inefficient credit booms this paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks in particular it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post even though from a first best perspective the equilibrium always displays under borrowing from a second best point of view excessive borrowing can arise the inefficiency is due to the combination of limited commitment in financial contracts and the fact that asset prices are determined in a spot market this generates a pecuniary externality that is not internalized in private contracts the model provides a framework to evaluate preventive policies which can be used during a credit boom to reduce the expected costs of a financial crisis copyright 2008 wiley blackwell

measuring returns to scale in dea models when the firm is regulated in the standard framework of data envelopment analysis dea models the returns to scale are fully characterized using the multiplier on the convexity constraint of inefficient decision making units dmu using the projection of the input output vector on the frontier in this note we investigate how the returns to scale measurements in dea models are affected by the presence of regulatory constraints these additional constraints change the role played by the convexity constraint in order to avoid biased estimation of the returns to scale we show that the interaction between the regulatory and the convexity constraints has to be taken into account

competition and the number of firms in a market are duopolies more competitive than atomistic markets this paper uses a variant of the standard search model to examine market equilibrium and the consequences for market equilibrium of an increase in the number of firms if marginal search costs increase with the number of searches then the demand curve facing any firm will be kinked with the elasticity of demand with respect to price decreases being less than with respect to price increases prices may not change in response to changes in marginal costs as the number of firms increases the maximum price that is consistent with equilibrium increases to the monopoly price but the minimum price decreases on the other hand if marginal search costs decrease with the number of searches equilibrium if it exists is characterized by a

the inflation output trade off with downward wage rigidities the macroeconomic implications of downward nominal wage rigidi ties are analyzed via a dynamic stochastic general equilibrium model featuring aggregate and idiosyncratic shocks a closed form solution for a long run phillips curve relates average output gap to average wage inflation it is virtually vertical at high inflation and flattens at low inflation macroeconomic volatility shifts the curve outwards and reduces output the results imply that stabilization policies play an important role and that optimal inflation may be positive and dif fer across countries with different macroeconomic volatility results are robust to relaxing the wage constraint for example when large idiosyncratic shocks arise jel e23 e24 e31 e63

the return of the wage phillips curve the standard new keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage inflation and unemployment under some assumptions that relation takes a form similar to that found in empirical applications starting with the original phillips 1958 curve and may thus be viewed as providing some theoretical foundations to the latter the structural wage equation derived here is shown to account reasonably well for the comovement of wage inflation and the unemployment rate in the u s economy even under the strong assumption of a constant natural rate of unemployment

opec and the international oil market can a cartel fuel the engine of economic development abstract the opec cartel was formed to promote two economic goals one microeconomic low oil market volatility the other macroeconomic promotes economic development of its members these goals create a tension since the cartel s single tool is output quotas using this dual micro macro perspective we analyze oil exporting countries behavior we find that the effects of the cartel s choices will be reflected in oil market stability long term macroeconomic development and international oil market structure if an oil producing country cares about both oil industry profits and macroeconomic stability the goal of output stability may be inconsistent with cartel membership

entry exit and performance in airline markets abstract data from the airline industry indicate that 1 entry generally is not induced by price levels substantially above the norm 2 entry reduces fares and increases output and exit increases fares and reduces output and 3 incumbents cut price and maintain output in response to entry and survivors increase both price and output in response to exit these findings cast doubt on the ability of entry to prevent or reverse price increases from anticompetitive mergers

excessive volatility in capital flows a pigouvian taxation approach this paper analyzes prudential controls on capital flows to emerging markets from the perspective of a pigouvian tax that addresses externalities associated with the deleveraging cycle it presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts this mitigates the feedback effects of deleveraging episodes when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects in our model capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare

sunk costs financial markets and contestability abstract this paper analyzes the proposition that the theory or contestable markets will yield good predictions for markets in which sunk costs although present are unimportant two results are of interest 1 if costs are at all sunk incumbent firms will be able to engage in strategic behavior with respect to entrants 2 if no costs are sunk but firms finance investment by borrowing incumbent firms will be able to engage in strategic behavior with respect to entrants in these cases one must analyze strategic behavior of incumbent firms to analyze market performance

toward a public choice theory of monopoly regulation its many dimensions from the perspective of market economics this new thrust was consolidated in 1976 by s peltzman who developed a formal market model in which regulations were viewed as commodities brokered via political markets in response to bids and counter bids by those who stood to gain or to lose from specific regulation outcomes the subsequent contribution by becker 1983 added insights and institutional flesh to the stigler peltzman embryo confirming regulation as an integral component of mainstream market economics an important implication of such contributions especially those from the chicago perspective is that regulation for the most part confirms resource efficiency within market process that political markets in the absence of entry barriers are just as effective as are competitive commodity markets in achieving economic efficiency defined within a comparative institutions framework nowhere is this complacency more apparent than in the conclusion drawn by becker 1983 from a detailed formal analysis of competition among pressure groups for political influence

a tax based test for nominal rigidities in classical macroeconomic models with flexible wages and prices whether a tax is levied on producers or consumers does not affect itsultimate incidence if wages or prices are rigid in the short run however then shifting a tax from one side of the market to the othermay have real effects tax changes therefore provide potential testsfor the presence of nominal rigidities this paper examines the priceand output effects of revenue neutral shifts between direct and indirect taxation the results provide evidence against the view thatwages and prices are completely flexible in the short run copyright 1986 by american economic association

