fixed price equilibria in a multifirm model abstract in a simple temperary equilibrium model with three commodities labour goods and money and two sectors there are different firms each having its own production function there now exist four types of fixed price equilibria keynesian classical repressed inflation undercounsumption in the last type consumers are not rationed some producers are rationed on the goods market and other producers on the labour market there exist three different aggregate production functions that have to be applied in keynesian classical and repressed inflation situations respectively for the fourth case no aggregate production function exists

externality correcting taxes and regulation externality correcting taxes and regulation in much of the literature on externalities taxes and direct regulation have been considered as alternative policy instruments both instruments might be imperfect in practice reflecting informational deficiencies and other limitations we analyse the use of taxes and regulation in combination to control externalities arising from individual consumption behaviour we consider the cases either where taxes are imperfectly differentiated to reflect individual differences in externalities or where some consumption escapes taxation in both cases we characterize the optimal instrument mix and we show how changing the level of direct regulation alters the optimal externality tax

two faces effects of business groups on innovation in emerging economies this paper shows that business groups in emerging economies exert dual effects on innovation while groups facilitate innovation by providing institutional infrastructure groups also discourage innovation by creating entry barriers for nongroup firms and thereby inhibit the proliferation of new ideas this pattern reflects an evolutionary process in which the interplay of the availability of innovation infrastructure and variety of ideas influences the level of innovation in an industry we show that group market share has an inverted u impact on innovation in industrial sectors of both korea and taiwan during the 1981 1995 period institutional differences between korea and taiwan in terms of market structure and industrial policies lead to different innovation thresholds the point at which the marginal costs of increasing group share begin to dominate the marginal benefits in the two countries

regional competitive advantage based on pioneering economic reforms the case of chilean fdi foreign affiliates of chilean companies operating in latin america were more profitable than similar local firms but this difference in profitability has been decreasing over time two case studies of chilean multinationals illustrate our hypothesis that one source of competitive advantage for chilean firms was their know how of business strategy during economic liberalization using empirical and theoretical considerations we analyze whether this hypothesis is valid for other firms and industries

tax incidence when individuals are time inconsistent the case of cigarette excise taxes abstract one of the most cogent criticisms of excise taxes is their regressivity with lower income groups spending a much larger share of their income on goods such as cigarettes than do higher income groups we argue that traditional quantity based measures of incidence are only appropriate under a very restrictive time consistent model of consumption of sin goods a model that is much more consistent with existing evidence on smoking decisions is a time inconsistent formulation where excise taxes on cigarettes serve a self control function that is valued by smokers who would like to quit but cannot this self control function benefits lower income groups more since they have a significantly higher price sensitivity of smoking calibrations show that as a result cigarette taxes are much less regressive than previously assumed and are even progressive for a wide variety of parameter values

real investment options with multiple sources of rare events abstract we value real investment options when the underlying asset follows a mixed jump diffusion process involving various types sources of rare events jumps these jumps are assumed independent of each other with each type having a log normally distributed jump size and a random poisson distributed arrival time they may represent uncertainties about the arrival and impact on the underlying investment of new information concerning technological innovation competition political risk regulatory effects and other sources an analytic solution is presented for european claims call or put options with multiple sources of jumps a discrete time markov chain methodology implemented within a finite difference scheme is proposed for the valuation of american as well as european options the approach is also applicable to financial options with multiple types of rare events the approach is illustrated through valuing complex real options with compound features involving interactions between optimal investment and subsequent operating decisions specifically we value a growth option and an extension option

taxing and regulating vices we study the optimal taxation and regulation of sin goods goods that are enjoyable to consume but also create future negative health consequences within a setting in which individuals are time inconsistent and thus consume too much regulation makes the consumption of sin goods less pleasurable and taxation involves administrative and compliance costs in contrast to previous literature we find that regulation can be beneficial even when corrective taxes are available and individuals are homogeneous moreover despite the inefficiencies associated with the use of both instruments the consumption of the sin good might fall short of the first best the results are robust to consumers heterogeneity

