a principal agent problem with heterogeneous demand distributions for a carbon capture and storage system abstract mechanism design problems optimize contract offerings from a principal to different types of agents who have private information about their demands for a product or a service we study the implications of uncertainty in agents demands on the principal s contracts specifically we consider the setting where agents demands follow heterogeneous distributions and the principal offers a menu of contracts stipulating quantities and transfer payments for each demand distribution we present analytical solutions for the special case when there are two distributions each taking two discrete values as well as a method for deriving analytical solutions from numerical solutions we describe one application of the model in carbon capture and storage systems to demonstrate various types of optimal solutions and to obtain managerial insights

bank runs liquidity costs and investment distortions abstract in this paper we extend the diamond and dybvig 1983 model of intermediation to study further the conditions under which bank runs can occur and to consider how private parties might adjust to the existence of bank run equilibria we provide weaker necessary conditions for runs we then characterize how banks respond to the possibility of runs in their design of deposit contracts and investment decisions banks might choose to offer contracts that prevent runs but under some conditions the second best contracts will involve accepting some risk of runs in order to achieve higher expected returns from their investments

demand for smokeless tobacco role of advertising while the prevalence of smokeless tobacco st is low relative to smoking the distribution of st use is highly skewed with consumption concentrated among certain segments of the population rural residents males whites low educated individuals furthermore there is suggestive evidence that use has trended upwards recently for groups that have traditionally been at low risk of using st and thus started to diffuse across demographics this study provides the first estimates at the national level of the effects of magazine advertising on st use the focus on magazine advertising is significant given that st manufacturers have been banned from using other conventional media since the 1986 comprehensive st act and the 1998 st master settlement agreement this study is based on the 2003 2009 waves of the national consumer survey ncs a unique data source that contains extensive information on the reading habits of individuals matched with magazine specific advertising information over the sample period this allows detailed and salient measures of advertising exposure at the individual level and addresses potential bias due to endogeneity and selective targeting we find consistent and robust evidence that exposure to st ads in magazines raises st use especially among males with an estimated elasticity of 0 06 there is suggestive evidence that both st taxes and cigarette taxes reduce st use indicating contemporaneous complementarity between these tobacco products sub analyses point to some differences in the advertising and tax response across segments of the population the effects from this study inform the debate on the cost and benefits of st use and its potential to be a tool in overall tobacco harm reduction

equilibrium properties of auctions and alternative procedures for allocating transferable permits abstract this paper examines the equilibrium properties of a range of auctions and related procedures placing emphasis on the types of procedures that are likely to be of special interest in environmental management applications nash equilibrium properties are first derived for a very general class of auctions for multiple homogeneous or heterogeneous objects or permits next it is shown that given appropriate assumptions three broad classes of public allocation procedures that do not generate revenues for the government would yield participants equal expected profits these classes are 1 incentive compatible auctions where bidders receive equal lump sum refunds 2 non incentive compatible procedures where refunds are a function of participants bids and 3 free initial distribution of permits on a lump sum basis followed by trading via a competitive market the applicability of the general results is then demonstrated by examining the particular non incentive compatible fair division procedure originally suggested by knaster finally implications of the theoretical results for applications including the allocation of transferable discharge permits and water rights are discussed

the role of firm size in bilateral bargaining a study of the cable television industry we examine the effect of buyer merger on bilateral negotiations between a supplier and n buyers merger may have bargaining effects in addition to the usual efficiency effects the effect of merger on the buyers bargaining position depends on the curvature of the supplier s gross surplus function merger enhances worsens the buyers bargaining position if the function is concave convex based on a panel of advertising revenue in the cable television industry our estimates indicate that the gross surplus function for suppliers of program services is convex this result suggests that cable operators integrate horizontally to realize efficiency gains rather than to enhance their bargaining position vis a vis program suppliers

estimation on oil demand and oil saving potential of china s road transport sector national social science foundation of china 12zd059 ministry of education 10gbj013 national natural science foundation of china 71203186 fundamental research funds for the central universities 2010221051 national science foundation for disting

compatibility and bundling of complementary goods in a duopoly this paper presents a simple model of compatibility and bundling in industries where consumers assemble several necessary components into a system that is close to their ideal the authors show that for a wide range of parameters firms will choose to produce compatible components but will offer discounts to consumers who purchase all components from the same firm however firms would be better off if they could commit not to provide such discounts furthermore the equilibrium tends to involve socially excessive bundling finally mixed bundling strategies tend to increase the range of parameters over which socially excessive standardization occurs copyright 1992 by blackwell publishing ltd