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

antitrust and technological innovation in the us ideas institutions decisions and impacts 1890 2000 abstract the history of antitrust policy in the us as it relates to technological innovation exhibits major swings every few decades between favoring concentration and favoring deconcentration this paper sketches for each period the contending ideas that frame antitrust technology policy debates the salience of these ideas in the larger antitrust policy process the institutions for agenda setting and decision making in this area the policy decisions themselves and more speculatively the impacts of these decisions on technological innovation and industrial development the paper concludes with a preliminary attempt to identify the cyclical secular and static processes that have shaped the history of this policy area and to use this analysis to inform future policy makers

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

causes of multiproduct production the case of the engineering industries in developing countries abstract concepts developed in recent literature on multiproduct industries are used to explain the absence of vertical and horizontal specialization in the capital goods industries in developing countries diversification of product mix generally occurs as firms seek to capture positive economies of scope due to idle machine capacity it is argued here that in doing so they fail to take account of organizational diseconomies of scope which result from such diversification with growth in market size greater specialization might be expected as economies of scope due to idle machine capacity are eliminated if however domestic prices for the products a firm produces are higher than world prices for those products there will be a continued incentive for diversification rather than specialization

currency competition a hayekian perspective on international monetary integration currency internationalization is examined from the vantage point of friedrich hayek s contributions in the 1970s compared with received commentaries in which only an idealized case for private money is attributed to hayek this paper underscores other dimensions of hayek s work on money and currency hayek s case for choice in currency draws on his theory of competition anticipates competition between government suppliers of fiat money accommodates many aspects of international monetary integration and embodies a distinctive approach to monetary independence choice of exchange rate regime and the transnationalization of currency hayekian predictions are outlined for future developments in currency competition

stackelberg and marshall this paper advocates a generalized n firm stackelberg model as a plausible testable alternative description of oligopoly a pure strategy equilibrium must exist for this model the main result is that efficiency obtains in the limit as the scale of each firm is shrunk relative to demand this is demonstrated for the case of u shaped average cost and also for that of natural monopoly copyright 1990 by american economic association

wage rigidity and job creation recent research in macroeconomics emphasizes the role of wage rigidity in accounting for the volatility of unemployment fluctuations we use worker level data from the cps to measure the sensitivity of wages of newly hired workers to changes in aggregate labor market conditions the wage of new hires unlike the aggregate wage is volatile and responds almost one to one to changes in labor productivity we conclude that there is little evidence for wage rigidity in the data

micro and macro labor supply elasticities a reassessment of conventional wisdom the response of aggregate labor supply to various changes in the economic environ ment is central to many economic issues especially the optimal design of tax policies conventional wisdom based on studies in the 1980s and 1990s has long held that the analysis of micro data leads one to conclude that aggregate labor supply elasticities are quite small in this paper we argue that this conventional wisdom does not hold up to empirically reasonable and relevant extensions of simple life cycle models that served as the basis for these conclusions in particular we show that several pieces of conventional wisdom fail in the presence of human capital accumulation or labor supply decisions that allow for adjustment along both the extensive and intensive margin we conclude that previous estimates of small labor supply elasticities based on micro data are fully consistent with large aggregate labor supply elasticities jel d91 e24 j22

price changes supply elasticities industry organization and dairy output distribution long run price elasticities of milk supply are decomposed into price elasticities of yield herd size and farm population for northeastern u s dairy farms these elasticities are shown to vary with farm size because of size related differences in capital intensity specialization yield and herd size variability and rates of entry exit into dairy in the short run price responsiveness is shown to decrease with farm size in the long run large farms are shown to be most price responsive results suggest that lower milk prices could make revenue distribution less equal in both the short and long run by altering output and population distributions

contestability queues and governmental entry deterrence this paper demonstrates that a perverse kind of entry deterrence can result when government subsidized production is combined with non price rationing in the form of queuing even though queuing leads to a total cost to the consumer not including the tax cost that is higher than the cost of an unsubsidized private supplier and even though the government s money price is rigid the market is not contestable the key to the result is that the waiting cost portion of the consumer s acquisition cost declines immediately upon entry and losses would be forced upon the entrant privatization would negate the entry deterrence thus leading to entry increased output at lower full prices lower average production costs decreased waiting costs increased profits and increased consumer surplus

first mover disadvantages with private information we consider a leader follower game with output quantities as strategies so as to demonstrate the reduced advantages of the stackleberg leader in a stochastic environment with private information at the equilibrium the strategy of the leader reveals to the follower information about the demand in an attempt to signal low demand the leader contracts his output nevertheless unless the leader s information is infinitely noisy the follower can always correctly infer his signal we find a wide range of parameter values over which the follower is better off compared to the leader

