interfering with secondary markets we present a model to address in a unified manner four ways in which a monopolist can interfere with secondary markets in the model consumers have heterogeneous valuations for quality so that used good markets play an allocative role our results are the following 1 in contrast to swan s famous independence result a monopolist does not provide socially optimal durability 2 allowing the monopolist to rent does not restore socially optimal durability and increases the monopolist s market power in the used market however forcing the monopolist to sell the goods may be a bad policy because it would lead to either lower output or lower durability 3 the manufacturer benefits from a well functioning used good market despite the fact that used goods provide competition for new goods 4 the monopolist prefers to restrict consumers abilities to maintain the good

dealing with consumer default bankruptcy vs garnishment abstract what are the positive and normative implications of eliminating bankruptcy protection for indebted individuals without bankruptcy protection creditors can collect on defaulted debt to the extent permitted by wage garnishment laws the elimination lowers the default premium on unsecured debt and permits low net worth individuals suffering bad earnings shocks to smooth consumption by borrowing there is a large increase in consumer debt financed essentially by super wealthy individuals a modest drop in capital per worker and a higher frequency of consumer default average welfare rises by 1 of consumption in perpetuity with about 90 of households favoring the change

how important is variability in consumer credit limits abstract using a large panel this paper first demonstrates that individuals gain and lose access to credit frequently the estimated credit limit volatility is larger than most estimates of income volatility and varies over the business cycle within a model variable credit limits create a reason for households to hold both high interest debts and low interest savings at the same time using the estimated credit volatility the model explains why around one third of american households engage in this credit card puzzle the approach also offers an important new channel through which financial system uncertainty can affect household decisions

recent developments in consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

optimal bankruptcy code a fresh start for some abstract what is the optimal consumer bankruptcy law i answer this question using an incomplete markets life cycle model with a planner who can choose state contingent bankruptcy costs i develop two main theoretical characterizations first whenever debt discharge is allowed it should occur without cost second bankruptcy should always be allowed for highly indebted households quantitatively the optimal policy can generate a welfare gain as large as 11 6 however attractive informal default asymmetric information and moral hazard can reduce the welfare gain to as little as 0 7

consumer debt non payment and the borrowing constraint implications for consumer behavior abstract this paper examines whether the consumption behavior of a borrowing constrained household is affected by debt non payment from the household s intertemporal maximization problem we derive a two equation model consisting of augmented forms of the standard consumption euler equation and the static labor supply equation we estimate these equations by using nonlinear gmm and obtain estimates inter alia for the discount factor and the debt payment to income ratio the former is found to be much lower than the values often used in model calibrations in the literature showing a high degree of impatience of households the latter is close to the values reported in the consumer credit literature our results are found to be robust to a number of specification tests under different types of household preferences these results are also subjected to a comparative analysis with the results derived from the consumption euler equation under full debt repayment and no borrowing constraint

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

labor market flows in the cross section and over time many theoretical models of labor market search imply a tight link between worker flows hires and separations and job gains and losses at the employer level we use rich establishment level data to assess several theoretical models and to study the relationship between worker flows and jobs flows hires quits and layoffs exhibit strong highly nonlinear relationships to employer growth rates in the cross section simple statistical models of these relationships greatly improve our ability to account for fluctuations in aggregate worker flows and enable us to construct synthetic measures of hires separations quits and layoffs back to 1990

why doesn t technology flow from rich to poor countries what determines the technology that a country adopts while there could be many factors the e ciency of the country s nancial system may play a signi cant role to address this question a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation the ability of an intermediary to monitor and control the cash ows of a rm plays an important role in a rm s decision to adopt a technology can such a theory help to explain the

desirability of compatibility in the absence of network externalities i compare the incentives firms have to produce individual components compatible with components of other manufacturers instead of systems composed of components that are incompatible with components of competing manufacturers i show that even in the absence of positive consumption externalities network externalities prices and profits will be higher in the regime of compatibility equilibrium total surplus could be higher in either regime both regimes overprovide variety compared to the surplus maximizing solution in today s environment many products are complex specified by a long array of characteristics part of the decision of the firm is to choose if it should break this long array of features into two or more smaller parts and produce the products corresponding to the smaller arrays instead of the product that embodies the full array we will call the products that correspond to these smaller arrays components and the product that corresponds to the full array a system note that components are by their definition complements components produced by different manufacturers are compatible if it is feasible for the consumers to combine them costlessly into a working system in this paper we will assume that there are two components which make up a system we will discuss competition under full compatibility when components produced by all firms are compatible with each other and under incompatibility when no components produced by different firms are compatible and no hybrid systems can exist 2 assuming availability of the same