estimating demand for local telephone service with asymmetric information and optional calling plans in this paper i study the theoretical and econometric implications of agents uncertainty concerning their future consumption when a monopolist offers them either a unique mandatory nonlinear tariff or a choice in advance from a menu of optional two part tariffs agents uncertainty is resolved through individual and privately known shocks to their types in such a situation the principal may screen agents according to their ex ante or ex post type by offering either a menu of optional tariffs or a standard nonlinear schedule the theoretical implications of the model are used to evaluate a tariff experiment run by south central bell in two cities in kentucky in 1986 the empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist leading to different nested econometric specifications under symmetric and asymmetric information the empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes all expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters copyright 2002 wiley blackwell

the principal agent relationship with an informed principal ii common values in many circumstances a principal may have relevant private information when she proposes a contract to an agent we analyze such a principal agent relationship as a noncooperative game the principal proposes a contract which is accepted or rejected by the agent who for most of our analysis has no private information the contract is executed if accepted otherwise the reservation allocation takes effect this allocation may be determined by a pre existing contract which the principal by her proposal is attempting to renegotiate or it may simply be the no trade point in this paper we assume that the principal s information directly affects the agent s payoff before solving the game we discuss pareto efficiency with asymmetric information we define an incentive compatible allocation to be weakly interim efficient wie if there exists no alternative incentive compatible allocation that both parties prefer for all possible beliefs that the agent might have about the principal s private information type we show that any wie allocation is interim efficient ie for some beliefs the rothschild stiglitz wilson rsw allocation relative to the reservation allocation l is the allocation that maximizes the payoff of each type of principal within the class of incentive compatible allocations that guarantee the agent at least the utility he gets from a irrespective of his beliefs about the principal s type the equilibrium set of the contract proposal game consists of the allocations that weakly pareto dominate the rsw allocation thus there is a unique equilibrium outcome if and only if the latter is ie and the equilibrium outcome is the rsw allocation itself after characterizing the equilibrium allocations we study those that are renegotiation proof when either the principal or the agent leads the renegotiation we then compare our contract proposal game which is a signaling model with its screening counterpart we conclude by extending our results to the case in which the agent as well as the principal has private information under the assumption of quasi linear preferences

global land use implications of first and second generation biofuel targets recently an active debate has emerged around greenhouse gas emissions due to indirect land use change iluc of expanding agricultural areas dedicated to biofuel production in this paper we provide a detailed analysis of the iluc effect and further address the issues of deforestation irrigation water use and crop price increases due to expanding biofuel acreage we use globiom an economic partial equilibrium model of the global forest agriculture and biomass sectors with a bottom up representation of agricultural and forestry management practices the results indicate that second generation biofuel production fed by wood from sustainably managed existing forests would lead to a negative iluc factor meaning that overall emissions are 27 lower compared to the no biofuel scenario by 2030 the iluc factor of first generation biofuels global expansion is generally positive requiring some 25 years to be paid back by the ghg savings from the substitution of biofuels for conventional fuels second generation biofuels perform better also with respect to the other investigated criteria on the condition that they are not sourced from dedicated plantations directly competing for agricultural land if so then efficient first generation systems are preferable since no clear technology champion for all situations exists we would recommend targeting policy instruments directly at the positive and negative effects of biofuel production rather than at the production itself

symbiosis vs crowding out the interaction of formal and informal credit markets in developing countries abstract it is a common observation in many developing countries that enterprises are active borrowers in both formal and informal credit markets we propose a model in which the formal sector s superior ability in deposit mobilization is traded off against the informational advantage that lenders in the informal sector enjoy the formal sector can screen borrowers by providing only partial financing for projects thereby forcing borrowers to resort to the informal sector for the remainder of the loan we use the model to predict how the market structure responds to changes in the environment and we consider the policy implications of various forms of government intervention

customized advertising via a common media distributor we show that when a single media content distributor such as a television cable company or an internet provider delivers advertising messages on behalf of multiple competing brands it can sometimes utilize customized advertising to implement monopoly pricing even though such monopolistic pricing can be implemented with varying degrees of customization of commercials product revenues and consumer surplus are highest when the distributor chooses the highest level of customization feasible consumers would obviously prefer aggressive price competition in product markets however given that collusion on prices is facilitated anyway when the distributor acts as a common agent the welfare of consumers is enhanced when commercials are better aligned with their preferences

