control rights in complex partnerships this paper develops a theory of the allocation of authority between two players who are in a complex partnership that is a partnership which produces impure public goods we show that the optimal allocation depends on technological factors the parties valuations of the goods produced and the degree of impurity of these goods when the degree of impurity is large control rights should be given to the main investor irrespective of preference considerations there are some situations in which this allocation is optimal even if the degree of impurity is very low as long as one party s investment is more important than the other party s if the parties investments are of similar importance and the degree of impurity is large shared authority is optimal with a greater share going to the low valuation party if the importance of the parties investments is similar but the degree of impurity is neither large nor small the low valuation party should receive sole authority we analyze an extension in which side payments are infeasible we check for robustness of our results in several dimensions such as allowing for multiple parties or for joint authority and apply our results to interpret a number of complex partnerships including those involving schools and child custody jel d02 o23 h41 l31

environmental policy intra industry trade and transfrontier pollution the paper discusses effects of domestic environmental policy on foreignemissions and on transboundary pollution we use a dixit stiglitz typemodel of monopolistic competition with an endogenous number of firms production generates environmental externalities which spill over to theother country it is shown that environmental policy has an impact onmarket structure at home and abroad these market structure effectsinduce changes in emissions abroad in contrast to what has been derivedin earlier contributions it turns out to be possible that tighterenvironmental standards at home lead to less emissions abroad the paperderives these results and provides the economic intuition behind them finally conditions for optimal environmental policies are derived

effluent regulation and long run optimality a regulator faced with free entry of firms is concerned not only with the implications of public policy for the discharges from a representative firm but also with the total pollution observed at the long run market equilibrium the regulator must take into account not only the effects of regulations upon the net marginal returns of the firm but must also consider the total profit of the firm and incentives for entry and exit this paper shows that effluent charges and tradeable effluent permits lead to long run optimality with entry of small firms the difference between firm payments and environmental damages is interpreted as the rent accruing to the environmental resource this result applies only to the competitive case with small polluters the analysis presented here allows a comparison and clarification of the literature on small and large polluters in a multi input framework with social damages dependent upon total effluents effluent charges are shown here to result in socially optimal entry confirming an assertion of baumol and oates 2 p 179 fn 161 and the important result of schulze and d arge 15 by taking average as well as marginal damages into account the effluent charge results in optimal firm scale levels and the correct input mix at the free entry market equilibrium the firm subject to an effluent tax will operate above or below the private minimum efficient scale depending upon whether average external costs exceed or are less than marginal external costs since public policy to reduce effluents is often directed at reducing the effluentgenerating activity some policy recommendations include a tax on the final output of the polluting firm in some theoretical analyses a relation between the output of the firm and the effluent level is identified and a pigouvian output tax is applied this approach should not be followed by policymakers since an output tax does not provide firms with the correct incentives for either input substitution or market entry it is shown that while a lump sum transfer is needed to provide correct entry incentives when a pigouvian output tax is applied no such transfer is needed if the tax is correctly applied to effluents contrary to 5 even if optimal firm scale and i thank the referees for helpful suggestions the support of the national science foundation under grant ses 82 19121 is gratefully acknowledged any errors are my responsibility 103

resource and waste taxation in the theory of the firm with recycling activities the management of solid waste has become an urgent problem in nations with a great population density accordingly waste reduction through source reduction and recycling has become increasingly important our purpose is to show how prevention recycling and disposal of waste could be part of a theory of the firm we first derive efficient production functions from production processes with waste as a by product waste obtained as new scrap can partially be recycled by using additional inputs in order to cut back the purchase of virgin material waste not completely recyclable will leave the firm as disposal which also entails cost to the firm we use the dual cost function approach to develop a theory of the firm under solid residual management since the producer does not bear the full cost of disposal there will be a bias toward virgin materials and away from recycling the goal of the government is to stimulate the firms to recycle with respect to the preservation of exhaustible resources an incentive to recycle is a tax on resources or on waste in order to determine the tax levels the government maximizes welfare subject to the dynamic constraint for decumulation of land fill for waste deposits this gives the user cost and its time profile for taxing waste disposal or virgin material in a comparative statics analysis we compare the effect of taxes on waste vs virgin material on effort to produce in a resource saving manner on the quantity of recycled material on output and on the reduction of waste since the impact of environmental regulation on employment is important our model detects seven effects on labor demand as part of resource conservation policy we finally carry out a comparative statics analysis of waste intensive firms operating in different market structures of interest is the impact of a resource or waste taxation on market volume on the number of firms on resource saving effort and on profit

