coordination incentives and the ratchet effect a concept of coordination costs is incorporated into a nonlinear variant of the model studied by freixas guesnerie and tirole 1985 on the dynamic regulation of a firm with adverse selection and no commitment the ratchet effect greater coordination costs give rise to two opposing effects first the value to the center of obtaining information increases since this information can be used to eliminate coordination costs second due to the nature of incentive compatibility constraints the costs of inducing revelation also increase it is shown that the second effect always dominates greater coordination requirements increase the relative social costs of inducing separation revelation as opposed to pooling over and above any additional value of information to the center a possible application of this theory to the experience of the soviet economy is discussed

spatial aspects of retail market structure beef pricing revisited abstract spatial retail markets with multiplant firms and conjectural variations are analyzed in this paper in this context the interplay between commuting characteristics and concentration is discussed leading to an empirical test for the effect of those variables on retail beef prices commuting characteristics are found to have a significant effect on prices this suggests that a significant concentration price relationship might emerge if retail markets were defined in the narrow way that the spatial retail model suggests that they should be

temporary wholesale gasoline price spikes have long lasting retail effects the aftermath of hurricane rita abstract i study u s gasoline prices following hurricane rita to show that short lived geographical differences in the severity of wholesale gasoline price spikes are associated with long lasting geographical differences in retail prices in most u s cities wholesale prices spiked significantly for roughly 2 weeks following the hurricane however in cities where this spike was particularly large retail margins remained higher than in other cities for nearly 2 months high retail margins dissipated more quickly after the hurricane in cities where competition between stations tends to generate cyclical retail price fluctuations independent of wholesale cost movements i discuss why prices may have fallen faster in cities exhibiting retail price cycles and present additional results identifying differences in market characteristics between cities with and without price cycles i find that cycling cities tend to have higher population density and have independent nonrefinery brand stations that are mor

oligopolistic markets with sequential search and production cost uncertainty this article analyzes a sequential search model where firms face identical but stochastic production costs the realizations of which are unknown to consumers we characterize a perfect bayesian equilibrium satisfying a reservation price property and provide a sufficient condition for such an equilibrium to exist we show that i firms set on average higher prices and make larger profits compared to the scenario where consumers observe production costs ii expected prices and consumer welfare can be non monotonic in the number of firms and iii the impact of production cost uncertainty vanishes as the number of firms becomes very large

price asymmetry in the dutch retail gasoline market abstract this article analyses the retail price adjustments in the dutch gasoline market we estimate an asymmetric error correction model on weekly price changes for the years 1996 2001 we construct five datasets one for each working day the conclusions on asymmetric pricing are shown to differ over these datasets suggesting that the choice of the day for which the prices are observed matters more than commonly believed in our view the insufficient robustness of the outcomes might explain the mixed conclusions found in the literature using these two approaches we also show that the effect of asymmetry on the dutch consumer costs is negligible

reform of the coal sector in an open economy the case of china cheap abundant and easy to transport and store coal has been produced and consumed to meet people s energy needs the last decade s growth in global coal use has been driven mainly by developing economies like china whose phenomenal economic growth has been powered by coal fired electricity and promoted by the export of manufactured goods a recent reform focus in china s coal sector is on coal taxation the paper develops a game theoretic model tailored to the context of china where coal taxation reform takes place against the background of privatisation of coal firms and an open economy it finds that the adoption of special coal taxes is optimal for social welfare under most circumstances but may induce coal firms to commit opportunistic behaviour in the process of privatisation the paper also cautions about potential resistance to the reform from consumers coal firms and government officials

the ratchet tautness and managerial behavior in soviet type economies suppose a manager receives a fixed bonus for reaching a target plus an overfulfillment reward each period the target is fixed by the manager s superiors in a manner that takes into account past performance this is the ratchet managers facing this incentive scheme will choose an activity level which takes into account the dynamic effects of current behavior on future earnings the conventional wisdom contends that managers will understate capacity by producing below maximum potential we show that this behavior occurs only under certain conditions more importantly we also show that the ratchet can be used to induce managers to reveal the growth rate of average capacity

the behaviour of state firms in eastern europe pre privatisation in this paper we explore the behaviour of state firms pre privatisation the incentives and the constraints facing managers and the nature and the power of the coalitions within the firms we show that managers on low incentive payment schemes with little formal stake in privatisation and who face possible redundancy have little incentive to embark on restructuring hardened budget constraints career concerns and potential stakes in the privatised firm however may strengthen managerial incentives to restructure we then introduce an influence function which captures how the distribution of winners and losers within the firm and size of their loss and gain affects the probability of restructuring the function illustrates how strong opposition coming from large concentrated losses is likely to dominate diffuse support from small widely distributed gains government measures such as hardening budget constraints financing of severance payments and selective debt writedowns affect the distribution of gainers and losers and may be used to overcome blocking coalitions and increase support for restructuring examination of a range of enterprise case studies vindicates our hypothesis that the structure of control and production strongly affect incentives to restructure centralised management structures the presence of non performing units and a functional division of activities have all acted as serious constraints on the unbundling restructuring process whilst the removal of state subsidies has been critical in forcing firms to rationalise production and unbundle activities