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing

entry in monopoly market this paper develops new empirical models of market concentration from game theoretic models of entry we construct our models from inequality conditions that describe entrants equilibrium strategies in simultaneous move and sequential move games and use them to study the effects of entry in isolated monopoly markets for new automobiles from estimates of the market size necessary to support one and two dealers we conclude that monopoly dealers do not block the entry of a second dealer we also find that entry does not cause price cost margins to fall by much

clusters entrepreneurial ecosystem co creation and appropriability a conceptual framework extant literature on clusters underplays the role of entrepreneurs and entrepreneurial management in creating and co creating organizations markets and supporting ecosystems we employ transaction costs resource knowledge capabilities and power control based theories to provide a comparative static governance based perspective on clusters we embed this into a more general co evolutionary entrepreneurial theory of the emergence evolution and co evolution of markets ecosystems and clusters we suggest that clusters can involve advantages that help engender superior appropriation of co created value as compared to alternatives entrepreneurial managers faced with a degree of choice will help co create clusters and be part of them for as long as they can appropriate more value in this way than through alternatives

can achievement peer effect estimates inform policy a view from inside the black box abstract empirical studies of peer effects rely on the assumption that peer spillovers can be measured through observables however in the education context many theories of peer spillovers center around unobservables such as ability effort or motivation i show that when peer effects arise from unobservables the typical empirical specifications will not measure these effects accurately which may help explain differences in the magnitude and even sign of peer effect estimates across studies i also show that under reasonable assumptions these estimates cannot be applied to determine the effects of regrouping students a central motivation of the literature

contestability in a resource market with non convex costs consider an intertemporal resource market with n identical firms each managing an exhaustible resource deposit the extraction from which is governed by a u shaped average cost curve eswaran lewis and heaps 1983 elh show that such a market cannot have a competitive equilibrium in their comments on elh kimmel 1984 and mumy 1984 point out however that the elh result is driven by there being a small number of firms which is inconsistent with price taking behavior this provides a motivation for analyzing the situation considered by elh under alternative assumptions of market behavior in general perfect contestability applies to circumstances where perfect competition is impossible because economies of scale are present see baumol et al 1982 since the non convexities in elh are not caused by once and for all setup or shut down costs rather the flow of costs is assumed to be a non convex function of the flow of extraction replacing the assumption of price taking behavior with an assumption of ultra free entry 2 provides a potential means of restoring a market equilibrium in the present case contestability theory holds that the threat of competition by potential entrants can discipline the pricing behavior of the active firms however as pointed out by cairns 1991 footnote 9 a non active firm can be the source of this kind of discipline in an exhaustible resource market only if its remaining reserves are positive caution should therefore be exercised in applying contestability theory to a resource market in this note existence of an equilibrium in such an exhaustible resource market is shown partly by relying on the possibility of ultra free entry we

do matching frictions explain unemployment not in bad times this paper models unemployment as the result of matching frictions and job rationing job rationing is a shortage of jobs arising naturally in an economic equilibrium from the combination of some wage rigidity and diminishing marginal returns to labor during recessions job rationing is acute driving the rise in unemployment whereas matching frictions contribute little to unemployment intuitively in recessions jobs are lacking the labor market is slack recruiting is easy and inexpensive so matching frictions do not matter much in a calibrated model cyclical fluctuations in the composition of unemployment are quantitatively large

how prevalent is downward rigidity in nominal wages international evidence from payroll records and pay slips in chapter 2 of the general theory of employment interest and money 1936 john maynard keynes put forward an assumption of downward rigidity in nominal wages as the cornerstone of his analysis of what happens in the labor market over the business cycle according to his analysis if the real value of the existing nominal wage exceeds the market clearing level downward nominal rigidity prevents arbitrage towards that level instead employment is determined by the short side of the market the labor demand side and the excess supply of labor at that wage manifests as high unemployment keynes s brief theoretical account of why workers refuse to accept a nominal wage reduction even when unemployment is the consequence involved workers concern about their wages relative to their reference group keynes did not directly address why workers would be so preoccupied with their relative wage that they would prefer job loss even during a recession to accepting a wage cut keynes s empirical basis for his assumption was that whether logical or illogical experience shows that this is how labour in fact behaves he did not provide any quantitative evidence to support this observation

us and canadian livestock prices market integration and trade dependence cointegration of canadian and us livestock prices points to the existence of market integration in the period january 1996 to december 2004 trade flows of livestock and beef products were nonexistent between canada and the united states for many months in 2003 and 2004 suggesting market segmentation this lack of trade in beef and livestock was due to livestock beef import bans by both countries due to bovine spongiform encephalopathy it was also determined that canada s trade dependence in livestock and beef is cointegrated with canadian and us livestock prices however as the trade dependence variable is shocked the effects on canadian and us prices are opposite although one would expect that in an integrated market the price responses to an exogenous shock would be similar or statistically identical this result reinforces the case against the use of price cointegration analysis in determining presence or absence of market integration empirical results in this article raise some very difficult q

