfect product substitutability which enables us to deal with price competition we show that the traditional result that the bertrand equilibrium is more efficient than the cournot equilibrium does not necessarily hold in a markovian environment either in the short run or at the stationary equilibrium or using the discounted sum of welfare as a criterion for relative efficiency

a whiter shade of pale on the political economy of regulatory instruments we consider an intertemporal policy game between changing governments that differ in their attitudes towards a particular feature of market outcomes exemplified with environmental pollution when in power a government will choose policy instruments and set strictness of regulation with a view to influencing the policy of future possibly different governments we demonstrate that a brown government favours emission quotas over effluent taxes as quotas establish property rights that are costly to reverse conversely a green government prefers to regulate by taxes in order to limit the incentives of future brown governments to ease regulations strategic behaviour tends to exaggerate policy differences making green governments greener and brown governments browner compared to when such strategic considerations were not an issue jel d81 d9 h23 l51 q28 q38

invested interests the politics of national economic policies in a world of global finance capital moves more rapidly across national borders now than it has in at least fifty years and perhaps in history this article examines the effects of capital mobility on different groups in national societies and on the politics of economic policymaking it begins by emphasizing that while financial markets are highly integrated within the developed world many investments are still quite specific with respect to firm sector or location it then argues that contemporary levels of international capital mobility have a differential impact on socioeconomic groups over the long run increased capital mobility tends to favor owners of capital over other groups in the shorter run owners and workers in specific sectors in capital exporting countries bear much of the burden of adjusting to increased capital mobility these patterns can be expected to lead to political divisions about whether or not to encourage or increase international capital market integration the article then demonstrates that capital mobility also affects the politics of other economic policies most centrally it shifts debate toward the exchange rate as an intermediate or ultimate policy instrument in this context it tends to pit groups that favor exchange rate stability against groups that are more concerned about national monetary policy autonomy and therefore less concerned about exchange rate stability similarly it tends to drive a wedge between groups that favor an appreciated exchange rate and groups that favor a depreciated one these divisions have important implications for such economic policies as european monetary and currency union the dollar yen exchange rate and international macroeconomic policy coordination

the theory of international economic sanctions a public choice approach comment william kaempfer and anton lowenberg in this review september 1988 have developed an engaging model of the sanctions process grounded in public choice they identify potentially influential private forces that might affect the nature of a sanctions package while the spirit of their effort is laudable the model fails to incorporate some absolutely essential information about the legal institutional and strategic framework in which sanctions decisions are made as a consequence they reach a conclusion that flies in the face of existing facts contrary to what is suggested by kaempfer and lowenberg kl and contrary to the implications of their model the evidence clearly indicates there is an unequivocal bias against the use of import restrictions in favor of export controls the recent history of economic sanctions shows that only somewhat more than one third of sanction episodes involved both export and import controls further gary hufbauer and jeffrey schott 1985 observe that in instances where only one or the other is invoked export controls are almost always preferred to restrictions on imports 2 an almost exclusive reliance on export controls in economic foreign policy measures is particularly evident in the actions of the united states in the 1970s 3 the purpose of this comment is to explore the causes of this asymmetry there are at least three reasons why export controls have been favored over import controls reasons that play no part in the kl model first the general agreement on tariffs and trade gatt has institutionalized a bias against import barriers in favor of export controls second in the united states domestic legal constraints favor export controls and discourage import controls third as will be argued export controls are more easily reversed than import controls and reversibility is a desirable component in any foreign policy based trade intervention consider these points in turn in the 1946 1948 period during which time the gatt was first negotiated trade barriers were identified most often with those artificial impediments to trade that restrict foreign access to domestic markets especially tariffs for this reason gatt rules and actions have sought primarily to dismantle import barriers john jackson 1969 p 502 notes that despite the fact that extensive export controls do exist there has been only one complaint with respect to such controls reflected in gatt documents this is the czechoslovakian complaint against the united states in 1949 for the imposition of discriminatory export controls 4 jackson p 502 observes that there is very little if any effective gatt policing of export control policy and he comments later p 539 that insofar as any gatt obligations can be avoided without consequences this avoidance operates in effect as an exception this suggests that those foreign policy export controls that are pro department of economics university of arizona tucson az 85721 i thank alan deardorff bernard hoekman and robert stem for helpful discussions on work related to this note my thanks also to two anonymous referees for their constructive comments see p 28 and tables 4 1 4 5 pp 70 77 hufbauer and schott 1985 2ibid p 28 3see for example richard cooper 1987 pp 301 302 and p 305 and kenneth abbott 1981 p 741 4this is confirmed more recently by barry carter 1988 p 97 the only other event involving export restrictions challenged before the gatt was the u s embargo against nicaragua in 1985 which involved both import and export restrictions