oil price shocks and real gdp growth empirical evidence for some oecd countries this study assesses empirically the effects of oil price shocks on the real economic activity of the main industrialized countries multivariate var analysis is carried out using both linear and non linear models the latter category includes three approaches employed in the literature namely the asymmetric scaled and net specifications evidence of a non linear impact of oil prices on real gdp is found in particular oil price increases are found to have an impact on gdp growth of a larger magnitude than that of oil price declines with the latter being statistically insignificant in most cases among oil importing countries oil price increases are found to have a negative impact on economic activity in all cases but japan moreover the effect of oil shocks on gdp growth differs between the two oil exporting countries in the sample with the uk being negatively affected by an oil price increase and norway benefiting from it

automobile prices and quality did the gasoline price increases change consumer tastes in the u s a hedonic model of automobile prices that takes gasoline costs into account is developed and used to examine whether gasoline price increases especially those related to the 1973 and 1979 oil shocks changed consumer evaluations of the relative qualities of used cars in the u s during 1970 1981 we test the null hypothesis that the characteristics coefficients remained constant over time it is rejected if gasoline costs are excluded from the model but not if they are included alternative approaches are developed to show that the gasoline price increases alone can explain much of the observed changes in the coefficients

nonlinear pricing of information goods this paper analyzes optimal pricing for information goods under incomplete information when both unlimited usage fixed fee pricing and usage based pricing are feasible and administering usage based pricing may involve transaction costs it is shown that offering fixed fee pricing in addition to a nonlinear usage based pricing scheme is always profit improving in the presence of nonzero transaction costs and there may be markets in which a pure fixed fee is optimal this implies that the optimal pricing strategy for information goods is almost never fully revealing moreover it is proved that the optimal usage based pricing schedule is independent of the value of the fixed fee a result that simplifies the simultaneous design of pricing schedules considerably and provides a simple procedure for determining the optimal combination of fixed fee and nonlinear usage based pricing the introduction of fixed fee pricing is shown to increase both consumer surplus and total surplus the differential effects of setup costs fixed transaction costs and variable transaction costs on pricing policy are described these results suggest a number of managerial guidelines for designing pricing schedules for instance in nascent information markets firms may profit from low fixed fee penetration pricing but as these markets mature the optimal pricing mix should expand to include a wider range of usage based pricing options minimum fees quantity discounts and adoption levels across the different pricing schemes are characterized strategic pricing responses to changes in market characteristics are described and the implications of the paper s results for bundling and vertical differentiation of information goods are discussed

hiring and leasing with nonlinear prices this paper examines the problem of a monopolist setting an optimal nonlinear pricing schedule in the face of consumers of unknown type who arrive randomly over time and self select a choice of hire period the major determinant of pricing policy is the customer arrival distribution with the overall level of price higher than in the atemporal yield management nonuniform pricing solution by a margin which increases with the average frequency with which potential customers arrive by contrast the solution is generally fairly insensitive to variations in the time rate of discount although there is a tendency for the rate of price discount to increase with increases in the time discount rate

information exchange and distributional implications of price discrimination with internet marketing in agriculture a price discrimination model is proposed to explain why firms provide extraneous information on internet sites selling agricultural inputs whether an informative site is offered depends on price discrimination potential which depends on how much farmers reveal heterogeneity by internet behavior price discrimination is greater if information benefits are negatively correlated with farm size or other characteristics explaining why extraneous not product related information is offered on internet sales sites price discrimination adversely affects some farmers but may be beneficial on average because it generates free information outcomes depend on whether internet users are aware of price differentials on the basis of clickstream information

an empirical model of product design and pricing strategy abstract using the hedonic approach as a point of departure this paper develops an empirical model for analyzing product design and pricing strategies the model focuses on a multi product firm in a differentiated product market it identifies criteria for optimal design and pricing for the firm s several products given the firm s production costs the prices and designs of competing products and given consumer tastes the model is demonstrated with a real world application to the microcomputer industry

audience characteristics and bundling a hedonic analysis of magazine advertising rates abstract increasingly magazines are able to offer potential advertisers all their readers pure bundling only specific reader segments pure components pricing or a combination of the two mixed bundling using data on advertising rates and reader demographics the authors estimate the implicit prices of reader characteristics within a hedonic framework the results suggest that the magnitude of the price and revenue premiums earned by unbundling a magazine s readers can be substantial