symmetric or asymmetric price adjustments in the oil market an empirical analysis of the relations between international and domestic prices in the federal republic of germany 1972 89 abstract this paper investigates how german consumer and wholesale prices for gasoline and light heating oil react to changes in the corresponding rotterdam prices monthly data from 1972 to 1989 are employed and the subperiods of the 1970s 1972 to 1979 and 1980s 1980 1989 are distinguished error correction models are estimated to seperate long run equilibrium relations and short run adjustment processes for the 1980s we find rapid symmetric and full adjustment of the german prices to the rotterdam prices whereas during the 1970s we find some asymmetries and at least for gasoline the adjustment processes took considerably more time

cooperative oligopoly equilibrium abstract oligopoly cooperation is investigated in an industry with n firms each firm selects its own output we show that such oligopoly problems have the same structure as problems of allocating public goods since each firm views its own output as a private good while viewing the outputs of others as public bads this leads to cooperative oligopoly equilibria which are the lindahl equilibria of the oligopoly model agreements are modeled by the selection of a mechanism or game form which obeys certain axioms under the postulated axioms we show the equivalence of agreed allocations with the set of oligopoly equilibria it is argued that the principle of lindahl agreements may have wider applications

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

the flypaper effect and competition in the local market for public goods in this paper we explore how the ability of bureaucrats to extract resources from their community may be limited by competition in the local market for public goods specifically we examine intergovernmental aid as a resource bureaucrats seek to control intergovernmental aid has been found to be more stimulative of local government expenditures than predicted by neo classical economic theory in this research the flypaper effect is used as an indicator of the ability of bureaucrats to control local resources in excess of local demand and preferences we empirically relate variation in the flypaper effect to the extent of competition in the local market for public goods competition does not consistently limit the flypaper effect the implications of this finding for theories of competition in the local market for public goods are then discussed

policy implications of structural changes in financial markets economic decisions are goal seeking choices made under acknowledged constraints for financial institutions models of managerial decision making feature environmental constraints of three broad types technological market and regulatory in principle a shift in any constraint triggers a reactive reoptimization of an institution s product line organizational structure production processes and demand for factor services monetary policy and deposit institution regulation promote three major economic goals fostering financial stability contributing to good macroeconomic performance and securing efficient patterns of financial intermediation politically agencies responsible for these policies regulators simultaneously nurture their own bureaucratic self interest sometimes by attempting to intervene advantageously in the sectoral allocation of credit conflicts arise not only among these four goals at a given time but also across time with respect to the intended and unintended effects of particular policies policymaking environments may be conceived as sets of evolving economic and political constraints within which an agency s leadership seeks to maximize a stationary

wic and the price of infant formula this article presents an economic model of a national infant formula market that quantifies the effects of sole source contracts on infant formula prices on producer earnings and on the taxpayer cost of providing infant formula to participants of the special supplemental nutrition program for women infants and children it shows that the behavior of paying customers manufacturers and retail stores determines the value of local sole source contracts to manufacturers and that this value motivates manufacturers to acquire sole source contracts and make rebate payments that contain the taxpayer cost of providing infant formula to program participants

exchange rate changes and the distribution of industry value this article investigates the simple widely held hypothesis that an exogenous real home currency depreciation enhances the competitiveness of home country manufacturers vis a vis foreign rivals the study associates changes in competitiveness with redistributions of value within an industry daily and weekly data on redistributions of value are obtained from world financial markets the study estimates the relationship between changes in exchange rates and redistributions of value within the world automobile and steel industries during the period 1978 87 the data generally do not support the notion that firms benefit competitively from a depreciation of the home currency on the contrary for large fractions of both industries a depreciation of the home currency is associated with a significant decline in their share of industry value

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

understanding the gains from wage flexibility the exchange rate connection we study the gains from increased wage exibility and their dependence on exchange rate policy using a small open economy model with staggered price and wage setting two results stand out i the impact of wage adjustments on employment is smaller the more the central bank seeks to stabilize the exchange rate and ii an increase in wage exibility often reduces welfare and more likely so in economies under an exchange rate peg or an exchange rate focused monetary policy our ndings call into question the common view that wage exibility is particularly desirable in a currency union

monopoly behaviour decentralized regulation and contestable markets an experimental evaluation this study provides a comparative experimental evaluation of several alternative approaches to the single product monopoly problem we contrast incentive compatible decentralized regulatory mechanisms with notions of market contestability in a decreasing cost environment the decentralized regulatory mechanisms are found to be significantly more effective at restraining monopoly power than is allowing direct contestability but the regulatory mechanisms examined require that the regulatory agency know the market demand curve though not the industry cost curve since this is significantly more information than is required to implement direct contestability an interesting tradeoff is suggested does the greater efficiency in monopoly restraint provided by the regulatory mechanism relative to direct contestability outweigh the former s greater informational requirements

long run competition in the u s aluminum industry abstract a methodology for examining dynamic structure performance relationships in a single industry is proposed and illustrated implications of long run competitive behavior for a simple simultaneous equations model of structure and performance are derived and tested using recently developed methods for the interpretation of economic time series it is concluded that the structure and performance in the u s aluminum industry in the postwar period conform well with the hypothesis that the primary aluminum market was competitive in the long run