bargaining with imperfect enforcement the game theoretic bargaining literature insists on a noncooperative bargaining procedure but implicitly assumes cooperative implementation of agreements in reality courts cannot implement agreements costlessly and parties often prefer to use noncooperative implementation we present a bargaining model which incorporates the idea that agreements may be enforced noncooperatively we show that this has a substantial impact in limiting the inequality of agreements and results in a nonmonotonicity of the discount rate the model also explains why some parties may have incentives to deliberately write incomplete contracts as a way to enhance their bargaining power

coase theorem complexity and transaction costs this paper by introducing complexity considerations provides a dynamic foundation for the coase theorem and highlights the role of transaction costs in generating inefficient bargaining negotiation outcomes we show when the players have a preference for less complex strategies the coase theorem holds in negotiation models with repeated surplus and endogenous disagreement payoffs if and only if there are no transaction costs specifically complexity considerations select only efficient equilibria in these models without transaction costs while every equilibrium induces perpetual disagreement and inefficiency with transaction costs we also show the latter is true in the rubinstein bargaining model with transaction costs

renegotiation and symmetry in repeated games abstract the paper derives a theory of renegotiation proofness in symmetric repeated games based on a notion of equal bargaining power according to consistent bargaining equilibrium a player can mount a credible objection to a continuation equilibrium in which he receives a particular expected present discounted value if there are other self enforcing agreements that never give any player such a low continuation value after any history the definition does not imply strongly symmetric solutions but under modest assumptions consistent bargaining equilibria of infinitely repeated games with perfect monitoring are strongly symmetric such solutions have an unusually elementary characterization journal of economic literature classification numbers c7 c72

non convexities in the adjustment of different capital inputs a firm level investigation recent developments in investment research have highlighted the importance of non convexities and irreversibilities in firms adjustment of quasi fixed inputs aggregation across capital goods may smooth out the discontinuities associated with the adjustment of individual assets lack of suitable data is one of the reasons why empirical work has typically relied on the assumption of capital homogeneity in this paper we exploit a data set of 1539 italian firms which allows us to disaggregate capital into equipment and structures and purchases and sales of assets we construct measures of fundamental q to capture investment opportunities associated with each asset we uncover the pattern of dynamic adjustment by using non parametric techniques to relate each individual investment to its own fundamental q

tax adjusted q model with intangible assets theory and evidence from temporary investment tax incentives we propose a tax adjusted q model with physical and intangible assets and estimate the effect of bonus depreciation in the united states in the early 2000s we find that investment responds moderately to tax incentives but allowing for heterogeneity reveals that intangible intensive firms respond more than physical intensive firms and that this difference is accentuated among large firms accounting for intangible assets increases the estimated total investment response from 3 7 to 14 3 of aggregate investment in 2000 among the largest 500 firms our results suggest that understanding the behavior of large and intangible intensive firms matters for investment policy

another look at the linear q model an empirical analysis of aggregate business capital spending with maintenance expenditures the paper revisits the empirical investment literature which has established that aggregate business fixed investment is not found to be related linearly to marginal or average tobin s q the theoretical background is extended here by developing a supply side model where the depreciation rate of private capital is determined endogenously the firm can either invest in new capital which adds directly to the existing capital stock at the presence of convex adjustment costs or extend the durability of installed capital through maintenance expenditure which affects its depreciation rate the model shows that tobin s q is then a positively related sufficient statistic for both components of aggregate capital expenditures this central implication is tested empirically using aggregate time series survey data from canada on new investment and maintenance expenditures covering the period 1956 93 the estimated relationships produce significant and plausible parameter estimates for the structural parameters of the q model le texte examine la litterature empirique sur l investissement qui a etabli que le niveau d investissement agrege des entreprises en capital fixe n est pas relie de facon lineaire au coefficient moyen ou marginal q de tobin on enrichit l arriere plan theorique en developpant un modele d offre dans lequel le taux de depreciation du capital prive est determine de facon endogene l entreprise peut soit investir dans du capital nouveau ce qui ajoute directement au stock de capital existant soit allonger la vie du capital en place par des depenses de maintenance qui modifient le taux de depreciation le modele montre que le coefficient q de tobin est alors positivement relie aux deux composantes des depenses agregees en capital cette implication importante est mise au test empiriquement en utilisant les series chronologiques en provenance des enquetes de statistiques canada sur les nouveaux investissements et les depenses de maintenance pour la periode 1956 93 les relations estimees produisent des parametres plausibles et significatifs pour les parametres structurels du modele q