the price concentration relationship in banking the commonly observed positive correlation between market concentration and profitability may be explained by noncompetitive pricing behavior as argued by the structure performance hypothesis or by the greater efficiency of firms with dominant market shares as argued by the efficient structure hypothesis by examining the price concentration relationship instead of the profit concentration relationship this paper tests the structure performance hypothesis in a manner that excludes the efficient structure hypothesis as an alternative explanation of the results the results strongly support the structure performance hypothesis and are robust with respect to model specification measurement of concentration and econometric technique copyright 1989 by mit press

modelling price dispersion as an outcome of competition in the irish grocery market the paper empirically models price dispersion between related brands within product categories of the irish independent grocery market retail brand prices are averaged over the independent shops stocking the brand since individual brands are retailed through different groups of shops brands are priced over heterogeneous consumer segments brand price dispersion is estimated to increase with competition when conditioned on brand distribution structures while controlling for other observed and unobserved deterministic factors the data suggest that brand pricing across consumer groups induce varying degrees of localised price competition rather than pricing across segments to extract consumer willingness to pay

competition and the ratchet effect in labor markets the ratchet effect refers to a situation where workers subject to performance pay choose to restrict their output because they rationally anticipate that firms will respond to higher output levels by raising output requirements or by cutting pay we model this effect as a multiperiod principal agent problem with hidden information and study its robustness to labor market competition both theoretically and experimentally consistent with our theoretical model we observe substantial ratchet effects in the absence of competition which are nearly eliminated when competition is introduced this is true regardless of whether market conditions favor firms or workers

a political economy approach to the neoclassical gradualist model of transition a political economy approach to the neoclassical gradualist model of transition requires the exposition of what i define the primary elements of the model which are economic analysis definition of a good society speed political structure ideological structure and whether the initial conditions were incorporated in the model after the identification of the primary elements of the neoclassical gradualist model the next step is to identify secondary elements the desired changes with respect to price liberalization stabilization privatization institutional structure monetary policy and the financial system fiscal policy international trade and foreign aid and social policy the analytical framework developed makes possible to understand the neoclassical gradualist model from a new and more enlightening perspective we are better able to comprehend the complexities involved and the disagreements about the reform process the adoption of a gradual process of transition did not only involve specifying the required policies of a successful transition but also entailed a process a sequence by which the reforms should be introduced as such a process of transition consistent with the policies recommended by the neoclassical gradualists economists is developed the conclusion reveals the inconsistencies in the model copyright blackwell publishers ltd 2005

did the airline tariff publishing case reduce collusion abstractin december 1992 the u s department of justice filed suit against eight major domestic airlines and the airline tariff publishing atp company in order to reduce opportunities for collusion in the industry the lawsuit ended with consent decrees limiting the ability of airlines to communicate surreptitiously through the shared fare database this paper measures the effects of the litigation and its settlement on industry performance comparing changes in outcomes between market segments that were more and less likely to be affected by the atp case prices fell in response to the investigation but increased following the settlement while the number of tickets sold in affected markets declined the importance of multimarket contact also declined and then recovered the atp case had at best a temporary effect on airline collusion

managerial career concerns privatization and restructuring in transition economies abstract we set up a dynamic adverse selection model to explain how career concerns may induce managers in state owned enterprises soes to restructure their firms it is shown how government monopsony power over managers led to the ratchet effect under a socialist economy even under reforms coming short of privatization the introduction of a managerial labour market through privatization introduces competition for managers and eliminates the ratchet effect thereby inducing managers to restructure the model is consistent with the empirical evidence of soes restructuring in transition economies

making sense of nonbinding retail price recommendations we model retail price recommendations rprs as a communication device in vertical supply relations with private manufacturer information on production costs and consumer demand with static trade rprs are irrelevant and the equilibrium outcome is inefficient with repeated trade rprs can become part of a relational contract communicating private information from manufacturer to retailer that is indispensable for maximizing joint surplus we show that this contract is self enforcing if the retailer s profit is independent of production costs and punishment strategies are chosen appropriately the predictions of our analysis are consistent with the available empirical evidence

do msrps decrease prices abstract the nature of manufacturer s suggested retail prices msrps and whether they increase or decrease prices is poorly understood we exploit a policy experiment in which a ban on msrps was imposed and then lifted a year later and show that msrps decrease prices by 3 6 percent on average there is no indication that msrps lowered prices by acting as binding price ceilings instead we find suggestive evidence that msrps are aimed at consumers possibly providing a benchmark by which consumers can evaluate prices

after the honeymoon on the economics and the politics of economic transformation this paper focuses on the obvious pareto improving programmes may fail to improve everyone s lot politically it has often been interpreted as a requirement that a majority should benefit from the change events in central and eastern europe suggest otherwise and cast doubt on the relevance of the median voter theorem the addition of minority discontents may result in major political difficulties that lead governments to avoid actions that generate strong minority objections as a result the technically best crafted plans may be rejected for political reasons in addition reform programmes which are ex ante politically acceptable may well become rejected ex post after they are implemented one solution is to introduce a heavy dose of egalitarian income distribution even if it runs against labour supply incentives this abstract was borrowed from another version of this item