bankruptcy and delinquency in a model of unsecured debt this article documents and interprets a fact central to the dynamics of informal consumer debt default we observe that for individuals 60 90 days late on payments i 85 make payments during the next quarter and ii 40 reduce their debt to understand these facts we develop a quantitative model of debt delinquency and bankruptcy our model reproduces the dynamics of delinquency and suggests an interpretation of the data in which lenders frequently reset loan terms for delinquent borrowers typically offering partial debt forgiveness instead of a blanket imposition of the penalty rates most unsecured credit contracts specify

consumer biases and mutual ownership abstract we show how ownership of the firm by its customers as well as nonprofit status can prevent firms from using contractual terms that take advantage of consumer biases by eliminating an outside residual claimant with control over the firm these alternatives to investor ownership reduce the incentive of the firm to offer such terms however customers who are unaware of their behavioral biases may fail to recognize this advantage of non investor owned firms we present evidence from the consumer financial services market that supports our theory comparing contract terms we find that mutually owned firms offer lower penalties such as default interest rates and higher up front prices such as introductory interest rates than do investor owned firms however consumers most vulnerable to these penalties are no more likely to use mutually owned firms

green electricity market development lessons from europe and the us this study compares the development and implementation of green electricity policies in germany the netherlands sweden and the united states a set of countries applying a range of policy instruments to encourage electricity from renewable energy sources a general tendency is identified that policies shift emphasis from r d stimulation towards dissemination and market application of renewable energy technologies we argue that in light of the long term nature of policy goals on energy security mitigation of climate change and environmental protection the applied range of policy instruments may be lacking in providing incentives for the long term development of new technologies clarifying policy objectives would allow careful selection of policy instruments including support for r d improved capacity building for policy implementation is also important

implementing the eu renewable target through green certificate markets abstract the european parliament has agreed on a target of a 20 share of renewables in the eu s total energy consumption by 2020 to achieve the target the european council has adopted mandatory differentiated national targets for each of the member states in this paper we consider the use of green certificates to reach the renewable targets and we analyze the potential for cost reductions by allowing for trade in green certificates across member states we show that differentiated national targets cannot ensure a cost effective implementation of the overall target for the eu s renewable energy consumption trade in green certificates can ensure a cost effective distribution of renewable energy production but the national targets prevent a cost effective distribution of energy consumption nevertheless our numerical model indicates that eu wide trade in green certificates may cut the eu s total cost of fulfilling the renewable target by as much as 70 compared with a situation with no trade however the design of green certificate markets may have a large impact on the distribution of costs across countries

consumer bankruptcy a fresh start consumer bankruptcy provides partial insurance against bad luck but by driving up interest rates makes life cycle smoothing more difficult we argue that to assess this trade off one needs a quantitative model of consumer bankruptcy with three key features life cycle component idiosyncratic earnings uncertainty and expense uncertainty exogenous negative shocks to household balance sheets we find that transitory and persistent earnings shocks have very different implications for evaluating bankruptcy rules more persistent shocks make the bankruptcy option more desirable larger transitory shocks have the opposite effect our findings suggest the current us bankruptcy system may be desirable for reasonable parameter values jel d14 d91 k35

the danish green certificate system some simple analytical results we formulate a simple static equilibrium model for the electricity market taking account of both green certificates and co2 emission permits the objective is to investigate the relationship between these markets under the existence of upper and lower price bounds on the green certificates both in the short and in the long run we perform various comparative static changes of the parameters of the model and study how these affect the endogenous variables of the model as well as producers and consumers surplus we also investigate the effects of imports and exports of electricity several comparative static results are derived and in particular it is shown that harsher co2 emission constraints and increased import wholesale price both may lead to reduced capacity of green electricity

carbon trading in the policy mix the kyoto protocol is stimulating the development of emissions trading schemes at the national and international levels these are being introduced alongside existing policy instruments such as carbon taxes and negotiated agreements leading to complex problems of policy interaction but the topic of policy interaction remains under researched this paper aims to improve understanding of such interactions by examining the conditions under which a cap and trade scheme for carbon dioxide emissions may usefully coexist with carbon energy taxes support mechanisms for renewable electricity and policies to promote energy efficiency the paper argues that each of these instrument combinations may be acceptable provided they contribute to either improving the static or dynamic efficiency of the trading scheme or delivering other valued policy objectives but since the coexisting instruments may raise overall abatement costs while contributing nothing further to emission reductions the objectives and trade offs within the policy mix must be explicit

