on the function of sales assistance the paper provides a formal rationale for the common practice of using sales assistance the argument is made in a model where a consumer s situation determines his needs the products are differentiated and the map identifying the best match between a consumer s situation and a product is known only to the sales assistant i look at procedure which involves the consumer revealing his needs and the sales assistant identifying the best matching product this is compared to several other procedures and found to be best when the number of possible consumer situations is large it is shown that reputational considerations may keep the sales assistant honest i look at the impact of guarantees and other modifications to the model and discuss normative implications

nationalization vs regulation of monopolies abstract this paper compares the effects of government ownership and regulation under private ownership on the production decisions of a monopoly firm it analyzes an optimal mechanism design problem in which the owners of the firm either the government or shareholders contract with a manager who has private information about the firm s cost function and takes an unobservable action that affects the firm s costs the model predicts that the privately owned regulated firm will use relatively more capital and the publicly owned firm will use relatively more labor than the second best efficient solution to the private information problem

a fuzzy set model of search and consideration with an application to an online market several two stage choice models consideration stage plus choice stage have been proposed in the marketing literature we extend this literature by developing a more general model that incorporates how consumer search influences the degree to which they consider various brands to test the validity and value of our model we operationalized it with data obtained from peapod an online grocer where we tracked consumers search processes we demonstrate that our model performs better than competing models on all the key criteria new choice models such as the ones proposed here are necessary for deriving managerially relevant understanding of choice behavior in online markets our empirical results suggest that consumers search both their internal memory and external information at the store to determine the degree to which they consider various brands consumers are also heterogeneous with respect to their capability to process external information for some consumers external information search dramatically increases the degree to which they consider various brands but for others it has little impact on their consideration we also find that certain features e g personal lists reduce consideration set sizes whereas other features e g sort increase consideration set sizes

privatization liberalization wages and employment theory and evidence for the uk most agency based privatization models are of the owner manager relation and ignore the labour market yet in the 1980s there were profound changes in public sector and privatized firms to wages and employment we develop a bargaining model of the manager workforce relation that explains employment and wages when firms are privatized government objectives become more commercial and markets are liberalised using data on 14 uk companies 1972 1988 that were publicly owned in 1972 we find a employment fell following the change to more commercial objectives b wages were only slightly affected by this but fell if the firm lost market power

the evolution of infrastructure and utility ownership and its implications the paper documents the significant changes of ownership since the infrastructure utilities were privatized and in particular the shifts from the initial focus on dispersed retail share ownership through takeovers to more concentrated ownership and the emergence of private equity and infrastructure funds in the process there has been substantial financial engineering and balance sheets have been geared up towards exhaustion with major implications for financing future investment increased gearing has on the one hand introduced the discipline of debt upon management which had engaged in substantive diversification and on the other provided an arbitrage between the weighted average cost of capital used to calculate the allowed return and the lower marginal cost of debt the paper shows how regulation has determined the allocation of risk and facilitated the observed changes in ownership and financial structures three solutions to the exhausted balance sheets are considered to finance future investment rate of return regulation the split cost of capital and a collapse back into not for dividend mutual or state ownership the default outcome already witnessed in the welsh water and network rail cases is the latter case which is inferior to the second option copyright 2009 oxford university press

political competition and the roman catholic schools ontario canada some years ago george stigler 1972 presented an argument that political markets have a competitive analog to private markets the implication of such competition was that a minority position may yield a payoff from the political process even under a winner take all election rule more recently researchers have been advancing the view that the political markets and the bureaus within are much more competitive than the traditional literature as follows downs 1957 and niskanen 1971 had led us to believe see for example breton and wintrobe 1982 and bagnoli and mckee 1986 since political competition is at the heart of the competitive view of the public sector it is time to examine stigler s work in some detail the optimal majority is narrow riker 1962 a large majority implies a smaller subset of the population that is available to be exploited i e the losers however the market for political power is periodically contested thus a weak majority may be easily overturned it is in the interests of the incumbent political authority to provide policies which favor some minority interests particularly where such minority interests are narrow since this characteristic implies more intense preferences as well as narrow range of public expenditures necessary to satisfy the demands of this minority stigler demonstrated several conditions which made the minority interests relevant to the political actor in power homogeneous minorities will be better represented since their voting behavior will be more unified on a particular issue thus a smaller more homogeneous minority may be able to secure greater gains than a larger but heterogeneous group stigler s paper contains two related hypotheses first minority interests may be able to capture some returns in the political market despite not actually winning the election second a group s influence over policy is a monotonically increasing function of its share of the electorate the game is not