after the big bang obstacles to the emergence of the rule of law in post communist societies when russia launched mass privatization it was widely believed that it would create a powerful constituency for the rule of law that didn t happen we present a dynamic equilibrium model of the political demand for the rule of law and show that beneficiaries of mass privatization may fail to demand the rule of law even if it is the pareto efficient rule of the game the reason is that uncertainty about the legal regime can lead to asset stripping and stripping can give agents an interest in prolonging the absence of the rule of law this abstract was borrowed from another version of this item

democracy market liberalization and political preferences abstract we estimate the impact of market development and democratization on subjective political preferences we rely on the specific situation of frontier zones and the considerable regional variations in culture and economic development in the countries of the former socialist bloc for identification using a survey conducted in 2006 we find a positive and significant effect of democracy on support for a market economy but no effect of market liberalization on support for democracy hence in contrast with the conventional wisdom concerning the sequencing of political and economic reforms democratization may become a necessary condition to obtain public support for further economic liberalization

the financial and operating performance of newly privatized firms an international empirical analysis this study compares the pre and postprivatization financial and operating performance of 61 companies from 18 countries and 32 industries that experience full or partial privatization through public share offerings during the period 1961 to 1990 our results document strong performance improvements achieved surprisingly without sacrificing employment security specifically after being privatized firms increase real sales become more profitable increase their capital investment spending improve their operating efficiency and increase their work forces furthermore these companies significantly lower their debt levels and increase dividend payout finally we document significant changes in the size and composition of corporate boards of directors after privatization the last fifteen years have witnessed a significant global shift away from state socialism towards entrepreneurial capitalism one of the most important and visible aspects of this trend has been the enthusiasm with which governments of all political persuasions have sold their state owned enterprises soes to private investors in hopes that the generally unsatisfactory economic performance of these firms can be improved by the discipline of private ownership this denationalization process given its current title of privatization by the conservative government of margaret thatcher in

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

government assisted oligopoly coordination a concrete case in 1993 the danish antitrust authority decided to gather and publish firm specific transactions prices for two grades of ready mixed concrete in three regions of denmark following initial publication average prices of reported grades increased by 15 20 percent within one year we investigate whether this was due to a business upturn and or capacity constraints but argue that these seem to have little explanatory power we conclude that a better explanation is that publication of prices allowed firms to reduce the intensity of oligopoly price competition and hence led to increased prices contrary to the aim of the authority

job transfers and incentives in complex organizations thwarting the ratchet effect many complex organizations such as planned soviet enterprises and the u s military routinely transfer employees between jobs since this sacrifices job specific human capital the practice is puzzling this article shows that regular job transfers may be part of an optimal incentive scheme in organizations plagued by the ratchet effect the ratchet effect arises when an employer is uncertain as to the productivity of the various positions or jobs within an organization workers in highly productive jobs then have an incentive to disguise the productivity of their jobs by expending low effort and producing low output this avoids having the employer construct more demanding remuneration schemes once the high productivity of a job becomes known job transfers break the link between current performance and future incentive schemes and hence remove the incentive stifling implications of the ratchet effect this article examines the tradeoff between providing more effective incentives via job transfers and the accompanying sacrifice of job specific human capital establishes conditions under which job transfers are optimal and develops comparative static results

dynamic pricing in retail gasoline markets supergame models of tacit collusion show that supportable price cost margins increase with expected future collusive profits ceteris paribus as a result collusive margins will be larger when demand is expected to increase or marginal costs are expected to decline using panel data on sales volume and gasoline prices in 43 cities over 72 months we find behavior consistent with tacit collusion in retail gasoline markets controlling for current demand and cost current margins increase with expected next month demand and decrease with expected next month cost the results are not consistent with intertemporal l inkages due to inventory behavior or customer loyalty

the effect of local competition on admission prices in the u s motion picture exhibition market abstract this paper provides empirical evidence on the relationship between local market structure and the prices charged to consumers in the u s motion picture exhibition market i find that there is a statistically significant relationship between the geographic distribution of movie theaters in a market and the admission prices that they are able to charge however the magnitude of the price reducing effect of local competition appears to be economically modest moreover i find no evidence that increases in geographic concentration lead to increased adult admission prices the findings are directly relevant to merger policy in the industry and pertinent because of the dramatic changes in industry structure resulting from mergers that occurred during 2002 i conclude that the available evidence suggests that popular and governmental concerns about horizontal mergers in the industry leading to dramatically increased admission prices are likely misplaced

competition in interrelated markets an empirical study abstract this paper studies competition in small concentrated and interrelated markets our data set consists of price information from 486 driving schools in 235 local markets in sweden which gives a large sample to test hypotheses on how market structure influences competition the results show that the price in a market is lower if prices in nearby markets are low and the distances to them are short as suggested in models of spatial competition moreover we find that prices in closely located markets are interdependent it is also shown that prices are increasing in firm concentration within a market as most theories of oligopoly predict