smart srec a stochastic model of the new jersey solar renewable energy certificate market markets for solar renewable energy certificates srecs are gaining in promi nence in many states stimulating growth of the u s solar industry however srec market prices have been extremely volatile causing high risk to participants and potentially less investment in solar power generation such concerns necessitate the development of realis tic flexible and tractable models of srec prices that capture the behavior of participants given the rules that govern the market we propose an original stochastic model called smart srec to fill this role building on established ideas from the carbon pricing liter ature and including a feedback mechanism for generation response to prices we calibrate the model to the new jersey market and backtest it analyzing parameter sensitivity and demonstrating its ability to reproduce historical dynamics finally we run simulations to investigate the role and impact of regulatory parameters thus providing insight into the crucial role played by market design

revisiting dynamic duopoly with consumer switching costs abstract the degree of collusiveness of a market with consumer switching costs is analyzed in an infinite horizon model of duopolistic competition in contrast with previous analyses we assume that firms compete for the demand for a homogeneous good by setting prices simultaneously in each period this problem is formulated as a simple stochastic game and a symmetric stationary markovian perfect equilibrium with distinctive economic features is studied we show that switching costs unambiguously relax price competition in equilibrium but that on the contrary they may make tacit collusion more difficult to sustain journal of economic literature classification numbers c73 d43 l13

revolving credit lines and targeted search abstract i propose a model of revolving credit lines and targeted search to analyze what accounts for the profitability of the u s credit card industry my analyses lead to two main findings first the search friction has minimal impact on the level of profitability of the credit card industry most of the profitability is a result of the lender choosing the terms of contract second improved information about consumers accounts for the fall in profitability since the 1980s consistent with the data lenders respond to more information by increasing credit card limits and lowering markups

a model of money and credit with application to the credit card debt puzzle many individuals simultaneously have significant credit card debt and money in the bank the credit card debt puzzle is given high interest rates on credit cards and low rates on bank accounts why not pay down the debt while economists have gone to elaborate lengths to explain this observation we argue it is a special case of the rate of return dominance puzzle from monetary economics we analyze the issue by extending standard monetary theory to incorporate consumer debt this seems interesting in its own right since developing models where money and credit coexist is a long standing challenge and it helps put into context recent discussions of consumer debt

the persistence of financial distress using recently available proprietary panel data we show that while many 35 us consumers experience financial distress at some point in the life cycle most of the events of financial distress are primarily concentrated in a much smaller proportion of consumers in persistent trouble roughly 10 of consumers are distressed for more than a quarter of the life cycle and less than 10 of borrowers account for half of all distress events these facts can be largely accounted for in a straightforward extension of a workhorse model of defaultable debt that accommodates a simple form of heterogeneity in time preference but not otherwise

decarbonizing europe s power sector by 2050 analyzing the economic implications of alternative decarbonization pathways abstract the european union aims to reduce greenhouse gas emissions by 80 95 in 2050 compared to 1990 levels the transition towards a low carbon economy implies the almost complete decarbonization of europe s power sector which could be achieved along various pathways in this paper we evaluate the economic implications of alternative energy policies for europe s power sector by applying a linear dynamic electricity system optimization model in over 36 scenarios we find that the costs of decarbonizing europe s power sector by 2050 vary between 139 and 633 bn 2010 which corresponds to an increase of between 11 and 44 compared to the total system costs when no co2 reduction targets are implemented in line with economic theory the decarbonization of europe s power sector is achieved at minimal costs under a stand alone co2 reduction target which ensures competition between all low carbon technologies if however renewable energies are exempted from competition via supplementary renewable energy res e targets or if investments in new nuclear and ccs power plants are politically restricted the costs of decarbonization significantly rise moreover we find that the excess costs of supplementary res e targets depend on the acceptance of alternative low carbon technologies for example given a complete nuclear phase out in europe by 2050 and politically implemented restrictions on the application of ccs to conventional power plants supplementary res e targets are redundant while in such a scenario the overall costs of decarbonization are comparatively high the excess costs of supplementary res e targets are close to zero

some implications of investment cost reduction policies in energy markets employing green certificate systems around the world green certificate systems are widely employed as support mechanisms for the promotion of renewable energy production due to large initial capital costs for renewable energy projects investment cost reduction policies are often employed by policy makers as complementary support measures in this note we study some implications of the use of investment cost reduction policies in an energy market operated under a green certificate system we demonstrate that paradoxically use of or intensification of investment cost reduction policies results in increased emissions from fossil fuel black producers welfare effects depend on the distribution of costs and benefits to the relevant interest groups however if the policy objective requires maintaining a constant level of emissions investment cost mitigation must be accompanied by a simultaneous upward adjustment in the renewables target