investment and time to plan and build a comparison of structures vs equipment in a panel of italian firms time to build models of investment expenditures play an important role in many traditional and modern theories of the business cycle especially for explaining the dynamic propagation of shocks we estimate the structural parameters of a time to build model using annual firm level investment data on equipment and structures for expenditures on equipment we find no evidence of time to build effects beyond one year for expenditures on structures by contrast there is clear evidence of such effects in the range of two to three years the contrast between equipment and structures is intuitively reasonable and consistent with previous results the estimates for structures also indicate that initial period expenditures are low and increase as projects near completion these results provide empirical support for including time to plan effects for investment in structures more generally these results suggest a potential source of specification error for q models of investment and production based asset pricing models that ignore the time required to plan build and install new capital jel d24 g31 c33 c34

induced technical change adjustment costs and environmental policy modelling in this paper i develop a neo schumpeterianmodel of induced technical change where firms polluters determine their effort in environment saving technical change two technological scenarios are distinguished depending on whether basic research is endogenous or exogenous building on this analytical setting i show that in the presence of non linear adjustment costs the choice of instruments of environmental policy should be tailored to the actual characteristics of the firms polluters technological environment moreover this analysis confirms that searching for efficient environmental policy mixes is more rewarding than focusing on single instruments notably pollution taxation

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

transaction costs and the property rights approach to the theory of the firm the standard property rights approach is focused on ex ante investment incentives while there are no transaction costs that might restrain ex post negotiations we explore the implications of such transaction costs prominent conclusions of the property rights theory may be overturned a party may have stronger investment incentives when a non investing party is the owner and joint ownership can be the uniquely optimal ownership structure intuitively an ownership structure that is unattractive in the standard model may now be desirable because it implies large gains from trade such that the parties are more inclined to incur the transaction costs

energy tax and competition in energy efficiency the case of consumer durables the purpose of this paper is to analyze the role of anenergy tax on technical improvements and on prices ofconsumer durables induced by strategic competition inenergy efficiency if the gasoline tax is raised thisdoes in principle not affect the producers of carsbecause the motorist pays for it in terms of a highercost of using the car this however affects the unitsales of car producers because of substitution towardsother modes of transportation a second element ofreaction to energy price variation is an indirect oneand relates to the effect of energy prices ontechnology competition forces car producers todevelop more energy efficient cars in order to reducethe cost of using a car this indirect effect canpartly offset the direct effect of higher energyprices on demand if it is profitable for theautomobile industry to engineer more energy efficientequipment we will analyze the impact of an energy taxon energy efficiency and on the price of a durablegood this will be done within the framework of aduopoly competing in prices and in the energyefficiency of its products the government chooses awelfare maximizing energy tax as an incentive toinnovate then we will analyze a strategic two stagedecision process in which the duopolists first decideabout energy efficiency and then compete in prices

extent and intensity of investment with multiple capital goods overall investment is the product of the number of capital goods for which triggering has occurred the extensive or reductive margin and the depth of investment per capital good intensive margin based on a longitudinal plant level data and using dynamic panel techniques we investigated the validity of the hypothesis that the intensity of investment increases as its extent increases our results indicate a strong linkage between the extent and intensity of investment decisions finding which holds both for positive and negative investment decisions this linkage suggests that the decision on how many capital types to initiate investment is closely connected to the decision regarding the depth of investment expenditures moreover the intensity extent derivative remains positive but its magnitude decreases with plant size providing indirect evidence for higher complementarity between capital types for smaller plants

taxes and subsidies for pollution intensive industries as trade policy abstract this paper constructs a model of international oligopoly with negative externalities in production in which optimal environmental policy responses to foreign emission tax and subsidy programs can be calculated it is shown that by granting subsidies for abatement efforts or for a heavily taxed polluting input domestic net welfare is improved by capturing a greater share of the world market since the subsidy programs are supposed to improve the quality of the global environment they can be justified on environmental grounds in addition we show that a pigouvion emission tax restores efficiency in natural resource allocation whereas subsidy programs are in principle used as instruments in imperfectly competitive international markets

capital heterogeneity does it matter fundamental q and investment on a panel of italian firms we study the determinants of firms investment decisions with heterogeneous capital goods we exploit a panel of small and medium sized firms which allows us to distinguish between purchases and sales of capital goods we consider separately equipment and structures and test the hypothesis of convex adjustment costs we extend the fundamental q approach to the case of two capital inputs the results show that the standard convex costs model performs well for equipment but not for structures we find evidence of nonconvex adjustment costs in the case of structures