efficiency and productivity growth in the banking industry of central and eastern europe abstract we employ the directional technology distance function and provide estimates of bank efficiency and productivity change across central and eastern european cee countries and across banks with different ownership status for the period 1998 2003 our results demonstrate the strong links of competition and concentration with bank efficiency they also show that productivity for the whole region initially declined but has improved more recently with further progress on institutional and structural reforms input biased technical change has been consistently positive throughout the entire period suggesting that the reforms have induced favorable changes in relative input prices and input mix however we find evidence of diverging trends in productivity growth patterns across banking industries and that foreign banks outperform domestic private and state owned banks both in terms of efficiency and productivity gains overall we find that productivity change in cee is driven by technological change rather than efficiency change

explaining institutional change policy areas outside options and the bretton woods institutions i propose and test a theoretical framework that explains institutional change in international relations like firms in markets international institutions are affected by the underlying characteristics of their policy areas some policy areas are prone to produce institutions facing relatively little competition limiting the outside options of member states and impeding redistributive change in comparison institutions facing severe competition will quickly reflect changes in underlying state interests and power to test the theory empirically i exploit common features of the bretton woods institutions the international monetary fund and world bank to isolate the effect of variation in policy area characteristics the empirical tests show that despite having identical membership and internal rules bargaining outcomes in the bretton woods institutions have diverged sharply and in accordance with the theory

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

pecuniary externalities in economies with financial frictions this article characterizes the efficiency properties of competitive economies with financial constraints in which phenomena such as fire sales and financial amplification may arise we show that financial constraints lead to two distinct types of pecuniary externalities distributive externalities that arise from incomplete insurance markets and collateral externalities that arise from price dependent financial constraints for both types of externalities we identify three sufficient statistics that determine optimal taxes on financing and investment decisions to implement constrained efficient allocations we also show that fire sales and financial amplification are neither necessary nor sufficient to generate inefficient pecuniary externalities we demonstrate how to employ our framework in a number of applications whereas collateral externalities generally lead to over borrowing the distortions from distributive externalities may easily flip sign leading to either under or over borrowing both types of externalities may lead to under or over investment

forward induction and sunk costs give average cost pricing abstract this paper applies the idea of forward induction to a classical economic problem the existence of an efficient form of competition in the case of increasing returns to scale it proves that properly formalized this idea leads to average cost pricing as the horizon goes to infinity journal of economic literature classification numbers

optimal time consistent macroprudential policy collateral constraints widely used in models of financial crises feature a pecuniary externality agents do not internalize how borrowing decisions made in good times affect collateral prices during a crisis we show that under commitment the optimal financial regulator s plans are time inconsistent and study time consistent policy quantitatively this policy reduces sharply the frequency and magnitude of crises removes fat tails from the distribution of asset returns and increases social welfare in contrast constant debt taxes are ineffective and can be welfare reducing while an optimized macroprudential taylor rule is effective but less so than the optimal time consistent policy

employment and earnings effects of awarding training vouchers in germany participation in intensive training programs for the unemployed in germany is allocated by awarding training vouchers using rich administrative data for all vouchers and actual program participation the authors provide first estimates of the short run and long run employment and earnings effects of receiving a training voucher award based on a selection on observables assumption the results imply that after the award voucher recipients experience long periods of lower labor market success compared to had they not received training vouchers small positive employment effects and no gains in earnings were observed four to seven years after the receipt of the voucher award in addition the findings suggest stronger positive effects both for all low skilled individuals who were awarded and redeemed a voucher and for low skilled and medium skilled individuals who chose to take degree courses than for higher skilled recipients

structural reform of japanese electric power industry separation between generation and transmission distribution this study examines the cost structure of japanese electric power industry to investigate whether a structural reform on the industry really enhances a cost saving benefit to consumers a composite cost function model using a panel data set is used for this study the data set consists of nine electric power companies from 1990 to 2008 based upon the estimation results this study examines whether economies of scale and vertical economies exist in the industry then this study conducts a cost subadditivity test that is a necessary condition of natural monopoly the empirical results indicate that the electric power firms exhibit the status of economies of scale in their transmissions and distributions and the operation as a whole however they do not exhibit economies of scale in their generations thus the transmission operation by integration in a large area can improve its economic efficiency furthermore the industry should introduce more competition in both generation and wholesale power markets where more firms can participate in their power trades this study also empirically confirms that vertical economies have existed in the industry moreover this study confirms that all the estimates in the cost subadditivity test satisfy the necessary condition of natural monopoly where each estimate indicates cost saving in cost subadditivity the test does not guarantee a sufficient condition of natural monopoly however it clearly indicates that the functional separation between generation and transmission will increase total production cost in the industry the complete separation may result in a net loss of economic efficiency if a competition benefit does not exceed an expected economic loss consequently this study suggests that the industrial structure of future japanese electric power industry should be evaluated from not only an expected benefit by introducing competition but also an unbundling cost that occurs with a loss of vertical integration