a new perspective on planned obsolescence automobile manufacturers have long had a policy of introducing annual style changes into their new model cars textbook publishers have a policy of periodically bringing out revised editions of their popular books recently ibm changed the operating system used in its personal computers causing a reduction in the compatibility between its old and new machines if one were to ask the typical man in the street to explain what is happening in these markets he would not hesitate before giving the following answer in economists terminology he would say that for the above firms the incentive to introduce new products that make old units obsolete is too high i e the firms have an incentive to practice planned obsolescence of course just as is true for the man in the street economists have also long observed and commented on the speed with which new products are introduced for example galbraith 1958 suggests that the annual model changes of automobile manufacturers are socially wasteful while fisher griliches and kaysen 1962 provide empirical estimates of the costs of these changes there have also been numerous theoretical attempts to model the idea of planned obsolescence or the related idea of killing off the market for secondhand goods but most of these models have in fact considered the choice a monopolist faces concerning how much durability to build initially into his product rather than the monopolist s incentive to introduce new versions of his product over time 1 in this paper i consider planned obsolescence from the standpoint of a firm that can change the nature of what it sells and show that the man in the street is in fact correct in many settings the incentive for a durable goods monopolist to introduce new products that make old units obsolete will be above that which is socially optimal

financing development the role of information costs to address how technological progress in nancial intermediation aects the economy a costly state veri cation framework is embedded into the standard growth model the framework has two novel ingredients first rms dier in the risk return combinations that they oer second the e cacy of monitoring depends upon the amount of resources invested in the activity a nancial theory of rm size results undeserving rms are over nanced deserving ones under funded technological advance in intermediation leads to more capital accumulation and a redirection of funds away from unproductive rms toward productive ones quantitative analysis suggests that nance is important for growth

optimal regulation of renewable energy a comparison of feed in tariffs and tradable green certificates in the spanish electricity system abstract incentives for renewable energy based on feed in tariffs have succeeded in achieving high levels of renewable installed capacity however these incentives have not been responsive to market conditions or price signals imposing in some cases a great financial burden on consumers when renewable energy sources reached significant levels a way out of this problem could be a market mechanism where incentives respond to the level of investment on renewables we explore this issue comparing a regulatory system based on tradable green certificates able to react to market changes to a feed in tariffs incentive scheme we model the strategic interaction between participants in the electricity pool and the tradable green certificates market and focus on the optimal regulation for the retailer segment which generates the desired demand for green certificates as a decreasing function of the certificate price we then calibrate our theoretical model with data from the spanish electricity system for the period 2008 2013 simulations show that a green certificate scheme could both achieve the 2020 targets for renewable electricity and reduce regulatory costs however the role of regulators is still important since setting the right target for renewable electricity affects the cost burden of the system

electricity markets for energy flexibility and availability impact of capacity mechanisms on the remuneration of generation technologies abstract increased shares of renewable energy sources res to fulfill ambitious european policy targets mothballing or decommissioning of existing units and absent investments lead to concerns about the system and market adequacy to restore market adequacy capacity mechanisms cms are widely discussed and implemented in various types they are intended to provide sufficient and clearly perceivable long term price signals for available capacity as integral part of the market cms interact with the other markets markets like day ahead markets are used to trade energy imbalance markets or reserve requirements are examples for markets for flexibility among others green certificates are in place to value emission neutral injection from res resulting altered prices and shifting remuneration have effects on all generation technologies cms may affect participating technologies by imposing a capacity demand a resulting change in the generation mix may also have an impact on non participating technologies two gaps can be identified in the discussion and modeling of cms in the literature first proposed game theoretic equilibrium models fall short in representing the distinctive features of different types of cms second most models incorporating cms found in the literature only focus on the interaction with the energy based market valid assessments of cm need to consider the interaction of remuneration for available capacity and flexibility and the indirect interaction with the remuneration for emission neutral res two formulations of a game theoretic market equilibrium model are proposed which represent specific cms with its distinctive features in particular a market wide centralized capacity market ccm and targeted strategic reserves srs moreover the equilibrium models explicitly combine the cms with markets for flexibility and indirect with remuneration for res we contribute to the discussion of cms by quantifying the interactions and shifting shares of remuneration based on the interaction between cms and remuneration for emission neutral injection the effect of cms on non participating res is described we conclude based on the case study results that targeted mechanisms like srs implemented with the single purpose of ensuring availability introduce large inefficiencies in the system by missing on the interaction between availability and flexibility in contrast a market wide ccm provides a beneficial outcome for all technologies at the same time it yields a sufficient high reserve margin at lowest cost it provides clear signals for the different values of energy output flexibility availability and emission neutral injection

recent developments in consumer credit and default literature consumer credit and default literature this survey discusses recent contributions to the quantitative literature on unsecured consumer debt and default and some ongoing challenges for the literature key topics include the sources of the rise in personal bankruptcies the importance of asymmetric information and the effects of developments in information technologies on consumer credit markets delinquency and informal bankruptcy debt collection and restructuring of distressed debt the cyclical behavior of consumer debt and default and the insurance role of household debt implications for welfare analysis and policy design are discussed several theoretical contributions and approaches to modeling the consumer credit markets are also highlighted