gradual green tax reforms abstract green tax reforms have become an important tool not only in protecting the environment but also in bringing about a more efficient tax system however reforms often imply accepting sacrifices in the short run and bring about the risk of potential political opposition within this framework the debate on whether to implement green tax reforms in one step or gradually becomes of great interest in this paper we use a dynamic general equilibrium model calibrated to the spanish economy to evaluate different reforms that consist in increasing energy taxes and adjusting capital taxation in a revenue neutral framework our findings show that although an environmental dividend is always granted the existence of an efficiency dividend depends on the type of reform its size and how gradually it is implemented thus one step reforms that produce an efficiency dividend would imply large efficiency costs in the short run in this case the reform could only produce efficiency gains in the short run if it is implemented gradually although such gains would end up disappearing in the long run

the virtues of gradualism and legitimacy in the transition to a market economy this paper presents a simplified model of sectoral restructuring in eastern europe a move towards allocative efficiency is desired by the reform minded government but the shift to higher productivity which such efficiency requires would lead to massive layoffs and labour reallocation in the transition period we look at the impact of political constraints unanimity and or majority worker approval on reform proposals when the government faces a heterogeneous workforce holding private information on relative outside opportunities when the budgetary consequences of exit compensations are so important as to make partial reforms preferable to full reforms gradualism emerges as the optimum in a dynamic context without government commitment it is also shown that under democratic majority rule a government in control of the agenda of reforms can win majority approval for plans which end up hurting majority interests intertemporally by threatening to switch majorities in future reform proposals this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

structural uncertainty and subsidy removal for economies in transition abstract economies in transition are faced with a high degree of structural uncertainty i e uncertainty about which it is possible to learn through experience we study structural uncertainty s effects on a subsidy removal program subsidy removal causes unemployment but yields fiscal benefits and facilitates private sector growth when the policymaker does not know the speed with which the private sector absorbs the unemployed he will be driven toward a more decisive and therefore more informative policy the model also rationalizes policy reversals and implies that irreversibility constraints and political instability dampen the learning effect making policy more gradualist

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

downsizing and job insecurity this article offers an explanation of why firms downsizing patterns may vary substantially in magnitude and timing taking the form of one time massive cuts waves of layoffs or zero layoff policies the key element of this theory is that workers expectations about their job security affect their on the job performance in a situation where firms face adverse shocks the productivity effect of job insecurity forces firms to balance laying off redundant workers and maintaining survivors commitment the cost of ensuring commitment differs between firms with different characteristics and determines whether workers are laid off all at once or in stages however if firms have private information about their future profits they may not lay off any workers in order to signal a bright future boosting worker s confidence jel j21 j23 d21 d82

employment and wage effects of privatisation evidence from hungary romania russia and ukraine we use longitudinal methods and universal panel data on 30 000 initially state owned manufacturing firms in four transition economies to estimate the impacts of privatization on employment and wages the results in all four countries consistently reject job losses and they never imply large wage cuts from privatization to either foreign or domestic owners the domestic privatization estimates are close to zero for employment while for wages they are negative but small in magnitude estimated foreign privatization effects are nearly always positive and sometimes large for both outcome variables we find that the negligible consequences of domestic privatization result from effects on scale productivity and costs that are large but offsetting in hungary and romania and from small effects of all types in russia and ukraine the positive employment outcome of foreign ownership results from a substantial scaleexpansion effect that dominates the productivity improvement effect and the positive wage outcome from productivity improvement dominating the cost reduction effect

mergers in the food retailing sector an empirical investigation abstract we address the problem of merger evaluation for competition policy purposes in the retailing sector the likely effects of a possible merger are analysed ex ante the novelty of the paper lies in the inclusion of downstream and upstream market power effects on the retailers also it provides an empirical application to the portuguese food retailing market the effects of additional concentration on prices are estimated as well as the price reduction insiders are likely to obtain via an improved bargaining position the final effect on prices depends on how these cost reductions are reflected in insiders prices i e on the pass through rate for realistic values of this rate we find that the merger in question will most likely increase consumer prices and therefore should not be allowed on an antitrust legislation basis

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

the dynamics of incentive contracts the paper studies a simple two period principal agent model in which the principal updates the incentive scheme after observing the agent s first period performance the agent has superior information about his ability the principal offers a first period incentive scheme and observes some measure of the agent s first period performance cost or profit which depends on the agent s ability and unobservable first period effort the relationship is entirely run by short term contracts in the second period the principal updates the incentive scheme and the agent is free to accept the new incentive scheme or to quit the strategies are required to be perfect and updating of the principal s beliefs about the agent s ability follows bayes rule the central theme of the paper is that the ratchet effect leads to much pooling in the first period first for any first period incentive scheme there exists no separating equilibrium second when the uncertainty about the agent s ability is small the optimal scheme must involve a large amount of pooling the paper also gives necessary and sufficient conditions for the existence of partition equilibria and looks at the effect of cost uncertainty