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

productive efficiency in public and private firms abstract this paper compares the degree of x inefficiency which emerges as a consequence of the imposition of the optimal incentive contracts in public and private firms using a straightforward principal agent model with two possible states of the world it establishes the rather surprising result that in the good state of the world public ownership always results in a higher degree of productive efficiency

the decline of organizations and the rise of administrators parkinson s law in theory and practice abstract parkinson reported observing substantial growth of administrators as organizations were declining such behavior has usually been considered proof of an inherent tendency for bureacracies to grow in this paper we offer a different interpretation expansion of administration during periods of decline is the result of promotions of line workers to administrative positions promotions are a means of protecting from layoff or dismissal those employees who have accumulated network capital with their superiors all large organizations private firms as well as public bureaus can be expected to behave in this way and parkinson s observations are simply evidence of the existence of implicit contracts within organizations we report empirical tests which provide convincing evidence for parkinson s law in two very different organizations a public sector bureau education and a private sector industry steel

a model of price promotions with consumer search this paper presents a price discrimination model of price promotions the distinguishing feature of our model is the explicit distinction between regular and promotional prices regular prices are chosen first then promotional prices further while regular prices are always available to everyone promotional prices are only available when offered and only to those who search for them we show that even a monopolist will offer random promotions under these circumstances furthermore as search costs increase the frequency and depth of promotions increase with competition for the promotion oriented consumers the seller becomes more aggressive in his promotional policies even more so as search costs increase the high reservation price consumers however end up worse off with competition

designing a private industry government auctions with endogenous market structure abstract this paper considers government mechanisms for auctioning production rights in which both the winners and the market structure doupoly dual sourcing monopoly sole sourcing or government owned production are a function of the bids in designing the optimal mechanism the government considers the tradeoffs among consumer surplus producer surplus and revenue under incomplete information doupoly is implemented less frequently and government production more frequently than under complete information when bidders are symmetric the optimal mechanism can be implemented as a modified second price auction applications to privatization deregulation and defense procurement are discussed

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

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

the political economy of benefits and costs a neoclassical approach to distributive politics this essay offers a rational political explanation for the notorious inefficiency of pork barrel projects with an optimization model of legislative behavior and legislative institutions the model emphasizes the economically arbitrary from a welfare point of view importance of the geographic incidence of benefits and costs owing to the geographic basis for political representation we explore the implications of a legislator s objective function and derive conditions under which a representative legislature will select an omnibus of projects each of which exceeds the efficient scale

tax earmarking and separate school financing abstract the performance of tax earmaking institutions that require individuals to contribute some minimum levels toward public goods but do not constrain the composition of their contributions is examined it is shown that in a non negligible class of circumstances leaving the spending decisions in the hands of individuals would yield a unique non cooperative equilibrium in the constrained core these results are then applied to the analysis of financing rules for public and separate schools in canada

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

welfare maximisation with endogenous average costs abstract in contrast to the earlier literature about industries mixing public and private ownership costs are not exogenous because firms choose capacity if capacity is increased the fixed costs increase but more can be produced at constant marginal costs it turns out that mixing private and public firms improves welfare if the deadweight loss of imperfect competition is significant all firms break even but welfare maximisation implies higher unit costs and lower profitability

privatization and efficiency from principals and agents to political economy ad i pavia abstract we survey the theoretical literature on privatization and efficiency by tracing its evolution from the applications of agency theory to recent contributions in the field of political economy the former extend the theory of regulation with incomplete information to address privatization issues comparing state owned enterprises with private regulated firms the benefits of privatization may derive either from the constraints it places on malevolent agents or from the impossibility of commitment by a benevolent government because of incomplete contracts contributions dealing with political economy issues separate privatization from restructuring decisions they either explore bargaining between managers and politicians or analyse the impact of privatization shaped by political preferences on efficiency the theoretical results regarding the relation between privatization and efficiency do not lead to any definitive conclusion privatization may increase productive efficiency when restructuring takes place whereas its effects on allocative efficiency still remain uncertain

public firms as regulatory instruments with cost uncertainty we re examine the regulatory role of a public firm in an environment of private but correlated information about irndustry costs we study three regimes of mixed market interaction involving both public and private firms a symmetric bayesian nash equilibrium an asymmetric bayesian equilibrium in which the public firm is able to commit to production before the private firms and a mechanism in which the regulator designs an incentive compatible schedule for the industry we find that a public firm plays an important strategic informational role which strengthens its role as a disciplinary regulatory instrument further

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

implications of reduced search cost and free riding in e commerce this paper examines a market where the provision of information service is costly but information service has the characteristics of a public good consumers on the other hand can use the information service to make an informed purchase decision and derive higher utility from consuming their ideal product however after receiving the information service from an information service provider consumers can easily free ride by purchasing at low price sellers who do not provide any information service the paper examines the competition where sellers compete by providing information service for horizontally differentiated products and where technology reduces consumers search cost it is found that in this market a seller needs to establish itself as an information service provider in order to make positive profits even when there is free riding a seller however cannot make positive profits by free riding all the time also with an increase in competition in the information service market sellers have reduced incentives to provide information service it is also found that in this market a decrease in search cost may increase or decrease social welfare

a model of the operation and development of a national oil company we present a model of the exploration and development activities of a national oil company noc which uses similar technology to a private firm to extract a depletable resource however unlike the private firm the noc may have a wider range of objectives than maximizing the present value of profits specifically we assume an objective function that balances firm profitability against a political desire to favor domestic consumer surplus and domestic employment we find that the non commercial objectives faced by a noc tend to reinforce each other in their effects on profitability the timing of cash flows and employment

policy objectives and performance in a mixed market with bargaining abstract we analyse a mixed duopoly in which wages and salaries are determined by nash bargaining and where the public firm s unit costs depend on its objectives because of constant returns to scale welfare maximisation without restriction would eliminate or significantly weaken the private firm therefore we focus on constrained welfare maximisation in which case unit costs are normally higher in the public firm on the other hand the private firm may even earn more than in a monopoly if the public firm maximises profits or if the constraint offers too much protection

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had