financial markets and wages we study a labor market equilibrium model in which flrms sign optimal long term contracts with workers firms that are flnancially constrained ofier an increasing wage proflle they pay lower wages today in exchange of higher wages once they become unconstrained and operate at a larger scale in equilibrium constrained flrms are on average smaller and pay lower wages in this way the model generates a positive relation between flrm size and wages using data from the national longitudinal survey of youth nlsy we show that the key dynamic properties of the model are supported by the data jel classiflcation g31 j31 e24

the control of co2 emissions and its economic impact an age model for a german state since it is believed that co2 is responsible for 55 of the greenhouse effect a co2 levy is now under consideration in several countries for an assessment of the macroeconomic implications of an integrated energy and environmental policy we employ an applied general equilibrium model age since all sectors of an economy and all private households contribute to co2 emission our model is a temporary equilibrium model with capacity extension under adjustment costs and with abatement activities for so2 and nox emissions

environmental regulation cost and industry structure changes nonstationary markov analyses are used to investigate impacts of environmental regulatory costs associated with compliance on changes in market structure in pulp and paper industries results show environmental regulation expenditures have statistically significant effects on the probabilities of capacity moving to a larger company size category so industry structure is affected by environmental regulation however counter to expectations results further show consolidation occurs with higher probability when environmental costs are falling rather than when they are rising policy analyses that presume immediate policy responses to cost changes or that industry structure is unchanged may yield time inconsistent policy conclusions

costly bargaining and renegotiation we identify the inefficiencies that arise when negotiation between two parties takes place in the presence of transaction costs first for some values of these costs it is efficient to reach an agreement but the unique equilibrium outcome is one in which agreement is never reached secondly even when there are equilibria in which an agreement is reached we find that the model always has an equilibrium in which agreement is never reached as well as equilibria in which agreement is delayed for an arbitrary length of time finally the only way in which the parties can reach an agreement in equilibrium is by using inefficient punishments for some of the opponent s deviations we argue that this implies that when the parties are given the opportunity to renegotiate out of these inefficiencies the only equilibrium outcome which survives is the one in which agreement is never reached regardless of the value of the transaction costs

striking for a bargain between two completely informed agents this paper models the wage contract negotiation procedure between a union and a firm as a sequential bargaining process in which the union must decide in each period whether or not to strike for the duration of that period we show that there exist subgame perfect equilibria in which the union engages in several periods of strikes prior to reaching a final agreement although both parties are completely rational and fully informed this has implications for other inefficient phenomena such as tariff wars debt negotiations and wars in general we characterize the set of equilibria show that strikes can occur in real time and discuss extensions of the model such as lockouts and the possibility of multiple recontracting opportunities copyright 1991 by american economic association

the effect of emission taxes and abatement subsidies on market structure comment abstract conrad and wang 1993 international journal of industrial organization 11 499 518 determine that a tax on emissions decreases the total output of a polluting industry but if demand is sufficiently inelastic can increase the number of firms in that industry this follows from their proposition that the tax reduces the scale of the polluting firm in contrast the scale of the polluting firm in the present model increases when there are increasing returns to scale in abatement whereas conrad and wang extend their results to cases of monopolistic competition the present paper is confined to perfect competition but extends the analysis to the pollution damaged industry

investment decisions in manufacturing assessing the effects of real oil prices and their uncertainty summary we investigate the effects of real oil prices and their uncertainty on investment decisions making use of plant level data we estimate dynamic discrete choice models that allow modeling investment inaction under different assumptions related to initial conditions and unobserved heterogeneity we find that increases in real oil price changes and in real oil price uncertainty significantly reduce the likelihood of investment action in line with the predictions of irreversible investment theory we also document that investment decisions exhibit strong pure state dependence and are also significantly affected by initial conditions copyright 2012 john wiley sons ltd

estimating the euler equation for aggregate investment with endogenous capital depreciation this article looks at the empirical consequences of introducing endogenous capital depreciation in the standard neoclassical model with quadratic adjustment costs to this end we formulate an empirical specification that accommodates capital maintenance and utilization in the euler equations for aggregate investment the empirical estimates with data from the canadian survey on capital and repair expenditures show that in contrast to the existing literature the performance of the euler equations is improved when we account for the impact of variable capital depreciation