price behavior and store size in grocery retailing the effects of different store sizes on relative prices are derived for three types of price behavior in grocery retailing a theoretical model is formulated and estimated using prices collected by the central bureau of statistics in norway for the consumer price index the results indicate that recommended prices are adopted to a large extent in all store sizes as the general price levels did not differ significantly however the largest stores are demand oriented in the sense that products with a high share of the average household s budget were relatively lower priced while the opposite was the case for less important products the general markup level was adjusted to capture demand variations over the year i introduction in grocery retailing small stores have exhibited a high exit rate during the last couple of decades at the same time relatively large stores are prominent among the new entries this development is a result of many factors which operate on both the supply and the demand side and has caused the average size of stores to increase and the total number of stores to decrease on the demand side one of the factors which has been proposed to explain the increasing tendency for consumers to patronize large stores is that they offer lower prices however store characteristics other than the general price level may account for the growth of large stores as far as prices are concerned the structure of prices may be more important than the general level of prices the assortment of a grocery retailer usually contains more than a thousand items consequently it is virtually impossible for consumers to consider all prices their attention is concentrated on the prices of a limited number of items which are used as cues for the overall price level demand at the store level is particularly elastic for some products and rather inelastic for others as elaborated by holton 1957 this makes it profitable to use different margins for different products furthermore cross price elasticities within the assortment should be taken into account if the aim is to maximize profits the ability to set prices in accordance with demand relations may vary with store size the largest stores probably have profes

understanding the soft budget constraint we propose a clarification of the notion of a soft budget constraint a concept widely used in the analysis of socialist transitional and market economies our interpretation is broad enough to embrace most existing approaches to soft budget constraint phenomena and provides a classification of their causes and consequences in light of this interpretation we then review the theoretical literature on the subject and compare it with those on other dynamic commitment problems in economics

cartel price announcements the vitamins industry abstract the primary manufacturers of vitamins admitted to participating in international market share agreement cartels for several years during the 1990s their announced price increases appeared in leading trade journals we show that price announcements during the cartel period and the lead times before these prices took effect were fundamentally different in character from price announcements when explicit collusion was less likely these differences are consistent with our model of price announcements where we account for the importance to the cartel of buyer acceptance of or resistance to a price increase acceptance avoids costly market share reallocations among members of an explicit cartel logit estimates show that after 1985 the likelihood of a price announcement is largely driven by the length of time between announcements rather than cost or demand factors suggesting that the price announcements after 1985 stem from cartel meetings

the political economy of transition the overriding importance of political constraints in the transition process has led to developments of the theory of the political economy of reform what are the main insights from that theory how does it reflect the transition reality what have we learned and what do we still need to learn the present article will attempt to answer those questions

a model of recommended retail prices manufacturers frequently post nonbinding public price recommendations but neither the rationale for this practice nor its impact on prices is well understood i develop a model in which recommendations signal a manufacturer s production cost to searching consumers who then form beliefs about retail prices increasing search makes consumers reject offers for the manufacturer s and competitors products more often and i show that both consumers and the manufacturer prefer more search when the production cost is low and less search when it is high with incentives thus aligned manufacturer recommendations inform consumers via cheap talk and their removal harms both parties

czech privatisation 25 years later privatisation is still a hot political topic today and divides economists as well as politicians and the general public the paper aims to capture the czech privatisation in its historical economic and political contexts the first part explains the difference between transitional privatisation and standard privatisation the second part examines the interests in the privatisation process the third part discusses the privatisation methods used in the czech republic the fourth part offers an international comparison

buying war not peace the influence of corruption on the risk of ethnic war this article presents robust findings for the positive effect of corruption on the risk of ethnic civil war using binary time series cross section data that cover 87 to 121 countries per year between 1984 and 2007 following a grievance based explanation of violent intrastate conflict we argue that corruption increases the risk of large scale ethnic violence as it creates distortions in the political decision making process which lead to a deepening of political and economic inequalities between different ethnic groups the positive effect of corruption on the risk of ethnic civil war is robust to various model specifications including the interaction between corruption and natural resource wealth

the productivity effects of privatization longitudinal estimates from hungary romania russia and ukraine this paper estimates the effect of privatization on multifactor productivity using comprehensive panel data on initially state owned manufacturing firms in four economies we exploit the data s longitudinal dimension to control for preprivatization selection and estimate long run impacts the estimates are robust to functional form but sensitive to selection controls our preferred random growth estimates imply positive multifactor productivity effects of 15 percent in romania 8 percent in hungary and 2 percent in ukraine but a 3 percent effect in russia the foreign privatization effect is larger 18 35 percent in all countries positive domestic effects appear immediately in hungary romania and ukraine and continue growing thereafter but emerge only five years after privatization in russia

why suggest non binding retail prices we provide a simple behavioural explanation of why manufacturers frequently announce non binding suggested retail prices for their products our model is based on the assumption that once the actual price for a product exceeds its suggested retail price the marginal propensity to consume suddenly jumps downward we show that this may induce a monopolistic retailer to set the price equal to the suggested retail price in equilibrium although the latter price is non binding this in turn leads to a shift of profits from the retailer to the manufacturer

discretionary policy implementation and reform abstract regulatory agencies treaty negotiators and other delegates often possess considerable authority over the details of policy change i examine how such discretion can block a pareto improving reform when policy change requires the support of both the liberal and conservative factions gridlock reform and reform paradoxes all emerge as cases in a general model with perfect information a reformer with unknown policy preferences can facilitate escape from a gridlock equilibrium