consumer myopia standardization and aftermarket monopolization abstract in this paper i show that the standard bertrand competition argument does not apply when firms compete for myopic consumers who optimize period by period i develop the model in the context of aftermarket with overlapping generations of consumers simultaneous product offerings in the primary market and aftermarket establishes a price floor for the primary good this constraint prevents aftermarket rents from being dissipated by the primary market competition duopoly firms earn positive profits despite price competition with undifferentiated products nonetheless government interventions to reinforce aftermarket competition such as a standardization requirement may lead to the partial collapse of the primary market

planned obsolescence and the r d decision by investing in rd i e the r d choice that maximizes current profitability does not maximize overall profitability the result is that if output is sold rather than rented then in its r d decision the monopolist has an incentive to practice a type of planned obsolescence that lowers its own profitability

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

tying foreclosure and exclusion in recent years the leverage theory of tied good sales has faced heavy and influential criticism in an important sense though the models used by its critics are actually incapable of addressing the leverage theory s central concerns here the author reconsiders the leverage hypothesis and argues that tying can indeed serve as a mechanism for leveraging market power the mechanism through which this leverage occurs its profitability and its welfare implications are discussed in detail copyright 1990 by american economic association

network externality compatibility choice and planned obsolescence this paper attempts to provide a formal theory of planned obsolescence based on incompatible technologies in the presence of network externalities the author explores how a monopolist s ability to make the new product incompatible with the old version of a product constrains the optimal dynamic behavior of the monopolist the social optimum and the market equilibrium are compared finally the possibility of quality distortion is considered as a commitment mechanism to the future compatibility choice copyright 1994 by blackwell publishing ltd

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

wage risk and employment risk over the life cycle we specify a structural life cycle model of consumption labour supply and job mobility in an economy with search frictions that allows us to distinguish between different sources of risk and to estimate their effects the sources of risk are shocks to productivity job destruction the process of job arrival when employed and unemployed and match level heterogeneity our model allows for four main social insurance programmes in contrast to simpler models that attribute all income fluctuations to shocks our framework allows us to disentangle the effects of the shocks from the responses to these shocks estimates of productivity risk once we control for employment risk and for individual labour supply choices are substantially lower than estimates that attribute all wage variation to productivity risk increases in productivity risk impose a considerable welfare loss on individuals and induce substantial precautionary saving increases in employment risk have large effects on output and primarily through this channel affect welfare the welfare value of government programs such as food stamps which partially insure productivity risk is greater than the value of unemployment insurance which provides partial insurance against employment risk and no insurance against persistent shocks

consumer inattention and bill shock regulation for many goods and services such as electricity health care cellular phone service debit card transactions or those sold with loyalty discounts the price of the next unit of service depends on past usage as a result consumers who are inattentive to their past usage but are aware of contract terms may remain uncertain about the price of the next unit i develop a model of inattentive consumption derive equilibrium pricing when consumers are inattentive and evaluate bill shock regulation requiring firms to disclose information that substitutes for attention when inattentive consumers are sophisticated but heterogeneous in their expected demand bill shock regulation reduces social welfare in fairly competitive markets which may be the effect of the federal communication commission s recent bill shock agreement if some consumers are attentive while others naively fail to anticipate their own inattention however then bill shock regulation increases social welfare and can benefit consumers hence requiring zero balance alerts in addition to the federal reserve s new opt in rule for debit card overdraft protection may benefit consumers

interactions of a tradable green certificate market with a tradable permits market abstract the reduction of greenhouse gas ghg emissions is an important goal in the energy and environmental policies of the european union eu and its member states according to a recent directive proposal from the eu commission the inclusion of renewable technologies is one of the important ways to achieve this emission reduction more policy instruments are on hand to pursue this objective frequently discussed currently is the establishing of a market for tradable permits for co2 emissions to achieve emission reductions in the power industry in parallel with this is the introduction of a green certificate market to promote the development of renewables if these two instruments are brought into play at the same time two separate markets with two individual targets will co exist in a number of countries with a focus on the green certificate market this paper discusses how these two markets may interact with each other in international trade three different cases are analysed 1 a green certificate market without any tradable permits scheme 2 a green certificate market in combination with a tradable permits scheme based on grandfathering and finally 3 a green certificate market in combination with a tradable permits bidding scheme emphasis is placed on analysing the pricing mechanisms in international trade at the green certificate and tradable permits market in relation to the value of the reductions in ghg emissions actually achieved the influence of the permits scheme on the spot market price of electricity is shown and the benefits of trading green certificates compared to a domestic implementation of renewable technologies are discussed the main conclusion is that only if a green certificate market is combined with a tradable permit scheme based on a bidding procedure will trade in certificates be equivalent to the domestic development of renewables using the bidding system no other country will have to pay for co2 reductions in the home country of the renewable development as would otherwise be the case if a tradable permit system based on grandfathering were introduced or even worse if no tradable permits were introduced at all finally it must be stated that even if the green certificate market were introduced alongside with a tradable permit bidding system there still would be no incentives for international certificate trade on account of the need for ghg reductions in the version of the green certificate market discussed in this paper no ghg credits are attached to certificates this means that the development of renewables will add to ghg reductions only in those countries where the plants are established no matter what kind of tradable permit scheme is adopted