taxing incumbent monopoly to foster entry abstract this paper investigates whether it is welfare enhancing to tax the output of a monopoly in order to foster cost inefficient entry this question is of particular concern in the energy markets dominated by cartel like affiliations opec and oil russia s gas exports to europe and the interest and practice to stimulate the development of alternative fuels making the realistic assumption that none of the players can commit to future policies subsidies are not a viable strategy for the government a tax cannot be first best but can be second best if the government cannot force the incumbent monopoly to sell its output at no profit and if the incumbent s profit is discounted however stimulating supply by improving the conditions for entry is not the prime concern of taxation after all it lowers aggregate supplies and may even lower the entrant s supply but to accrue parts of the monopoly rent

deadline effects and inefficient delay in bargaining with endogenous commitment abstract bilateral sequential negotiators delay agreements until a deadline if a player that rejects an offer is subsequently committed not to accept any poorer proposal and if the common discount factor is close enough to one journal of economic literature classification numbers c7 c78 j52

the effect of emission taxes and abatement subsidies on market structure abstract emission taxes and abatement subsidies are considered to be efficient measures for environment protection the purpose of this paper is to quantify their effects on industry output firm output and on the number of firms in the industry three types of market structure are under discussion perfect competition oligopoly and a dominant firm with a competitive fringe it turns out that emission taxes and abatement subsidies affect the structure of the polluting industry in opposite ways while the effects on industry s emissions are similar in direction but different

endogenous games and mechanisms side payments among players we characterize the outcomes of games when players may make binding offers of strategy contingent side payments before the game is played this does not always lead to efficient outcomes despite complete information and costless contracting the characterizations are illustrated in a series of examples including voluntary contribution public good games cournot and bertrand oligopoly principal agent problems and commons games among others

restricted coasean bargaining we investigate the efficiency of coasean bargaining when restrictions are placed on the set of feasible bargaining outcomes when property rights are costly to defend appropriate we find bargaining restrictions may be pareto superior to unconstrainedvoluntary exchange under cost uncertainty over the harmful activity we show an efficient configuration of restrictions must balance the potential reduction in appropriation costs with the possibility of allocatively inefficient bargaining restrictions for an all pay auction we find conditions where precluding bargaining is always ex ante preferable to unrestricted bargaining for cases where the restrictions are contested we show conditions for the continuing existence of welfare improvements

production externalities and corrective subsidies a general equilibrium analysis abstract several recent attempts have been made to demonstrate that corrective subsidies and taxes do not have symmetric allocation effects these demonstrations have utilized graphical partial equilibrium analysis in this paper a general equilibrium model is introduced to show that a standard partial equilibrium result may be incorrect and that subsidies may lead to equilibrium states which are socially preferred to the status quo position

the inefficient use of power costly conflict with complete information recent work across a wide range of issues in political economy as well as in american comparative and international politics tries to explain the inefficient use of power revolutions civil wars high levels of public debt international conflict and costly policy insulation in terms of commitment problems this paper shows that a common mechanism is at work in a number of these diverse studies this common mechanism provides a more general formulation of a type of commitment problem that can arise in many different substantive settings the present analysis then formalizes this mechanism as an inefficiency condition that ensures that all of the equilibria of a stochastic game are inefficient this condition has a natural substantive interpretation large rapid changes in the actors relative power measured in terms of their minmax payoffs may cause inefficiency

does voluntary participation undermine the coase theorem abstract the coase theorem states that costless enforcement of voluntary agreements yields efficient outcomes we argue that previous treatments fail to recognize the full meaning of voluntary it requires a two stage game a non cooperative participation decision followed by coaseian bargaining only among those who choose to participate we illustrate this in a simple public goods model and find outcomes ranging from extremely inefficient to fully efficient however the efficient equilibrium is not robust to even very small transaction costs thus we cast doubt on coaseian claims of universal efficiency finally we outline a kind of coercion that restores efficiency

perfect equilibria in a negotiation model rubinstein s alternating offers bargaining model is enriched by assuming that players payoffs in disagreement periods are determined by a normal form game it is shown that such a model can have multiple perfect equilibria including inefficient ones provided that players are sufficiently patient delay is possible even though there is perfect information and the players are fully rational the length of delay depends only on the payoff structure of the disagreement game and not on the discount factor not all feasible and individually rational payoffs of the disagreement game can be supported as average disagreement payoffs indeed some negotiation games have a unique perfect equilibrium with immediate agreement