decentralization and corruption evidence across countries the relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design the theoretical literature makes ambiguous predictions about this relationship and it has remained virtually unexamined by empiricists the authors make a first attempt at examining the issue empirically by looking at the cross country relationship between fiscal decentralization and corruption as measured by a number of different indices their estimates suggest that fiscal decentralization in government spending is significantly associated with lower corruption moreover they find that the origin of a country s legal system for example civil versus common legal code performs extremely well as an instrument for decentralization the estimated relationship between decentralization when so instrumented and corruption is even stronger the evidence suggests a number of interesting areas for future work including investigating whether there are specific services for which decentralized provision has a particularly strong impact on political rent extraction and understanding the channels through which decentralization succeeds in keeping corruption in check

when order affects performance culture behavioral spillovers and institutional path dependence evidence suggests that the cultural context influences the performance of laws policies and political institutions descriptive accounts reveal that outcomes and behaviors often depend on the array of historical institutions this article presents a multi institutional framework that can account for those findings through path dependent behavioral spillovers individuals learn equilibrium behaviors when interacting in a new institutional setting initially some individuals choose behaviors that align with their behaviors in similar extant institutions creating a cultural context that can lead to inefficient outcomes the article shows how avoiding path dependence requires sequencing or designing institutions to maintain behavioral diversity optimal sequencing thus requires positioning institutions with clear incentives early in the sequence as well as avoiding strong punishments that can stifle attempts to break established behavioral patterns

food prices and market structure in sweden this paper examines retail grocery price levels across a large panel of stores in sweden we explain price variation across stores by market structure variables to capture differences in competition intensity and a number of store and region specific factors most of the explained variation in prices can be attributed to store specific factors such as size and chain affiliation overall the relation between market structure variables and food prices is weak and effects are small in percentage terms nevertheless higher local concentration of stores higher regional wholesaler concentration and a lower market share of large stores are all correlated with higher prices

legislative institutions and corruption in developing country democracies this article extends the research on institutional sources of corruption by investigating whether legislative institutions play a significant role in driving corruption in developing country democracies the author argues that when legislative rules a give parties control over agenda setting and b allow parties to strip legislators who vote against the party line of their legislative mandates parties can exercise valuable influence over the legislative policy process which allows them to engage in practices leading to higher corruption the author derives two testable hypotheses linking higher party influence over agenda setting and voting in the legislature to higher corruption and test them by using a new data set on legislative rules for 64 developing country democracies from 1984 to 2004 the empirical results corroborate the hypotheses and remain robust when controlling for alternative explanations employing different estimation techniques and using different measures of corruption

success and failure of reform insights from the transition of agriculture this paper analyzes the linkages between the reform strategies in transition countries and economic performance the authors focus on agriculture because of the sharpness of the policy changes fundamental differences among countries and relative simplicity of agricultural relationships the authors document post reform performance in the transition countries of asia and europe the authors show how a pricing reform and subsidy reductions b land rights reform and policies that affect farm restructuring and c the presence institutions that facilitate exchange either markets or market substitutes affect output and productivity the paper ends with general lessons on reforms and transition

trade capital and the transition in central europe the potential for export oriented growth and the impact of official capital injections is assessed for five central european countries in the years 1990 2000 by means of a neoclassical simulation model export growth is essential for the transition to a market oriented economy and the recovery of central europe implying the need for trade liberalization by both the east and the west if this condition is being met satisfactory gdp growth rates appear possible even without external financial support

on the effects of suggested prices in gasoline markets textabstractthis article analyzes the role of suggested prices in the dutch retail market for gasoline suggested prices are announced by large oil companies with the suggestion that retailers follow them there are at least two competing rationales for the existence of suggested prices they may either help retailers translate changes in international gasoline spot market prices into retail prices or they may coordinate retail prices we show that there is next to the international spot market prices additional information in suggested prices that explains retail prices therefore we conclude that suggested prices help to coordinate retail prices

vertical control and price cycles in gasoline retailing we examine norwegian gasoline pump prices using daily station specific observations from 2003 to 2006 the four big gasoline companies use a vertical restraint that is adopted industry wide labeled price support this moves price control from the hands of independent retailers into the hands of the headquarters retail gasoline prices follow a fixed weekly pattern where we observe de facto simultaneous decision making by the headquarters without knowledge of their rivals prices when every monday around noon they decide to increase pump prices to the same level the price level on mondays corresponds to the recommended prices published by the headquarters of the gasoline companies

