information transmission cournot and bertrand equilibria we examine how incentives for two duopolists to honestly share information change depending upon the nature of competition cournot or bertrand and the nature of the information structure while in earlier papers uncertainty is about an unknown common demand intercept in the present paper uncertainty is about unknown private costs the different information structure reverses the incentives to share information while with unknown common demand sharing is a dominant strategy with bertrand competition and concealing is a dominant strategy with cournot competition with unknown private costs sharing is a dominant strategy with cournot competition and concealing is a dominant strategy with bertrand competition

information advantage in cournot oligopoly abstract consider an oligopolistic industry where firms have access to the same technology but are asymmetrically informed about the environment even though it is commonplace to think that in this context superior information leads to higher profits we find that under cournot competition this is not generally the case it holds when firms technology exhibits constant returns to scale but it does not necessarily hold otherwise journal of economic literature classification numbers c72 d43 l13

relating the environmental impact of consumption to household expenditures an input output analysis in this paper we evaluate the relationships between household expenditures and the environmental impact categories climate change acidification eutrophication and smog formation by combining household expenditures with environmentally extended input output analysis expenditure elasticities are examined with regression analysis and are compared and interpreted on the basis of insight at the product level with data from the netherlands in the year 2000 we find that environmental impact increases with increasing household expenditures although the degree to which the environmental impact increases differs per impact category climate change and eutrophication increase less than proportionally with increasing expenditures acidification increases nearly proportionally with increasing expenditures whereas smog formation increases more than proportionally it appears that the mix of necessities and luxuries to which an environmental impact is related is essential in explaining the relationship

co2 emissions and intersectoral linkages the case of spain this paper proposes a methodology to identify the most relevant productive transactions in terms of co2 emissions in the most polluting sectors of an economy and applies this methodology to the spanish case emissions can be related to the co2 emissions intensity of sectors co2 intensity factor to the size of the economy s flows scale factor to the input output productive relationships within an economy technology production factor and to the structure of final demand of different sectors demand factor a formal analysis of these factors is carried out by means of an input output framework combined with a sensitivity analysis by considering key sectors and relevant transactions in terms of co2 emissions the most effective policy measures aimed at reducing co2 emissions can be identified

bank lending in transition economies bank privatization and tighter credit enforcement are believed indispensable to facilitate the eastern european transition process we analyze lending by value maximizing banks the only source of capital in the transition faced by non performing loans to the state owned sector we show that banks have a perverse incentive to fund former debtors although less efficient and more risky than private firms because they gain the potential repayment of previous debts this leads to a lower productivity of investment and a greater concentration of risk the expansion of more efficient private firms is delayed leading to a slower recovery and a greater risk of financial crisis

exchange of cost information in oligopoly when do oligopolists gain by sharing their private information about their costs with one another what are the social welfare effects of such information exchange i study these questions by comparing the oligopolists expected profits under a cost sharing agreement with their expected profits in the bayesian equilibrium that would arise without cost sharing i also analyse the firms decisions to form a trade association to share their cost data under conditions of linear demand and cournot behaviour industrywide information exchange is the unique point in the core of the trade association membership game the exchange of cost data increases expected profits and welfare but reduces expected consumer surplus cost sharing increases efficiency by raising the market shares of lower cost firms and reducing the variability of aggregate output consumer surplus is diminished however because the variance of output is reduced and consumer surplus is a convex function of output

trade association disclosure rules incentives to share information and welfare in this article i propose a monopolistic competition framework to analyze the effects of different disclosure rules used by trade associations on the incentives to share information and on the welfare of consumers firms and society this framework is appropriate whenever a single firm cannot influence aggregate market magnitudes and serves as a benchmark for the analysis of information pooling agreements abstracting from strategic considerations i report two main results first a policy of nonexclusionary disclosure destroys the incentives to share information while exclusionary disclosure preserves them second information sharing increases expected total surplus with cournot competition but decreases it with bertrand competition in the context of a quadratic normal model with demand uncertainty