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

optimal nonlinear pricing by a monopolist with information ambiguity we consider the optimal nonlinear pricing by an ambiguity averse monopolist the monopolist s subjective belief about the distribution of buyers is described by contamination of an additive probability we find that under a maxmin utility decision rule and with a continuum of buyers ambiguity aversion leads to bunching at the bottom in the optimal contract and the distortion at the bottom is reduced other high valuation buyers are offered the same quantity as in the case without ambiguity but they get a greater discount

price discrimination through refund contracts in airlines this paper shows how an airline monopoly uses refundable and non refundable tickets to screen consumers who are uncertain about their travel our theoretical model predicts that the difference between these two fares diminishes as individual demand uncertainty is resolved using an original data set from u s airline markets we find strong evidence supporting our model price discrimination opportunities through refund contracts decline as the departure date nears and individuals learn about their demand

revenue implications of money creation under leviathan most governments possess a monopoly franchise in the creation of money economists provide an analytical justification for this institutional arrangement either in terms of the use of monetary aggregates for macro economic stabilization or in terms of the alleged inability of competitive markets to generate tolerably efficient monetary results any complete case for the government s monetary monopoly must however depend on a comparison of market and political arrangements a comparison that requires predictions about how governments are likely to behave once a monopoly franchise is assigned similarly such predictions are crucial in evaluating restrictions that might be imposed on the government s exercise of its money creation power in designing a monetary constitution in the analysis of political arrangements the revenue implications of the money creation power are probably more significant than considerations of either macro economic stability or optimality in the money supply although those revenue implications are incidental to demonstrating the nature of market failure in monetary arrangements they are fundamental in understanding how the government might exploit a monopoly in money creation once granted our interest in the revenue effects of money creation stems from a broader study of constitutional restrictions on the revenueraising authority of government see our book the power to create money is naturally encompassed in this restrictions on the revenue raising power must embody restrictions on the power to create money consequently the fiscal constitution has important implications for the monetary constitution in this paper we examine both the revenue implications of money creation and desirable consitutional restrictions on the money creation power within the context of a specific model of political processes

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

cost functions in non linear pricing abstract this paper compares the optimal selling strategies with symmetric and asymmetric information when monopolist s cost function depends both on individual and aggregate production we show how standard underproduction and higher exclusion with incomplete information are affected

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

a probabilistic approach to pricing a bundle of products or services the authors propose a probabilistic approach to optimally price a bundle of products or services that maximizes seller s profits their focus is on situations in which consumer decision making is o

optimal nonuniform prices we consider optimal nonuniform pricing schedules where the price depends upon the amount purchased such schedules are regularly used by public utilities and other services welfare optimal nonuniform prices are related to the theory of optimal uniform prices developed by ramsey we characterize situations in which upward or downward discontinuities in pricing schedules are optimal our results are applicable to a number of related problems including optimal taxation insurance and incentives economic theory has confined most of its attention to markets with uniform prices in which the price per unit charged is invariant to the level of a customer s purchases this focus is warranted when goods are resellable since any attempt to charge nonuniform prices could be circumvented by reselling amongst customers but when goods are not resellable nonuniform prices are not only possible but common public utilities have declining block pricing with lower unit charges for large levels of consumption many agencies providing services including communications transportation even education use two part pricing with a fixed entry or retainer charge and a further charge per unit consumption nonuniform price schedules can be expected to be ever more common as services become a larger fraction of total output the increasing prevalence of nonuniform pricing policies have made them the focus of recent public and economic attention oi 1971 feldstein 1972 and ng and weisser 1974 have examined optimal two part pricing policies leland and meyer 1976 examine block pricing and show by example that optimal welfare policies may require nonuniform prices if zero profit constraints are binding in this paper we consider arbitrary nonuniform pricing policies using variational techniques two part and block pricing schedules are of course special cases of the environment we consider the work most closely related to our examination is the seminal paper by spence 1978 and subsequent analysis by roberts 1979 spence however does not pay explicit attention to the key role played by constraints on optimal pricing schedules roberts considers upward price discontinuities which lead to bunching of consumers at a given level of consumption but not downward price discontinuities which lead to regions in which no consumer chooses to consume gaps bunching or gaps may appear in the optimal price schedule even when underlying demand and cost functions are smooth and well behaved the prevalence of discontinuous pricing schedules e g the block pricing structures of public utilities argues that these questions are of practical as well as theoretical interest

the simple economics of extortion evidence from trucking in aceh this paper tests whether the behavior of corrupt officials is consistent with standard industrial organization theory we designed a study in which surveyors accompanied indonesian truck drivers on 304 trips during which they observed over 6 000 illegal payments to police soldiers and weigh station attendants using plausibly exogenous changes in the number of checkpoints we show that market structure affects the level of illegal payments we further show that corrupt officials use complex pricing schemes including third degree price discrimination and a menu of two part tariffs our findings illustrate the importance of considering the market structure for bribes when designing anticorruption policy

contract theory and implications for perennial energy crop contracting abstract this article provides an overview of modern contract theory and discusses the implications of the theory for contracting for perennial dedicated energy crops we discuss some of the unique challenges of contracting for dedicated energy crops used for the production of advanced biofuels and survey some of the relevant concepts and research from the contract theory literature to address these challenges we focus primarily on the mechanism design or complete contracts approach to contracting which involves optimizing some objective function e g profits costs etc with respect to contract terms subject to important incentive constraints the solution to these optimization problems typically highlight important tradeoffs that a contract designer needs to consider in order to maximize profits and or minimize costs