structure and performance with profit measures based on stock market prices the theory that there is a causal relationship between industry structure conduct and performance is the fundamental premise in the field of industrial organization the most carefully researched component of that general theory is the hypothesis that increasing industrial concentration will give rise to increasing profits this traditional view is important not only because of its prominence in the academic analysis of industrial markets but also because of its implications for government policy especially antitrust policy the traditional view typically has been tested by treating an accounting based measure of industry profit as the dependent variable with concentration and other structural variables as independent variables within a cross section of manufacturing industries at a given point in time numerous papers have found that concentration has a positive impact on profits the methodology adopted in this paper is different the profit measures are based on stock market prices and are adjusted for risk this is an improvement because accounting methods are so poorly adapted to the measurement of economic profit and because risk may vary with concentration 2 39 another methodological innovation is the choice of time series over cross section analysis the question asked is whether the change over time in each industry s level of concentration had an impact on profits this minimizes the problem of omitted or inaccurately measured independent variables since there should be less change in basic structural characteristics over short time periods within an industry than between industries at a single point in time 2 a second important advantage is freedom from a basic assumption of crosssection studies the assumption that the relationship between concentration and profit is homogeneous across industries if the assumption is invalid empirical results are subject to bias two tests 7 26 have firmly rejected the homogeneity assumption 3

william j baumol an entrepreneurial economist on the economics of entrepreneurship william j baumol is the 2003 winner of the international award for entrepreneurship and small business research throughout his career baumol has urged the profession to pay attention to the instrumental role of entrepreneurship in economic renewal and growth at the same time he has insisted that economists continue to use their usual tool box when the purview of analysis is extended to entrepreneurship hence baumol can be characterized as a revolutionary from within in this article we present and discuss baumol s research contribution in the areas of entrepreneurship and small business economics notably from a growth perspective in addition to placing his work in these areas into the wider context of his full contribution we emphasize baumol s findings that growth cannot be explained by the accumulation of various factors of production per se human creativity and productive entrepreneurship are needed to combine the inputs in profitable ways as a result an institutional environment that encourages productive entrepreneurship and human experimentation becomes the ultimate determinant of economic growth

the mexican electricity sector policy analysis and reform 1992 2009 this article analyses the cause effect relation of the structural reform in the mexican electricity sector called the public electricity service act from 1992 to 2009 one of the main arguments of the reform is to attract private investment in order to reduce the financial load of the government in infrastructure for the development of the national electric power system by means of six modalities power self supply cogeneration small power production independent power production power export and power import the article presents the global context of reforms adopted in 1990 the major policies and events are presented in chronological order before and after reform in addition it analyses the new institutional framework the evolution of modalities technologies of electricity generation and tariffs the main conclusion is that the result of reform could be considered a partial progress the independent power production modality shows greater participation while power self supply and cogeneration are lower the subsidy policy is maintained progress is needed in policies and strengthening and also in updating regulatory and normative frameworks

is there a causal effect of concentration on persistent profitability differentials this article searches for a causal effect of industry concentration on estimates of persistent profitability differentials i offer solutions to identification problems that plague related analyses by applying an iv and a natural experiment this is the first study that explains estimates of persistent profit differentials using business segments data allowing to match micro and industry level data more consistently testing linear relations critical concentration levels and interactions with mobility barriers i find no evidence that concentration has any positive effect on long run profitability differences results rather tend to point to a statistically and economically significant negative causal effect

the unemployment volatility puzzle is wage stickiness the answer i discuss the failure of the canonical search and matching model to match the cyclical volatility in the job finding rate i show that job creation in the model is influenced by wages in new matches i summarize microeconometric evidence and find that wages in new matches are volatile and consistent with the model s key predictions therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages i discuss a modification of the model based on fixed matching costs that can increase cyclical unemployment volatility and is consistent with wage flexibility in new matches

contestability a revisionist view many claims have been made about the significance of the contribution of contestability theory to industrial organizat ion this paper concludes that contestability theory leaves unanswere d questions about the identity of entrants and the source of their re sources a modification to the theory is proposed rather than as a h indrance to potential entry sunk costs are viewed as being of key si gnificance for the disciplining of oligopolists through potential ent ry with the proposed modification the analysis of the costs of mult iproduct firms may be more easily integrated with recent developments in industrial organization copyright 1988 by the london school of economics and political science

credible regulatory threats abstract as competition emerges in parts of utility industries and utility regulation policy is reviewed it is useful to examine alternative forms of regulation that may be implemented when hit and run entry is believed to be a non credible threat potential entry may not constrain incumbent firms pricing and production decisions this paper proposes that the credible threat of intervention by a regulator may impact upon incumbent firms decisions empirical evidence from the english and welsh electricity pool market is investigated to discover whether the threat of regulator intervention may have influenced the pricing strategies of the dominant firms in this market

does trade globalization induce or inhibit corporate transparency unbundling the growth potential and product market competition channels abstract trade globalization may affect corporate transparency via multiple channels with potentially opposite signs we aim to empirically disentangle these channels by tracking evolution of corporate transparency for 4061 listed firms in tradable sectors in 49 countries during 1992 2005 by using detailed tariff schedules we measure changes in growth opportunities and product market competition enabled by foreign and domestic trade liberalizations respectively on the one hand higher growth opportunities engendered by foreign trade reforms are disproportionately associated with better corporate transparency in industries that depend more heavily on external financing on the other hand greater product market competition engendered by domestic tariff reductions has no significant impact on corporate transparency