refusals to deal and orders to supply in competitive markets abstract a number of recent antitrust cases in north america and europe have involved allegations that manufacturers of durable products have refused to supply parts to independent service organizations apparently to monopolize the market for repairs of their products this paper analyzes such refusals in a competitive market and connected aftermarket in this model the refusals help to support higher prices for high intensity high value users however these higher charges permit the recovery of higher costs incurred during an initial warranty period since full prices equal full marginal costs in equilibrium the refusals permit the attainment of a first best outcome and an attempt by antitrust authorities to force supply will be welfare reducing

cost effectiveness of renewable electricity policies we analyze policies to promote renewable sources of electricity a portfolio standard rps raises electricity prices and primarily reduces gas fired generation a knee of the cost curve exists between 15 and 20 goals for 2020 in our central case and higher natural gas prices lower the cost of greater reliance on renewables a renewable energy production tax credit lowers electricity price at the expense of taxpayers which limits its effectiveness in reducing carbon emissions and it is less cost effective at increasing renewables than a portfolio standard neither policy is as cost effective as a cap and trade policy for achieving carbon emission reductions

mixed pricing in oligopoly with consumer switching costs abstract in this paper we develop an alternative and more natural two period model of duopolistic competition with switching costs we find that overall competition is always less severe when consumers find switching suppliers expensive however the relationship between the strength of competition and the importance of switching costs is not monotonic interestingly competition between ex ante identical firms naturally results in firms having asymmetric market shares in equilibrium

a model of add on pricing this paper examines competitive price discrimination with horizontal and vertical taste differences consumers with higher valuations for quality are assumed to have stronger brand preferences two models are considered a standard competitive price discrimination model in which consumers observe all prices and an add on pricing game in which add on prices are naturally unobserved and firms may advertise a base good at a low price in hopes of selling add ons at high unadvertised prices in the standard game price discrimination is self reinforcing the model sometimes has both equilibria in which the firms practice price discrimination and equilibria in which they do not the analysis of the add on pricing game focuses on the chicago school argument that profits earned on add ons will be competed away via lower prices for advertised goods a conclusion is that add on practices can raise equilibrium profits by creating an adverse selection problem that makes price cutting unappealing although profitable when jointly adopted using add on pricing is not individually rational in a simple extension with endogenous advertising practices and costless advertising several models that could account for add on pricing are discussed

independent service organizations and economic efficiency david e mills i introduction many manufacturers of capital equipment provide maintenance service to their equipment users sometimes equipment and service are sold separately and at other times they are bundled for example through leases and rental agreements numerous recent antitrust cases revolve around allegedly anti competitive practices used by some manufacturers to deter independent service organizations isos from servicing the manufacturer s equipment indeed the volume of cases brought by isos in the past decade exceeds litigation in more conventional antitrust areas like antimerger disputes and cases under the robinson patman act 1 the controversial practices in these cases include tying sales of equipment and service tying sales of service and other aftermerket products refusals to sell replacement parts to isos and refusals to license operating or diagnostic software to isos the pivotal issue in these cases is whether practices that deter isos injure competition in the service aftermarket 2 manufacturers claim their customers shop for equipment and service simultaneously that is customers choose a proprietary system comprised of equipment service and other components instead of merely choosing a brand of equipment this line of reasoning holds that interbrand competition for systems disciplines the pricing of every component in tile system and therefore is sufficient to protect equipment users welfare if one manufacturer s equipment is priced above rivals the high priced equipment manufacturer must supply service at a lower price than its rivals to remain competitive on a total cost of ownership tco basis 3 brand specific intrabrand competition in the service aftermarket is not necessary to maximize equipment users welfare because systems competition is sufficient manufacturer practices that deter isos or discourage intrabrand service competition canno t injure competition isos claim that systems competition does not adequately discipline manufacturers service pricing once customers acquire a piece of durable equipment they cannot replace it with another brand without incurring switching costs thus as salop argues such customers become locked in to the manufacturer for maintenance service and are left vulnerable to opportunistic service pricing throughout the useful life of the equipment 1993 the only protection customers enjoy from exploitation by manufacturers in the service aftermarket is the protection afforded by isos in the much cited kodak decision 4 the supreme court rejected the notion that inter brand competition in systems or equipment is always sufficient to prevent the exercise of monopoly power in the service aftermarket the court was influenced by recent economic research that highlights theoretical opportunities for equipment manufacturers to exploit their locked in customers these theoretical opportunities stem from information costs faced by customers and incomplete contracts between manufacturers and their customers 5 carl shapiro recounted the available theories of antitrust injury 1995 485 that apply to these circumstances these theories include i incomplete information where customers who are poorly informed about the tco of competing brands of equipment are exploited by manufacturers once they become locked in ii opportunistic pricing where manufacturers break trust with their locked in customers and sacrifice their reputations by implementing unanticipated increases in service pricing iii inability to commit where higher than competitive service pricing and lower than competitive equipment pricing arise because manufacturers cannot provide contractual assurances about future service prices 6 and iv better opportunities for price discrimination afforded by the absence of independent maintenance providers the price discrimination theory of lock in exploitation differs from the previous three in that price discrimination often improves rather than impairs market performance