strategic information manipulation in duopolies abstract this paper studies a duopoly market in which firms can draw inferences concerning uncertain market demand from observations of their outputs and market price firms may adjust their outputs away from myopically optimal levels to affect the informativeness of the market price because firms quantities are observed firms can manipulate the extent to which belief revision occurs rather than the direction in which beliefs are revised as in signal jamming models we develop conditions and present examples under which the value of information is positive and negative and under which firms will increase or decrease quantity to manipulate information journal of economic literature classification numbers d80 l13

optimal financial instruments debt and equity are developed as optimal financial instruments in a model where cash flows and control rights are allocated to investors endogenously when investment decisions must be made by a single party the debtholder s cash flows are fixed in order to provide the equityholder with efficient incentives for investment ownership of control may be transferred to the debtholder to attenuate the impact of asymmetric information concerning the investment opportunity on the efficiency of the decision making since the classic article by modigliani and miller 1958 a great deal of attention has been focused on the problem of determining the optimal capital structure of the firm spanning taxes and or transaction cost agency cost and signalling arguments have been offered as explanations for why a firm s cash flows might be split between debt and equity claimants in a particular way here we address the more basic question of the optimal design of the securities that firms issue the majority of the existing literature takes the form of the allowable financial instruments as given in defense of this approach it may be noted that to a first approximation firms have used two standard financial instruments debt and equity we argue here however that the characterization of the standard instruments used in much of the literature has been incomplete and that the incentives of decision makers within the firm cannot be completely understood until the problem is addressed from a more basic level than is typically done by concentrating on the cash flow characteristics of these instruments the equally important issue of the way the standard instruments distribute the control rights of the firm has been ignored as a consequence the objectives in corporate decision making have been assumed rather than developed endogenously we consider the allocation of cash flows and the distribution of control rights to optimal financial instruments in a security design problem by considering the design of securities in this way we are able to consider the

an environmentally extended social accounting matrix although the social accounting matrix sam approach has been widely used in nationalaccounting and development economics it still neglectsimportant information among which are theinteractions between an economy and the environment this paper environmentally extends sam to capture therelationships among economic activities pollutionabatement activities and pollution emissions anumerical example of the environmentally extendedsocial accounting matrix esam using chinese 1990data is presented the multiplier and structural pathanalyses are applied to the esam for assessingenvironmental impacts of pollution related economicpolicies the analysis results show that an esam canbe a useful tool for environmental policy analysis

impact of household consumption on co2 emissions danish household consumption increased by 58 over the period 1966 1992 while co2 emissions only increased by 7 using decomposition analysis we investigated the global co2 impact of danish household consumption from 1966 to 1992 our conclusion is that overall growth in private consumption but not changes in the composition of consumption is the key to understanding the increase in co2 emissions however the effect of growth in private consumption has been partly offset by substantial energy conservation in the energy supply and manufacturing sectors

rules of thumb for social learning this paper studies agents who consider the experiences of their neighbors in deciding which of two technologies to use we analyze two learning environments one in which the same technology is optimal for all players and another in which each technology is better for some of them in both environments players use exogenously specified rules of thumb that ignore historical data but may incorporate a tendency to use the more popular technology in some cases these naive rules can lead to fairly efficient decisions in the long run but adjustment can be slow when a superior technology is first introduced

primary energy and greenhouse gases embodied in australian final consumption an input output analysis input output modeling of primary energy and greenhouse gas embodiments in goods and services is a useful technique for designing greenhouse gas abatement policies the present paper describes direct and indirect primary energy and greenhouse gas requirements for a given set of australian final consumption it considers sectoral disparities in energy prices capital formation and international trade flows and it accounts for embodiments in the gross national expenditure as well as the gross domestic product primary energy and greenhouse gas intensities in terms of mj and kg co2 e are reported as well as national balances of primary energy consumption and greenhouse gas emissions