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

contestability vs competition analyzes the ultra free entry as normative contribution to industrial organization ultra free entry in context of the evolving field of industrial organization assessment of the conceptual validity of william baumol elizabeth bailey john panzar and robert willig s analysis in representing the nature of competition empirical issues in measuring and testing ultra free entry ebsco

the social multiplier aggregate data is often used to make inferences about individual level behavior if there are social interactions in which one person s actions influence his neighbor s incentives or information then these inferences are inappropriate the presence of positive social interactions or strategic complementarities implies the existence of a social multiplier where aggregate relationships will overstate individual elasticities we present a brief model and then estimate the size of the social multiplier in three areas the impact of education on wages the impact of demographics on crime and group membership among dartmouth roommates in these contexts there is a significant social multiplier jel ho jo co

on milk prices in kyrgyzstan dynamic relationships among weekly retail prices for milk from three regions of kyrgyzstan are studied in an error correction framework observational data over the period january 1995 may 1999 are used in the analysis results show that prices from the oblasts of issyk kul and djalal abad form one long run cointegration relationship with prices from issyk kul exhibiting the property of weak exogeneity prices from the osh oblast are not part of this relationship these results are related to the levels of state run milk marketing facilities versus private run milk marketing facilities and surplus versus deficit milk production in each region

the inefficiency of private adaptation to pollution in the presence of endogenous market structure the paper considers an industry where production costs rise due to pollution but where this effect can be partially off set by investing in adaptation as a private good the focus is not on external effects but industries where economies of scale are introduced from adapting to pollution the structure of the resulting oligopolistic market is endogenous since the level of adaptation is chosen by the firms the analysis of externalities usually disregards defensive or adaptation measures with a few exceptions that point to considerable complications the present debate on adaptation to climate change shows the importance of understanding defensive measures i show that the market failure caused by economies of scale leads to production costs above the social optimum i e to under adapation when pollution increases adaptation only increases if demand is price inelastic otherwise welfare loss from market failure decreases with pollution the total welfare loss is only convex if demand is price inelastic and the influence of pollution on production costs is stronger than the influence of adaptation concave welfare loss has crucial implications for abatement policies

sustained competitive advantage temporal dynamics and the incidence and persistence of superior economic performance competitive advantage is a key concept in strategic management research for a number of reasons not the least of which is that an avowed consequence of its attainment is held to be superior economic performance however few prior empirical studies have directly and systematically documented the incidence or prevalence of persistent superior economic performance the research reported here is based on empirical studies of a large number of industry samples for which longitudinal data were stratified by levels of performance using a new methodology and then analyzed in terms of their dynamics this new stratification technique was used in lieu of autoregressive methods employed in prior studies of performance persistence to allow for a true outlier analysis because persistent superior economic performance both has been argued theoretically and found empirically to be rare detailed results from a sample of 6 772 firms in 40 industries over 25 years are presented to illustrate the findings that 1 while some firms do exhibit superior economic performance 2 only a very small minority do so and 3 the phenomenon very rarely persists for long time frames these results while not providing direct support for a particular extant strategic management or economic theory concerning firm performance are most consonant with the resource based view of the firm and have implications for significant aspects of other received strategic management and economic theories

contestable markets an uprising in the theory of industry structure comment a situation traditionally identified as conducive to imperfect competition is when average costs decline and the cheapest scale of production is large relative to the size of the market however some of the more recent literature on industrial organization has emphasized a supposed distinction between fixed costs of production and sunk costs of production a point frequently made is that while the possibility of sunk costs can create genuine barriers to entry pure fixed costs per se do not inhibit competitive market performance this approach finds its logical extreme in the norm or abstraction of perfect contestability perfect contestability is essentially a theory of the polar case of frictionless entry and exit as william baumol stated a contestable market is one into which entry is absolutely free and exit is absolutely costless p 3 certainly this is the most reasonable interpretation of a situation where potential entrants feel free to disregard an incumbent s price response suppose every potential and actual producer has access to the same technology in a perfectly contestable market there are no set up or shut down losses the main result is that even with declining average costs of production the incumbent firm does not dare to post a price higher than average cost price above cost invites being undercut by a hit and run shadow entrant capable of producing at the same flow rate and at identical unit cost during just the briefest instant of time i argue that this line of reasoning is misleading perfect contestability gets around the problem of increasing returns only by in effect assuming it away a hit and run technology makes the firm behave as if it is competitive in a market precisely because the convexity preconditions for competition are de facto being met in that market this comment shows that strictly speaking there is no such thing as a pure fixed cost unless there are sunk costs located somewhere in the relevant production technology all costs are variable as a matter of formal theory you cannot have a range of decreasing average cost without sunk costs presumably there is also an approximation theorem which states that when sunk costs are close to being negligible then average production costs are practically nondecreasing perfect contestability holds approximately in a market only to the extent that production costs for the market are approximately nondecreasing my discussion will be restricted to the familiar case of a single well defined homogeneous fully divisible commodity while more general approaches are possible for the sake of simplicity the following definition is used the average cost function a c y t describes say the minimum cost per unit of output produced at a uniform flow rate y throughout the time interval 0 t especially in applications to industrial organization theory it is essential to remember that cost functions are not generally timeless and that writing ac as a function of y alone can be dangerously vague behind the free entry and exit of a hitand run technology in a perfectly contestable market is the abstraction of no sunk costs investments are fully reversible because nothing is lost in setting up or shutting down production