corrective taxation versus liability as a solution to the problem of harmful externalities abstractalthough the corrective tax has long been viewed by economists as a desirable remedy for the problem of harmful externalities its actual use has been limited mainly to the domain of pollution liability in contrast has great importance in controlling harmful externalities i compare the tax and liability in theory and suggest that the conclusions help explain the observed predominance of liability over taxation except in the area of pollution the following factors are emphasized inefficiency of incentives under taxes when the state cannot practically take into account all variables that significantly affect expected harm efficiency of incentives under strict liability which requires only that actual harms be measured efficiency of incentives under the negligence rule administrative cost advantages of liability deriving from its being applied only when harm occurs and dilution of incentives under liability when suit is unlikely or injurers cannot pay fully for harm

a tale of two economies economic restructuring in post socialist poland abstract this paper examines poland s post socialist economic transformation at the industry level cluster analysis is used to group sectors which have experienced similar patterns of transformation the analysis identifies two distinct patterns in one group sector restructuring has been accomplished largely through firm turnover the economic incentives established with the 1990 big bang reforms have been sufficient to promote restructuring in this group in a second group restructuring has lagged industry restructuring has been held back by slow progress in restructuring large state owned enterprises several explanations for this dichotomy and the implications for reform are discussed

tax policy and present biased preferences paternalism under international capital mobility this paper deals with tax policy responses to quasi hyperbolic discounting earlier research on optimal paternalism typically abstracts from capital mobility if capital is mobile between countries it may no longer be possible for national governments to control domestic savings via capital taxation as in a closed economy in this paper we take a broad perspective on public policy responses to self control problems by showing how these responses vary i between closed and open economies ii between small open and large open economies and iii depending on whether or not both source based and residence based capital taxes can be used

does britain or the united states have the right gasoline tax this paper develops an analytical framework to assess the second best optimal level of gasoline taxation taking into account unpriced pollution congestion and accident externalities as well as interactions with the broader fiscal system we provide calculations of the optimal taxes for the us and the uk under a variety of parameter scenarios under our central parameter values the second best optimal gasoline tax is 1 01 gal for the us and 1 34 gal for the uk current tax rates are much lower than this in the us and higher in the uk the calculations are moderately sensitive to alternative parameter assumptions the congestion externality is the largest component in both nations revenue raising needs also play a significant role as do accident externalities and local air pollution potential welfare gains from reducing the current uk tax rate are estimated at nearly one fourth the production cost of all gasoline used in the uk even larger gains could be achieved by switching to a tax on vehicle miles with equal revenue yield for the us the welfare gains from optimizing the gasoline tax are smaller but those from switching to an optimal tax on vehicle miles are very large

supply constrained equilibria in economies with indexed prices abstract in an exchange economy prices are rigid and the prices are restricted by index functions the indexes can be of a general type and can be different for each commodity indexed prices can appear in other indexes also considered are restrictions in terms of a general price index existence of a dreze equilibrium and particularly a supply constrained dreze equilibrium is proved the system of indexes must be solvable in terms of unconstrained prices and for the unconstrained commodities a monotonicity condition must hold

optimal sin taxes abstract we investigate sin taxes on unhealthy items such as fatty foods that people may by their own reckoning consume too much of we employ a standard optimal taxation framework but replace the standard assumption that all consumers have 100 self control with an assumption that some consumers may have some degree of self control problems we show that imposing taxes on unhealthy items and returning the proceeds to consumers can generally improve total social surplus because such taxes counteract over consumption by consumers with self control problems while at the same time they naturally redistribute income to consumers with no self control problems who consume less such taxes can even create pareto improvements finally we demonstrate with some simple numerical examples that even if the population exhibits relatively few self control problems optimal taxes can still be large