privatization risk taking and the communist firm this paper studies alternative methods of privatizing a formerly communist firm in the presence of imperfect risk markets the methods include cash sales a give away scheme and a participation contract where the government retains a sleeping fractional ownership in the firm it is shown that with competitive bidding the participation contract dominates cash sales because it generates both more private restructuring investment and a higher expected present value of revenue for the government under weak conditions the participation contract will induce more investment than the give away scheme and it may even share the cash sales virtue of incentive compatibility

costly information acquisition experimental analysis of a boundedly rational model the directed cognition model assumes that agents use partially myopic option value calculations to select their next cognitive operation the current paper tests this model by studying information acquisition in two experiments in the first experiment information acquisition has an explicit financial cost in the second experiment information acquisition is costly because time is scarce the directed cognition model successfully predicts aggregate information acquisition patterns in these experiments when the directed cognition model and the fully rational model make demonstrably different predictions the directed cognition model better matches the laboratory evidence jel d83

incentives for information production and disclosure in a duopolistic environment this paper examines the nature of the equilibrium solution to the duopoly problem under various incomplete information structures and the incentives to produce and disclose information attention is focused on the duopolists cost functions the results indicate that disclosure of such information is generally beneficial to the duopolists

the impact of household consumption patterns on emissions in spain abstract the aim of this paper is to analyse the relationship between household consumption patterns and pollution in the spanish economy the analysis was carried using a social accounting matrix sam for the spanish economy prepared for 1999 taking the final demand of households as the exogenous account in the sam framework and combining this with the information provided by the household budget continuous survey on income and consumption ine 1999 we analyse the pollution produced by both the economy and households in order to satisfy consumption requirements we also consider the effects of income inequality on expenditure levels establishing a link between income level consumption patterns propensity to consume and co2 emissions

on the use of heuristics to approximate competitors private information abstract firms often lack knowledge of the nature of the uncertainty they or their opponents face and use heuristics or approximations to determine their strategy we define and analyze one type of heuristic strategy in which firms choose strategies based on the expectation of their opponents private information rather than the full information about the distribution of that private information we find that in equilibrium the degree to which the heuristic strategy differs from the bayesian strategy depends on 1 the convexity of a firm s marginal profits with respect to their opponents private information and 2 whether firm strategies are complementary or substitutable under certain conditions firms equilibrium profits are greater when all firms use heuristics than when all firms use the full information our results provide insight into incentives firms may have to either facilitate or impede access to industry information

a theory of privatisation public enterprises around the world have proved to be highly inefficient primarily because they pursue strategies such as excess employment that satisfy the political objectives of politicians who control them privatization of public enterprises can raise the cost to politicians of influencing them since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms in this way privatization leads to efficient restructuring of firms moreover privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors rather than their employees or even managers copyright 1996 by royal economic society

top management compensation and capital structure the interrelationship between top management compensation and the design and mix of external claims issued by a firm is studied the optimal managerial compensation structures depend on not only the agency relationship between shareholders and management but also the conflicts of interests which arise in the other contracting relationships for which the firm serves as a nexus we analyze in detail the optimal management compensation for the cases when the external claims are 1 equity and risky debt and 2 equity and convertible debt in addition to the role of aligning managerial incentives with shareholder interests managerial compensation in a levered firm also serves as a precommitment device to minimize the agency costs of debt the optimal management compensation derived has low pay performance sensitivity with convertible debt instead of straight debt the corresponding optimal managerial compensation has high pay to performance sensitivity a negative relationship between pay performance sensitivity and leverage is derived our results provide a reconciliation of the puzzling evidence of jensen and murphy 1990 with agency theory other testable implications include 1 a relationship between the risk premium in corporate bond yields and top management compensation structures and 2 the announcement effect of adoption of executive stock option plans on bond prices the model yields implications for management compensation in banks and federal deposit insurance reform our results explain the dynamics of top management compensation in firms going through financial distress and reorganization