market responses to publicly provided information the case of automative safety over the last 25 years the federal government has become increasingly involved in the provision of information on automobile quality and safety its release of national highway traffic safety administration data on occupant crash survivablity is a prominent example this paper examines the impact of the agency s crash test results on the sales growth of tested automobile lines finding no impact the crash data is then compared to privately collected insurance industry data on actual bodily injury claims by car line these data sets show little consistency based on these findings we conclude that consumers s apparent disregard of government crash test data may well be rational

when are local incentive constraints sufficient we study the question of whether local incentive constraints are sufficient to imply full incentive compatibility in a variety of mechanism design settings allowing for probabilistic mechanisms we give a unified approach that covers both continuous and discrete type spaces on many common preference domains including any convex domain of cardinal or ordinal preferences single peaked ordinal preferences and successive single crossing ordinal preferences local incentive compatibility suitably defined implies full incentive compatibility on domains of cardinal preferences that satisfy a strong nonconvexity condition local incentive compatibility is not sufficient our sufficiency results hold for dominant strategy and bayesian nash solution concepts and allow for some interdependence in preferences

a reduced form optimal nonlinear income tax problem abstract for a finite population with quasilinear preferences it is shown how mirrlees optimal nonlinear income tax problem can be simplified to a reduced form problem involving only the allocation of the consumption good this result is a finite version of a proposition established in the continuum by s lollivier and j c rochet

intertemporal quality discrimination of a durable good monopolist abstract consider a durable good monopolist facing the technology constraint that when he introduces a new product he cannot produce a cheaper variant without a time lag we show that the qualities of his high end and low end products are higher than their efficient quality levels

the price of safety this article presents a simple economic model to assess consumers valuation of safety features in particular we model the benefit from safety as the reduction in the probability of death and the associated economic value of this reduction we then apply this theoretical model to investigate market valuation of antilock brakes and airbags via the specification and estimation of a hedonic price equation results indicate that consumers behave in a manner consistent with the economic model we develop

the prices of classical recorded music a hedonic approach abstract this paper is an empirical investigation into factors that are responsible for the differences in prices of classical music compact discs though primarily a statistical exercise the current work has implications for understanding the structure conduct and performance experienced by the classical music record industry the major changes experienced by this industry are highlighted we focus on the rapid technological change in recording technologies format changes the product heterogeneity that results from the simultaneous existence of incumbent and entering models with various technological vintages and the behaviour of firms of different kinds using an as yet untapped french data source for the period 1989 1994 the results of hedonic regressions indicate that new vintages are priced at a premium reflecting higher recording costs owing to contractual arrangements with superstars this premium is even higher for recordings made by majors the price markups enjoyed by major firms have declined over time because of increasing competitive pressure independents and majors exhibit a distinct behaviour as to the location of classical music cd s recordings in quality space the results favour the hypothesis that independents locate their recordings in empty market niches the nominal quality adjusted prices for independent firms cds declined at an annual average rate twice that of the majors

targeted advertising the role of subscriber characteristics in media markets this paper seeks to establish the importance of targeted advertising in media markets using zip code level circulation for us daily newspapers i show that newspapers facing more competition have lower circulation prices but higher advertising prices than similar newspapers facing little or no competition i explain this by showing that newspapers in more competitive markets are better able to segment readers according to their location and demographics this leads to greater homogeneity in the characteristics of subscribers and raises advertisers willingness to pay for such readers the results imply a substantial benefit to advertisers and media firms from targeted advertising

on the interpretation of income variables in discrete choice models abstract in certain discrete choice models the unestimated function of income may be recovered however care must be taken lest inconsistency with choice theory result the correct interpretation of income in such models affects the computation of quantities such as income elasticities

strategic environmental policy under incomplete information this paper introduces incomplete information into recent analyses of strategic environmental policy it is shown how asymmetric information between planners and producers affects national incentives to impose strategic environmental standards on domestic industries in international oligopolistic competition relative to the full information case incomplete information is likely to mitigate allocative distortions originating from strategic behaviour a countervailing effect tending to raise distortion is however revealed from the analysis this effect is absent when governments intervene in free trade through direct production subsidies the results suggest that incentives to capture foreign rents are less reduced due to private information when environmental standards rather than direct production subsidies are the strategic instrument