economic reform and dynamic political constraints in this paper we examine the impact of political constraints on economic reform plans with special reference to the transition from centrally planned to market economies we analyse the problem of an agenda setting reform minded government facing a bureaucracy or industrial sector for which allocative efficiency requires redundancies and an increase in work intensity the government also tries to minimize the rents conceded to its heterogeneous workforce we examine two types of political constraints unanimity rule and majority rule both in a one period and a two period horizon the main results are the following first of all we show how adverse selection and time consistency may generate the widely observed feature of gradualism as an ingredient of an optimal reform second under a majority rule it is shown to be possible for the government to obtain a majority vote for a reform scheme that intertemporally hurts majority interests indeed the government can improve rent extraction through the strategic use of the threat of future proposals the group which expects to be in the minority tomorrow may accept concessions while its votes can be used to extract rents from another group these results suggest that in a dynamic context democratic constraints should not be overestimated as an obstacle against efficiency enhancing economic reforms the results of this paper may throw some light on the political economy of current reforms in eastern europe governments and political decision makers in general always face political constraints when elaborating reform proposals they know that the need to overcome potential opposition from various groups of the population constrains proposals for change political constraints vary depending on the specific institutional structure of society and are clearly different under a military dictatorship than under a parliamentary democracy the role of political constraints seems particularly important in eastern europe today where new democratic governments face the huge task of achieving the transition to a market economy while the introduction of democracy may have removed some important obstacles to economic change namely the veto power of a powerful nomenclatura under communist one party rule fears are expressed that it could potentially jeopardize economic reforms which may during the transition period hurt a majority of the population what can economic theory tell us about optimal economic reform under political constraints this paper starts addressing this ambitious question by looking at structural reform focusing on a restructuring of economic sectors which requires massive redundancies and a significant rise in labour productivity our model illustrates the case of planning

speed of adjustment and self fulfilling failure of economic reform abstract an economic reform programme where inefficient public labour is laid off is considered the immediate effect is a lowering of wages and increased profitability in the private modern sector over time as capital accumulates in the modern sector wages and production increases big bang reform generates a sharp transitory drop in wages while gradual reform gives a more modest decline in the presence of a subsistence wage constraint popular resistance can cause the cancellation of big bang reform two arguments for gradualism can in that case be made first a more gradual reform requires a less abrupt drop in the wage and will therefore be feasible second the initial wage drop will be stronger if a cancellation of reform is expected and since cancellation is dependent on the severity of the initial wage drop multiple equilibria occurs the existence of multiple equilibria is dependent on the speed of reform sufficiently gradual programmes have a unique successful equilibrium

price dynamics and market segmentation scrutinizing hundreds of tar models we examine the persistence of price dynamics across market segments using a unique dataset of monthly actual product prices of 47 items collected from three different market segments in istanbul over 1993 01 2008 12 we provide evidence that the extent of price persistence differs across market segments while the half life estimates do not

enterprise performance and management turnover in the czech republic abstract we study the effect of management turnover on changes in enterprise performance using a cross section of 706 czech firms over the 1993 1997 period controlling for initial conditions equity holdings by managers and firm and sector specific effects we find that the appointment of new managers is associated with improvements in profit margins and labor productivity particularly if those managers were selected by private owners the results highlight the importance of human capital in transition economies in bringing about improvements in corporate performance

a free press is bad news for corruption abstract this paper tests the proposition that a free press may be a powerful control on corruption we find evidence of a significant relationship between more press freedom and less corruption in a large cross section of countries this result is robust to specification and sample and the relationship is not sensitive to the choice of a particular measure of corruption or of press freedom furthermore we present evidence which suggests that the direction of causation runs from higher press freedom to lower corruption

legality and market reform in soviet type economies the classical soviet type system operates in the virtual absence of economic legality which is a prerequisite to a successful transition to a market economy in the soviet union and the nations of eastern europe in the absence of economic legality the leadership of these countries will not be able to implement a credible commitment to private property rights or any other effective market incentive mechanism in addition they will be unable to promote the growth of multilateral impersonal trade without legality a shift away from central planning toward market allocation may very likely lead to economic decline inflationary pressures and a polarization in income distribution which in turn could unleash political reaction against the reform process in general

games economists play a noncooperative view for some thirty years following world war ii most bright young economists did not go into industrial organization it was not hard to see why this was so the quick big payoffs in economics tend to go to theorists and industrial organization was a subject in which theory was not only unsatisfactory but moribund the promise of the chamberlin robinson revolution of the early 1930s had not been fulfilled and while institutional and verbaltheoretic writings on the subject were sometimes illuminating there was no hard analytic theory formalizing the structure conduct performance paradigm oligopoly in particular showed no signs of analytic tractability today the atmosphere is altogether different the profession is full of young theorists whose principal occupation is industrial organization indeed industrial organization has become the hot topic for microtheorists journals meetings and seminars abound in research on oligopoly and judging by the market this is a booming industry of course the principal reason for the change is the rise of game theory and its applications in these areas von neumann and morgenstern s great work was published in 1944 and hailed immediately by theorists von neumann and morgenstern 1944 jacob marschak indeed stated in reviewing it marschak 1946 p 1 15 ten more such books and the progress of economics is assured nevertheless it was not until the last decade that game theory came to the ascendant as the premier fashionable tool of microtheorists that ascendancy appears fairly complete bright young theorists today tend to think of every problem in game theoretic terms including problems that are easier to deal with in other forms every department feels it needs at least one game theorist or at least one theorist who thinks in game theoretic terms oligopoly theory in particular is totally dominated by the game theoretic approach the field appears to be in an exciting stage of ferment to understand why i believe that such excitement is not warranted it is necessary to step back briefly review the history of oligopoly theory before the game theory revolution and consider what it is that one wants theory to deliver