privatization under incomplete information and bankruptcy risk abstract we study privatization under moral hazard and adverse selection we show that if the fraction of efficient investors is either insignificant or productivity differences between efficient and inefficient investors are negligible the government would offer a pooling contract and sell the same fraction of equity to both types of investors the lower the productivity difference the greater the equity stake offered to investors on the other hand if the fraction of efficient investors is significant or productivity differentials are large the optimal policy consists of a dual method of privatization in which it offers two methods of privatization to outside investors the first method consists of a sale of 100 equity together with a subsidy and charges higher price under the second option the investor pays a smaller price but buys less than 100 equity without any subsidy efficient investors opt for the first method while inefficient investors prefer the second the dual privatization method screens investors and provides them with maximum incentives to invest while minimizing the risk of post privatization bankruptcy

heuristic thinking and limited attention in the car market can heuristic information processing affect important product markets analyzing over 22 million wholesale used car transactions we find evidence of left digit bias in the processing of odometer values whereby individuals focus on the number s leftmost digits the bias leads to discontinuous drops in sale prices at 10 000 mile odometer thresholds along with smaller drops at 1 000 mile thresholds these findings reveal that information processing heuristics matter even in markets with large stakes and easily observed information we model left digit bias in an inattention framework and structurally estimate the inattention parameter empirical patterns suggest the results are driven by final customers rather than professional agents jel d12 d44 d83 l81

the welfare effects and the distributive impact of carbon taxation on italian households in this work the welfare effects and the distributive impact on italian households of the italian carbon tax are calculated the carbon tax has been introduced in italy at the beginning of 1999 asking for smooth increases over a number of years in the prices of most fossil fuels its welfare effects have been calculated using true cost of living index numbers and the compensating variation the parameters have been obtained through estimation of a complete almost ideal demand system using households data from 1985 to 1996 the welfare loss turns out to be quite substantial and affects italian households in a non negligible way but the distribution of welfare losses across different levels of total monthly expenditures does not allow sustaining the regressivity of carbon taxation as the effect becomes bigger as we move up the income distribution this evidence might encourage the use of carbon taxes at least in the transport sector as cost effective instruments of environmental policy especially after the ratification of the kyoto protocol on climate change

behavioral equilibrium in economies with adverse selection i propose a new solution concept behavioral equilibrium to study environments with players who are naive in the sense that they fail to account for the informational content of other players actions a behavioral equilibrium requires that i players have no incentives to deviate given their beliefs about the consequences of deviating ii these beliefs are consistent with the information obtained from the actual equilibrium play of all players and iii when processing this information naive players fail to account for the correlation between other players actions and their own payouncertainty i apply the framework to certain adverse selection settings and show that contrary to the received literature the adverse selection problem is exacerbated when naive players fail to account for selection more generally the main distinguishing feature of the framework is that in equilibrium beliefs about both fundamentals and strategies are jointly restricted consequently whether a bias may arise or not is determined endogenously in equilibrium jel c72 d82 a large literature presents evidence that psychological and cognitive biases aect people s be havior this evidence raises some questions what are the eects of these biases and can they persist at all in economic settings where people strategically interact with each other and have the opportunity to learn from their experience 1 in this paper i introduce a game theoretic equilibrium framework to study these questions in the context of a particular bias people s failure to take into account the informational content of other people s actions i apply the framework to a class of games that arises naturally in adverse selection settings and then show that the adverse selection

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis

banking sector and restructuring in eastern europe abstract the paper seeks to achieve a number of objectives first to analyze the underlying causes of east european commercial banks illiquidity problems second to examine the case for public versus private informal approaches to bankruptcy and bank restructurings as general approaches to these problems third to evaluate the different models of restructuring banks in particular eight alternative models are identified fourth to briefly describe the models that have been chosen by a number of east european countries finally to layout the criteria for policymakers choice of a particular restructuring model

on the existence of cournot equilibrium this paper examines the existence of n firm cournot equilibrium in a market for a single homogeneous commodity it proves that if each firm s marginal revenue declines as the aggregate output of other firms increases which is implied by concave inverse demand then a cournot equilibrium exists without assuming that firms have nondecreasing marginal cost or identical technologies also if the marginal revenue condition fails at a potential optimal point there is a set of firms such that no cournot equilibrium exists the paper also contains an example of nonexistence with two nonidentical firms each with constant returns to scale production