contestability vs competition once more baumol willig and other advocates of contestability theory continue to urge the idea not only for its insights but also as a clear basis for many antitrust and regulatory decisions yet the limits of the theory remain the three key assumptions are extremely strict and two of them are in mutual conflict the theory is not robust to imperfections in order to displace effective competition with contestability baumol must adopt a sequence of implausible propositions which unfortunately have little analytical or empirical basis

on the robustness of contestability theory abstract the robustness of contestability theory is discussed with special attention to the role of price response lags the possibility of collusion in the post entry game is examined by modeling an infinitely repeated game moreover the hit and run strategy is obtained as the unique subgame perfect equilibrium of a repeated game with infinite horizon under certain conditions

step away from the zero lower bound small open economies in a world of secular stagnation abstract we study how small open economies can escape from deflation and unemployment in a situation where the world economy is permanently depressed building on the framework of eggertsson et al 2016 we show that the transition to full employment and at target inflation requires real and nominal depreciation of the exchange rate however because of adverse income and valuation effects from real depreciation the escape has a beggar thy self effect that may end up lowering welfare while eliminating underemployment we show that as long as the economy remains financially open domestic asset supply policies or reducing the effective lower bound on policy rates may be ineffective or even counterproductive however closing domestic capital markets does not necessarily enhance the monetary authorities ability to rescue the economy from stagnation

an empirical test of spatial competition in the audit market abstract this study empirically examines the effects of competition through differentiation on audit pricing based on prior economic theory on differentiated product markets e g hotelling 1929 tirole 1988 we hypothesize that audit fees are affected by an auditor s relative location in a market segment we define audit markets per industry segment and u s metropolitan statistical area and specify an auditor s industry location relative to the client auditor client industry alignment and relative to the closest competitor industry market share distance to closest competitor we find that audit fees increase in both auditor client industry alignment and industry market share distance to the closest competitor

an empirical analysis of acting white abstract using a newly available data set which allows one to construct a novel measure of a student s social status we demonstrate that there are potentially important racial differences in the relationship between social status and academic achievement the effect is concentrated among students with a grade point average gpa of 3 5 or higher and more pronounced in schools with more interracial contact earlier studies showing a positive relationship between popularity and academic achievement for blacks are sensitive to the inclusion of more continuous achievement measures we argue that the data are most consistent with a model of acting white in which investments in education are taken as a signal of one s opportunity costs of peer group loyalty though imprecise estimates make definitive conclusions difficult

contestability reconsidered the meaning of market exit costs abstract this paper analyses the main result of the contestable market approach namely that potential competition reaches its maximum power if market entry and exit is costless and newcomers can use the hit and run strategy different time lag structures are considered average cost pricing turns out to be no equilibrium if there are no market exit costs furthermore exit costs don t necessarily create a barrier to entry but may even strengthen the discipline arising from the threat of entry

entry and price dynamics in a perfect foresight model abstract this paper studies firms entry and price dynamics in a model that combines the assumptions of free entry and perfect foresight with the hypothesis of consumer s loyalty postulated by phelps and winter the analysis of the transition to long run equilibrium reveals that in such a model the entry of firms is related to the difference between current prices and costs in relation to the growth of the firms output it is shown that the model is consistent with gibrat s law finally it is shown that the size distribution of firms approaches asymptotically a pareto distribution

a simple model of educational standards the author models standards for educational credentials such as high school diplomas standard setters maximize their conception of social welfare knowing that utility maximizing students choose whether to meet the standard the author shows that more egalitarian policymakers set lower standards the median voter would prefer higher standards under symmetric distributions and decentralization lowers standards among identical communities optimal standards do not necessarily fall with increased student preference for leisure deterioration of nonstudent inputs to education or increased student heterogeneity superseding binary credentials by perfect information increases average achievement and social welfare for plausible degrees of heterogeneity egalitarianism and pooling under decentralization

pecuniary externalities in economies with downward wage rigidity abstract a pecuniary externality in economies with downward nominal wage rigidity leads firms to hire too many workers in expansions which leads to too much unemployment in recessions when firms hire more workers firms fail to internalize that competition for workers between firms pushes up the aggregate wage which imposes a negative externality over other firms the externality can be resolved by a macroprudential tax on labor in expansions in the calibrated model the tax reduces the welfare cost of downward nominal wage rigidity by up to 90 as it makes the economy significantly less exposed to unemployment crises

the persistence of monopoly an investigation of the effectiveness of the united kingdom monopolies commission a sample of twenty eight markets investigated by the uk monopolies and mergers commission is taken and market share changes are analysed for subsequent erosion of dominance the evidence points to a modest erosion for leading firms but only rarely to a loss of leadership although there is no significant difference between the rates of decline for leading firms in the mmc sample and a control group the achievement of some erosion of dominance in markets where entry barriers were reduced may represent some limited success for competition policy