group buying on the web a comparison of price discovery mechanisms web based group buying mechanisms are being widely used for both business to business b2b and business to consumer b2c transactions we survey currently operational online group buying markets and then study this phenomenon using analytical models we build on the literatures in information economics and operations management in our analytical model of a monopolist offering web based group buying under different kinds of demand uncertainty we derive the monopolist s optimal group buying schedule under varying conditions of heterogeneity in the demand regimes and compare its profits with those that obtain under the more conventional posted price mechanism we further study the impact ofproduction postponement by endogenizing the timing of the pricing and production decisions in a two stage game between the monopolist and buyers our results have implications for firms choice of price discovery mechanisms in e markets and for the scheduling of production and pricing decisions in the presence and absence of scale economies of production

nonlinear pricing and price cap regulation abstract this paper analyzes profit maximizing nonlinear pricing by a firm that is subject to price cap regulation two forms of regulatory constraint are considered i a cap on the firm s average revenue and ii a constraint that the firm must continue to offer each consumer the option of buying at the uniform price optimal nonlinear price schedules in these regimes are shown to have simple characterizations that are related to the nonlinear tariffs that an unregulated monopolist would charge of the regulatory regimes the firm prefers the average revenue constraint to the option constraint and likes uniform pricing least consumers in aggregate prefer the option regime to uniform pricing and like the average revenue constraint least but there are also distributional effects between consumers although the optional tariff regime pareto dominates uniform pricing it is ambiguous whether welfare is higher under uniform pricing or under the average revenue regime an example is used to illustrate the nature of the ambiguity

equivalence between the diamond dybvig banking model and the optimal income taxation model abstract it is shown that the diamond dybvig journal of political economy 96 1983 768 banking model with a continuum of types of agents has the same analytical structure as the standard optimal income taxation model review of economic studies 38 1971 175 review of economic studies 43 1976 261 insights from the income taxation literature immediately imply that a bank run equilibrium exists in the banking model as long as the long term project is sufficiently costly to liquidate

competitive screening under heterogeneous information we study the interplay between informational frictions and second degree price discrimination our theory recognizes that consumers differ in their tastes for quality as well as in the information they possess about available offers which leads to dispersion over price quality menus in equilibrium while firms are ex ante identical we show that their menus are ordered so that more generous menus leave more surplus to consumers of all valuations we explore the cross section of equilibrium menus and variations in market conditions to generate empirical predictions on prices qualities and markups across firms and within a firm s product line for instance more competition may raise prices for low quality goods yet consumers are better off as the qualities they receive also increase the predictions of our model illuminate empirical findings in many markets such as those for cell phone plans yellow pages advertising cable tv and air travel

involuntary unemployment and worker self selection abstract consider a firm that lacks information about the reservation wage or ability of any specific worker but is aware that workers with higher reservation wages tend to be more able on average we show that under a simple condition that the efficiency wage exceeds the lowest reservation wage the optimal hiring policy for the firm involves 1 no wage discrimination and 2 rationing of jobs when demand for its product is low the result also extends to the case where hours of work are variable provided each worker is most productive when working a strictly positive number of hours per week

analysis of energy security environmental emission and fuel import costs under energy import reduction targets a case of pakistan abstract the influence of reducing energy imports 5 10 and 15 on primary energy supply diversification of energy resources cost of imported fuels energy security and environmental emission during 2005 2050 were analyzed through a long term integrated energy system model of pakistan using market allocation markal framework the study found that primary energy supply would decrease marginally while cumulative renewable energy would increase by 24 energy import dependency would reduce by 3 diversification of energy resources would increase 1 1 fold and vulnerability would decrease by 9 under energy import reduction scenario as compared to the base case the cost of imported fuels would reduce by 10 and the greenhouse gas emissions would decrease by 8 in the energy import reduction scenario the impact on energy security was represented through a set of eleven energy security indicators the improvements in energy security indicators under energy import reduction targets indicate the enhancement of energy security of pakistan

optimal number of standards under economies of scope in quality abstract stivers stivers andrew e 2003 quality standards with exogenously distributed quality economics letters 80 1 130 136 finds the optimal segmentation of quality when the distribution of quality is exogenous this paper characterizes the optimal number of standards as the cost of information falls both the number of standards and the market coverage of the firm rise

the target incentive system vs the price incentive system under adverse selection and the ratchet effect abstract in a dynamic adverse selection type of principal agent relationship where the principal is committed over time to a particular incentive system with fixed structure but variable parameters but not to any intertemporal incentive scheme with both fixed structure and parameters the ratchet effect arises but varies with different incentive systems we show that compared with using prices as the sole planning mode the principal can attenuate the ratchet effect by stipulating targets as well as a result the target incentive system entails higher expected welfare than the price incentive system in a perfect bayesian equilibrium