market regulation of voluntary add on contracts abstract this paper analyzes contract choices and the effectiveness of consumer protection policies when firms can offer voluntary add on insurance for their products we develop a model in which a base product can be sold together with a voluntary extended warranty contract that insures consumers against the risk of product breakdown some consumers do not pay attention to extended warranties before making base product choices but overestimate the value of such warranties at the point of sale under retail competition the consumers option to buy multiple base products can endogenously create a base price floor that may prevent firms from redistributing the full warranty profits via loss leadership inducing competition in the warranty market weakly increases consumer welfare and weakly outperforms a minimum warranty standard which can even reduce consumer surplus the results are consistent with the effects of recent changes regarding extended warranty regulation by uk legislators

feed in subsidies taxation and inefficient entry we study energy markets with dirty production and lumpy entry costs of clean production renewables for intermediate entry costs markets yield inefficient production and inefficient entry a mix of three popular regulatory instruments polluter taxation feed in subsidies for renewables and consumption taxation cannot correct these market failures for larger entry costs the instruments are imperfect because they affect marginal incentives whereas entry is a lumpy fixed cost problem whenever the first best is implementable feed in subsidies and consumption taxes are redundant the second best requires feed in subsidies or consumption taxes in addition to a pollution tax and overshoots first best levels given production levels the instruments do not affect the regulator s budget

long duration bonds and sovereign defaults abstract this paper extends the baseline framework used in recent quantitative studies of sovereign default by assuming that the government can borrow using long duration bonds this contrasts with previous studies which assume the government can borrow using bonds that mature after one quarter we show that when we assume that the government issues bonds with a duration similar to the average duration of sovereign bonds in emerging economies the model generates an interest rate that is substantially higher and more volatile than the one obtained assuming one quarter bonds this narrows the gap between the predictions of the model and the data which indicates that the introduction of long duration bonds may be a useful tool for future research about emerging economies our analysis is also relevant for the study of other credit markets

default insurance and debt over the life cycle abstract the widespread use of debt and default suggests that unsecured credit markets play an important role in consumption smoothing in this paper i address two previously unanswered questions first how does policy towards debt default affect the evolution of consumption and net worth over the life cycle second how does debt default policy interact with social insurance over the life cycle the findings are as follows first us default policy appears lax in the sense that it creates severe credit constraints especially for the young second eliminating default will lower consumption inequality among the young but will increase it among the old third social insurance alters default risk and in turn loan pricing and therefore matters for purely intertemporal smoothing

eliminating the market for secondhand goods an alternative explanation for leasing there are a number of prominent specific instances in which a durable goods manufacturer with significant market power employed a lease only policy i united shoe in the market for shoe machinery ii ibm in the market for computers and iii xerox in the market for copiers the obvious question that arises is why would such a firm prefer leasing over selling in this article i argue that one role of the lease only policy was to eliminate the market for secondhand goods the article formally demonstrates the argument discusses the relationship between this article and earlier literature on secondhand markets and discusses the implications for antitrust policy

are tradable green certificates a cost efficient policy driving technical change or a rent generating machine lessons from sweden 2003 2008 in the european policy debate tradable green certificates tgc have been suggested to be a superior regulatory framework for promoting the diffusion of renewable electricity technologies the purpose of this paper is to assess the performance of the swedish tgc system contributing to the european debate on the suitability of different types of frameworks the expectations of the tgc system were that it would a be effective in terms of increasing the supply of green electricity b do this in a cost effective manner from both a social and a consumer perspective c generate an equitable distribution of costs and benefits and d drive technical change so far it has performed adequately in terms of effectiveness and social cost effectiveness however consumer costs have been substantially higher than expected very large rents are generated and at best it contributes marginally to technical change thus a tgc framework should be selected if the overriding concern is to minimize short term social costs of reaching a certain goal with a high degree of predictability however it cannot be expected to also drive technical change keep consumer costs down and be equitable such trade offs need to be revealed and not obscured by analysts