whither russia a review of andrei shleifer s a normal country in this review the author reflects on the heated debates around views about russia s postcommunist transition expressed in essays collected in new andrei shleifer s book a normal country russia after communism harvard university press 2005 which were initially published at different times during transition she focuses on the three questions that have been in the center of the debate among academics and policymakers what should the sequencing and the speed of reforms be should a country have political centralization for fiscal decentralization to be efficient is russia normal the author argues that russia s most recent history provides convincing evidence in support of the logic of political and economic transformation as it was understood by shleifer as early as the beginning of the 1990s

free to trade democracies autocracies and international trade trade relations we address this issue by analyzing the relationship between regime type and trade policy in a formal model of commercial policy we establish that the ratification responsibility of the legislature in democratic states leads pairs of democracies to set trade barriers at a lower level than mixed country pairs composed of an autocracy and a democracy we test this hypothesis by analyzing the effects of regime type on trade during the period from 1960 to 1990 the results of this analysis accord with our argument democratic pairs have had much more open trade relations than mixed pairs t he effects of domestic political institutions on trade policy have long been a source of controversy among social scientists despite the widespread interest that this debate has prompted however remarkably few studies have addressed the links between political regime type and commercial policy 1 most work on the political economy of trade policy that examines institutional factors focuses only on variations in policy among democracies and avoids comparing democracies with other types of regimes moreover many analyses of trade barriers especially those by economists ignore the effects of domestic political

prices and market structure an empirical analysis of the supermarket industry in chile this article investigates empirically the relationship between market structure and consumer prices in the supermarket industry in chile a panel of monthly data from 16 cities in the period january 1998 september 2006 is used we find that the more concentrated the industry in a city the higher the prices while the participation of major national chains in cities tends to lower prices in terms of magnitude this latter effect prevails over the former moreover the dominant local chain is found to behave differently depending on whether or not one of the national chains is present in the city finally we find that prices rise when a national chain acquires another chain and both were previously in a city inmerge while if only one of the two was present outmerge prices fall

the imf s unmet challenges the international monetary fund is a controversial institution whose interventions regularly provoke passionate reactions we will argue that there is an important role for the imf in helping to solve information commitment and coordination problems with significant implications for the stability of national economies and the international monetary and financial system in executing these functions the effectiveness of the imf like that of a football referee depends on whether the players see it as competent and impartial we will argue that the fund s perceived competence and impartiality and hence its effectiveness are limited by its failure to meet four challenges concerning the quality of its surveillance of individual countries groups of countries and the global system the relevance of conditionality in loan contracts the utility of the fund s approach to debt problems and the fund s failure to adopt a system of governance that gives appropriate voice to different stakeholders these problems of legitimacy will have to be addressed in order for the imf to play a more effective role in the 21st century

free riding and sales strategies for the internet for many products internet sales can free ride oi of the promotional eiort exerted by brick and mortar retailers leading manufacturers to attempt to control the availability and pricing of their products over the internet we examine three categories of products fragrances dvd players and side by side refrigerators our evidence suggests that manufacturers that limit distribution in the physical world use various mechanisms to limit distribution online in particular these manufacturers generally prevent the sale of their products by internet retailers that oier deep discounts furthermore manufacturer websites tend to charge high prices suggesting that manufacturers may internalize free rider issues i introduction while internet sales total only about 1 0 of all retail sales in the united states 1 the rapid growth of internet commerce suggests that this sales channel will become a signi cant factor for many goods managing channel con ict between brick and mortar retailers and internet retailers is an important and growing problem faced by many manufacturers of branded goods manufacturers of branded goods have placed a variety of restrictions on their brick and mortar retailers in an eiort to control freeriding on the sales and promotional eiorts of retailers the emergence of the internet as a new distribution channel requires manufacturers to develop restrictions on internet retailers to control free riding in this paper we investigate empirically the extent to which manufacturers of three types of branded goods appear to control the pricing and

do gasoline prices respond asymmetrically to crude oil price changes the authors test and confirm that retail gasoline prices respond more quickly to increases than to decreases in crude oil prices among the possible sources of this asymmetry are production inventory adjustment lags and market power of some sellers by analyzing price transmission at different points in the distribution chain the authors attempt to shed light on these theories spot prices for generic gasoline show asymmetry in responding to crude oil price changes which may reflect inventory adjustment effects asymmetry also appears in the response of retail prices to wholesale price changes possibly indicating short run market power among retailers

capital accumulation unemployment and self fulfilling failure of economic reform abstract i consider fiscal reform and the consequences of expectations about reform cancellation the reform implies reduced taxes and the laying off of employees in an inefficient public sector if the resulting unemployment level declines sufficiently fast the reform is completed on the other hand if high unemployment levels prevail for too long the reform is cancelled cancellation affects the return on capital negatively hence expectations about cancellation will depress capital accumulation and increase the level of unemployment as a result multiple rational expectation equilibria may arise where expectations about cancellation prove self fulfilling the modelling framework is leontief technology in combination with ramsey optimization that exhibits simple and attractive algebra