the multiproduct firm quality choice and regulation a monopolist facing a market of heterogeneous consumers will distort the quality a rray this paper explores three regulatory remedies minimum quality s tandards mqs maximum price regulation mpr and rate of return re gulation rorr that can counteract this distortion mqs and mpr rais e the quality offered to consumers with a low willingness to pay for quality while mqs have no effect on the quality offered to consumers with a high willingness to pay mpr decreases the quality offered to this group if production of high low quality goods is capital i ntensive rorr increases decreases the quality offered to both grou ps copyright 1988 by blackwell publishing ltd

comparing model results to national climate policy goals results from the asia modeling exercise abstract while the world has yet to adopt a single unified policy to limit climate change many countries and regions have adopted energy and climate policies that have implications for global emissions in this paper we discuss a few key policies and how they are included in a set of 23 energy and integrated assessment models that participated in the asia modeling exercise we also compare results from these models for a small set of stylized scenarios to the pledges made as part of the copenhagen accord and the goals stated by the major economies forum we find that the targets outlined by the united states the european union japan and korea require significant policy action in most of the models analyzed for most of the models in the study however the goals outlined by india are met without any climate policy the stringency of climate policy required to meet china s copenhagen pledges varies across models and accounting methodologies

products with branded components an approach for premium pricing and partner selection an increasing number of products are being sold with components that themselves are brand names examples are personal computers with intel microprocessors and diet soft drinks that use the nutrasweet formulation branded components may alter consumers valuation of the bundle necessitating changes in the ways firms identify and price such bundled products surprisingly the existing marketing literature is silent on this issue the purpose of our paper is to propose an analytical approach that helps marketers of products with branded components make optimal pricing and partner selection decisions our managerial objectives are twofold a to the seller of the bundled product we suggest the optimal bundled product offering optimal selling prices of alternative products revenues and profits and b to the branded component manufacturers we indicate the most favorable alliance partners and payoff gains losses of aligning with other branded components instead of unbranded alternatives our analytical approach is also likely to be helpful to academics researching bundling and ingredient branding issues the specific problem modeled assumes the bundled product has two components that are consumed jointly furthermore each component can be either a brand name or unbranded in this model the consumer has no control over the choice of the components in the bundle the seller decides what form of bundle components i e branded or unbranded to offer we assume that the product that is marketed eventually enjoys a monopoly drawing from research in signaling and brand alliance we posit each branded component may either enrich or suppress the value of the partnering component in the bundle as perceived by the consumers our approach has three methodological stages first we build an individual level model to assess the valuation of alternative products and their principal components at the level of a randomly drawn consumer to do so we rely primarily on the theory of reservation prices and weber s theory on price value changes second we aggregate such valuation across consumers to assess the market s overall valuation for this purpose we invoke parametric distributions based on integral transform theory third we develop payoff functions based on market valuation of alternative products and supply side costs the managerial objectives are met based on results from this stage our approach was successfully applied to the context of a university bookstore that intends to sell windows based laptop computers the two principal components of the laptop computer bundle are the microprocessor chip and the personal computer platform on which the chip is implanted the seller may choose either compaq with intel inside or a simpler bundle featuring one of these with an unbranded complementary component or an entirely unbranded bundle we used data collected from 192 potential consumers via a survey included in the survey were measures of consumers perceptions of functional aspects of the components and their reservation prices for alternative bundled products the approach identified the most profitable bundle for the seller and its optimal price it also provided estimates of the revenue impact of the gain or loss for each branded component by partnering the other branded component instead of the unbranded alternative as such the model facilitates the determination of the optimal price price premium and profits for products with branded components as well as the identification of the ideal partner for each branded component manufacturer it is apt to caution that products with branded components need not always lead to price premiums or lead to win win outcomes reasons such as incongruity between the branded components or domination of one of the components over the other may drive potential consumers away thus hurting profits implications of the results to negotiate component prices are discussed in the paper the study limitations and directions for future research are also presented

reverse price discrimination with bayesian buyers this paper studies price discrimination under the situation in which buyers prior valuations are initially observable by a seller but buyers receive further information about a product or service which remains private thereafter the buyers interpret new information via bayes rule we show that in this environment prices are not monotone in buyers prior valuations interestingly this results in the possibility that a seller intentionally offers a higher price to a low valuation buyer rather than a high valuation buyer reverse price discrimination we derive this result in both monopoly and duopoly markets