how unsecured credit policies influence mortgage and unsecured loan defaults before the global financial crisis the proportion of households defaulting on the mortgage while remaining current on the unsecured loan was almost the same as the proportion of households current on the mortgage but defaulting on the unsecured loan after the crisis the former ratio became higher than the latter by using a heterogeneous agent model with the mortgage and the unsecured loan i examine how the order of defaults changed before and after the crisis i then analyze the impacts of unsecured credit policies on households mortgage and unsecured loan defaults my quantitative exercise shows that both default rates can decrease as the cost for unsecured loan defaults increases

renewable generation expansion under different support schemes a stochastic equilibrium approach abstract following the deregulation of electricity markets a current challenge of policy makers is to facilitate the transition to a sustainable power system at the highest welfare for society in this paper we investigate the efficiency of different support schemes such as a feed in tariff a feed in premium and tradable green certificates with respect to incentivizing the required investments in renewable generation we consider a number of generation expansion problems and formulate stochastic equilibrium models that account for uncertainty in demand and renewable supply the risk aversion of investors and the competitiveness of the market the problem of the policy maker is formulated as a mathematical program with equilibrium constraints mpec and as a non linear complementarity problem ncp for the feed in schemes and the certificate market respectively our models are solved for a small illustrative example and a larger case study based on the danish power system the results confirm that the main driver for the optimal choice of renewable support scheme is the aversion of power producers towards price and volume risk while the competitiveness of the market rarely affects such choice

the neo luddite s lament excessive upgrades in the software industry we examine two reasons why a monopoly supplier of software may introduce more upgrades than is socially optimal when the upgrade is backward but not forward compatible so users who upgrade reduce others network benefits one explanation involves a commitment problem profits and social welfare may suffer because ex post the monopolist will want to sell the upgraded product to new consumers the second involves consumer heterogeneity here oversupply arises from the difference between the externality that upgrades impose on the marginal and average consumer and from the effect of upgrades on sales of the base good

the policy implications of the different interpretations of the cost effectiveness of renewable electricity support abstract the cost effectiveness of support for renewable electricity is a main criterion to assess the success of policy instruments together with effectiveness the costs of support are also a source of significant concern for governments all over the world however significant confusion exists in the literature on the cost effectiveness of public support for renewable electricity while some authors define the concept of cost effectiveness as that which complies with the equimarginality principle many others including documents from relevant organisations european commission international energy agency intergovernmental panel on climate change define it as the lowest costs of support generally equating it with the minimisation of consumer costs the aim of this paper is to clarify the differences between both approaches and their policy implications regarding the choice of instruments and design elements it is shown that they partly overlap and that their policy implications clearly differ leading to very different policy prescriptions while the former favours technology neutral instruments and design elements the minimisation of consumer costs approach favours instruments and design elements which adjust support levels to the costs of the technologies

when renewable portfolio standards meet cap and trade regulations in the electricity sector market interactions profits implications and policy redundancy emission trading programs c t and renewable portfolio standards rps are two common tools used by policymakers to control ghg emissions in the energy and other energy intensive sectors little is known however as to the policy implications resulting from these concurrent regulations especially given that their underlying policy goals and regulatory schemes are distinct this paper applies both an analytical model and a computational model to examine the short run implications of market interactions and policy redundancy the analytical model is used to generate contestable hypotheses while the numerical model is applied to consider more realistic market conditions we have two central findings first lowering the co2 c t cap might penalize renewable units and increasing the rps level could sometimes benefit coal and oil and make natural gas units worse off second making one policy more stringent would weaken the market incentive which the other policy relies upon to attain its intended policy target

a little paradox in the design of regulatory mechanisms several incentive mechanisms have been suggested in the literature to induce regulated monopolists to choose welfare maximiz ing prices and cost levels for their services among the desirable pr operties of such mechanisms is that their application should be contr ollable by third parties verifiability a mechanism recently de signed by sappington and sibley 1988 incremental surplus subsidy which is otherwise ideal in its properties fails to be verifiable a verifiable crude first order approximation to this mechanism retains some but lacks other of the nice properties possessed by increment al surplus subsidy this paper therefore analyzes closer second orde r approximations to incremental surplus subsidy paradoxically thes e approximations in a crucial sense are shown to perform worse than t he cruder approximation copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association