competitive shocks and industrial structure the case of polish manufacturing abstract a large number of countries have recently experienced competitive shocks sudden increases in the role that market forces play in determining the evolution of various industries in this paper we study the implications of poland s competitive shock for three elements of the structure of that country s manufacturing sector entry concentration and foreign presence our analysis underlines the importance of explicitly identifying the specific distortions built into initial pre shock industrial structure and lags in their adjustment to more competitive conditions

responses to electricity liberalization the regional strategy of a chilean generator abstract chilean reformers joined the new trend toward liberalization of the electricity markets around 1980 12 years before any other latin american country this paper summarizes the main characteristics of the electricity reforms in chile and other latin american countries it then analyzes the strategic response by the electricity generating company endesa de chile to these reforms endesa completely reformulated its competitive strategy its most significant commitments were its investments across latin america in privatized power plants in argentina peru colombia and brazil endesa based its internationalization on its chilean experience in transforming an inefficient state owned firm and operating it in the new electrical regulatory framework favorable to market competition the company s competitive advantage originated to a great extent in that chile was the first country in latin america to reform its electrical sector

existence of dreze equilibrium under set up costs abstract a fixed number of firms operate under technologies which are described as the union of the origin and a compact convex set disjoint from the origin increasing returns thus prevail over some range it is shown that a zero trade parametric price quantity constrained dreze equilibrium exists at all prices and non trivial equilibrium will exist at some prices if in particular the consumer side of the economy is replicated sufficiently following recent work by weddepohl the objective is to provide a logically consistent and useful tool for the analysis of increasing return economies

institutions transaction costs and entry mode choice in eastern europe the process of change from a centrally planned system to a market economy generates an institutional framework that is only partially reformed and therefore inconsistent and unstable this leads to high transaction costs for economic agents multinational enterprises entering transition countries have to adapt their strategies to the local institutions and reduce exposure to highly imperfect markets this paper analyzes how the costs of organizing business in transition environments influence entry mode choice the empirical results show that host country institutions in transition economies have an impact on the choice of entry modes moreover different mechanisms determine the internalization of managerial and technological knowledge

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

corrective taxation versus liability have been emphasized as a means of control of activities that generate harm especially in the domain of pollution yet their use is in fact lim ited robert n stavins 2003 in contrast liabil ity has great importance in reducing harm much of the vast terrain of accidents from oil spills to crane mishaps to car collisions is subject to liability but not to taxation i here compare cor rective taxation to liability in two versions of a model with a view toward shedding light on the difference in their application 1 in the first version the danger from an injurer s activity depends on factors that vary among injurers for example the probabil ity and seriousness of an oil spill due to an oil tanker accident will depend on the strength of the tanker s hull and the vulnerability of fishing activity and tourism to a spill and the expected harm from a crane accident will depend on char acteristics of the crane and the exposure to risk of nearby buildings and passersby i assume that it is impractical for the tax to be based on many such variables and for simplicity that the tax is a function only of an injurer s level of activity amount of oil transported number of uses of a crane hence the tax will not induce injurers to choose their levels of activity optimally under liability an injurer who is sued is pre sumed to pay for the harm that occurs 2 thus if suit for harm were always brought an injurer s expected liability would equal expected harm so that injurers would choose optimal levels of activity further this would occur without the state s needing information about the danger of activities to impose liability requires only that the state determine the harm that eventuates the state need not gauge the risk of an oil spill it need only measure the harm from a spill that occurs however it is assumed that suit is not always brought for harm may be hard to trace to its author and it may be too low to make suit worthwhile consequently expected liability will be less than expected harm3 and levels of activity will be excessive it follows that an assessment of the tax versus liability depends on a comparison of the ineffi ciency of the tax caused by variation in the dan ger of activities with the inefficiency of liability caused by escape from suit joint use of taxation and liability is also considered it is shown that liability should be imposed to the complete extent injurers who are sued should pay for the entire harm but under a general condition the tax should be less than expected harm in essence liability should be employed fully because it creates a more effi cient incentive than taxation the tax should be