the benefit from reduced energy import bills and the importance of energy prices in ghg reduction scenarios abstract the poles energy model has been used to assess asia s role in combating climate change and the benefits it stands to gain this paper focuses on the role of major asian economies in the global effort to reduce greenhouse gas emissions and the benefits to their economies from reduced energy import bills the costs of reaching ambitious emission reduction targets are offset by significant ancillary benefits such as reduced energy import bills lower energy prices account for a share of the import bill reductions

all units discounts and double moral hazard abstract an all units discount is a price reduction applied to all units purchased if the customer s total purchases equal or exceed a given quantity threshold since the discount is paid on all units rather than marginal units the tariff is discontinuous and exhibits a negative marginal price cliff at the threshold that triggers the discount this paper shows that all units discounts arise in optimal agency contracts between upstream and downstream firms that face double moral hazard i present conditions under which all units discounts dominate two part tariffs and other continuous tariffs i also examine these tariffs when the upstream market faces a threat of entry in the case considered all units discounts deter entry by less efficient rivals without distorting price and investment whereas continuous tariffs either accommodate such entry or deter it by distorting price and investment

a graphical analysis of bundling by comparing the demand for a bundle and the vertical sum of the demands for its components this article analyzes the profitability and welfare consequences of bundling if it does not lower costs bundling tends to be profitable when reservation values are negatively correlated and high relative to costs if bundling lowers costs and costs are high relative to average reservation values positively correlated reservation values increase the incentive to bundle bundling and charging a price equal to the sum of the components prices lowers consumer surplus bundling can however increase consumer surplus when it results in lower prices copyright 1995 by university of chicago press

reduction potential of co2 emissions in china s transport industry newhuadu business school research fund china sustainable energy program g 1311 19436 ministry of education 10 jbg 013 national social science foundation of china 71203186

equilibrium bank runs we analyze a banking system in which the class of feasible deposit contracts or mechanisms is broad the mechanisms must satisfy a sequential service constraint but partial or full suspension of convertibility is allowed consumers must be willing to deposit ex ante we show by examples that under the so called optimal contract the postdeposit game can have a run equilibrium given a propensity to run triggered by sunspots the optimal contract for the full predeposit game can be consistent with runs that occur with positive probability thus the diamond dybvig framework can explain bank runs as emerging in equilibrium under the optimal deposit contract

monopoly and quality distortion effects and remedies a monopolist that sells in a market in which consumers differ in their willingness to pay for quality will distort and enlarge the range of products offered for sale we examine the positive and normative impacts of remedies used to counteract such distortions for the case of a price ceiling the monopolist improves quality at the low quality end of the market offsetting the distortion induced by the unregulated exercise of monopoly power social welfare can be shown to increase for a sufficiently slight degree of price regulation for minimum quality standards the social welfare implications are ambiguous because the standards may exclude some consumers from the market

why do larger buyers pay lower prices intense supplier competition abstract the paper provides a theoretical explanation of the common claim that larger buyers pay lower prices in the model suppliers compete more aggressively for the business of larger buyers much as they do in boom periods of rotemberg and saloner

commodity bundling by single product monopolies consider two products that have independent demands in the sense that all individual buyers consider them neither substitutes nor complements then if the two products are priced separately the demand for either is independent of the price of the other in his classic analysis of block booking of feature films george stigler shows that it may be profitable for a monopoly seller of two such products to bundle them by requiring a buyer to take both in order to get either his work provides a rationale for tying arrangements that does not depend on technological or other dependencies among the products involved 2 adams and yellen extend the analysis of multiproduct monopoly with independent demands 3 they discuss two different bundling strategies pure bundling in which the seller only offers the products in fixed proportions and mixed bundling in which buyers may either buy the products separately or purchase a bundle with fixed proportions of each in this note i consider a single product monopoly and investigate the profit and welfare implications of bundling its product for some other

hedonic prices and implicit markets estimating demand and supply functions for differentiated products in choosing the level of quality to purchase the buyer of a differentiated product also chooses a point on the marginal price schedule for that product hence in general the demand functions for product characteristics cannot be consistently estimated by ordinary least squares market equilibrium results in a matching of characteristics of demanders and suppliers this matching restricts the use of buyer and seller characteristics as instruments when estimating demand and supply functions for product characteristics the paper develops these issues a stochastic structure for hedonic equilibrium models is then proposed identification results are presented and estimation procedures are outlined

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

price structure in two sided markets evidence from the magazine industry we present and estimate a model of competition in a two sided market the market for magazine readership and advertising using data on magazines in germany we find evidence that magazines have properties of two sided markets the results are consistent with the perception that prices for readers are subsidized and that magazines make all their money from advertisers consistent with advertisers valuing readers more than readers value advertisements our results imply that higher demand on the reader side increases ad rates but that higher demand on the advertising side decreases cover prices