the limits of market oriented regulatory techniques the case of automotive fuel economy the search for more efficient market oriented regulatory techniques has produced significant recent advances in several areas among these would appear to be the corporate average fuel economy cafe approach to reducing gasoline consumption by the domestic automobile fleet the 1975 energy policy and conservation act required manufacturers to sell fleets with a sales weighted average of 18 miles per gallon in the 1978 model year 19 mpg in 1979 20 mpg in 1980 and 27 5 mpg in 1985 1 the standards for the four intervening years were subsequently set by the national highway traffic safety administration at 22 24 26 and 27 miles per gallon the advantages of the averaging approach over uniform vehicle standards or a gas guzzler tax are two fold first cafe permits each firm to increase its overall fuel efficiency in the cheapest manner since the costs of mileage improvements for different vehicles may be rather different 2 and second it permits the continuation of a diverse product mix to the consumer since a uniform standard would probably result in the demise of certain models these arguments for averaging are now so widely accepted that the principle is being proposed inter alia for automotive emissions standards as well that is instead of maximum allowable emissions for each and every model manufacturers could produce models with various levels of pollutants

is the stock market sticker shocked a study of market response to recent cafe regulations in the us in response to increasing environmental concerns to improve energy security and to conserve energy use the us government has proposed a new round of corporate average fuel economy cafe standards many studies have focused on how the cafe standard can be met by various automakers that have sales in the us market and the costs and benefits of the companies meeting the standard however the stock markets view on the impact of the standard on automakers profitability is largely absent we study the more recent episode of the cafe regulation in an effort to try to detect the market response using the standard event study method our empirical findings suggest that while the stock market had some responses to the regulation the large scale and systematic reaction to the regulation is absent in addition the market response pattern to the regulation appears to be tied to the individual company s compliance condition if there is any significant response at all

uniqueness of stationary equilibrium payoffs in the baron ferejohn model abstract we consider a multilateral sequential bargaining model in which the players may differ in their probability of being selected as the proposer and the rate at which they discount future payoffs for games in which agreement requires less than unanimous consent we characterize the set of stationary subgame perfect equilibrium payoffs with this characterization we establish the uniqueness of the equilibrium payoffs for the case where the players have the same discount factor we show that the payoff to a player is nondecreasing in his probability of being selected as the proposer for the case where the players have the same probability of being selected as the proposer we show that the payoff to a player is nondecreasing in his discount factor journal of economic literature classification numbers c72 c78 d70

impacts of long range increases in the fuel economy cafe standard i introduction and background in 1975 the u s government enacted legislation regulating the fuel efficiency of new motor vehicles the apparent objective of this law is to reduce american dependence on foreign oil after large increases in the price of petroleum in the late 1990s and with continued conflict in the middle east corporate average fuel economy cafe standards once again became a topic of interest a number of proposals for changing the cafe standards were discussed in congress in early 2002 culminating in a defeat in the senate of an amendment that would have required a 50 increase in the relevant cafe standards in place of that increase the senate voted to require the executive branch to examine the impact of further increases in the cafe standard this work evaluates the long term economic implications of raising the standard by 3 0 miles per gallon mpg above current levels in industry parlance this approach is sometimes referred to as technology forcing i choose 3 0 mpg because it reflects the focus of a may 2001 report by the vice president s task force on energy policy and because it reflects several legislative proposals in congress 1 the long term refers to a length of time such that manufacturers can adjust vehicle technologies and powertrain designs to reduce the amount of fuel required to move a given amount of mass or to achieve a given amount of performance or acceleration per gallon of fuel consumed previous work on cafe standards such as kleit 1990 and thorpe 1997 focused on short term responses to higher cafe standards where technology forcing was not an option for manufacturers the analysis is conducted under two different scenarios the first scenario is that cafe standards are not binding in the current marketplace the second scenario takes account of the current impact of cafe standards and then analyzes the costs and benefits of increasing the standards the costs of cafe standards are broken down into two areas the changes in consumer and producer surplus and the increase in externalities caused by the increased driving that higher cafe standards induce the plan of this article is as follows section ii reviews the history of cafe standards and briefly discusses the rationale for the regulation section iii develops a model in which the current cafe standard is assumed to be nonbinding section iv provides estimates of the impacts for a long term 3 0 mpg cafe increase under the assumption that the current standard is not binding section v then revises the model to take into account the arguably more realistic assumption that the existing cafe standard was in fact binding it then reports estimates for a long term 3 0 mpg increase section vi provides a brief cost benefit analysis of cafe increases and section vii provides a summary and conclusion ii background on automobile fuel economy standards a brief history of the cafe program the cafe program as enacted in 1975 called for all manufacturers selling more than 10 000 autos per year in the united states to reach the mandated cafe levels cafe levels rose from 19 0 mpg in 1978 to 27 5 mpg in 1985 and later years a manufacturer s domestic and foreign cars are placed in separate cafe categories based on the domestic context of the vehicle if a car has over 75 american context it is considered domestic and placed in the domestic pool otherwise it is placed in the foreign car pool see kleit 1990 for a discussion light trucks pickup trucks sport utility vehicles suvs and minivans were placed in a different cafe pool than cars when cafe standards were originally passed these vehicles represented a small fraction of the relevant market by 2001 however such vehicles made up approximately one half of the sales of personal vehicles in 2001 light trucks were required to reach 20 7 mpg there is no domestic and foreign division in the cafe regulation for light trucks

is there an energy efficiency gap many analysts have argued that energy efficiency investments offer an enormous win win opportunity to both reduce negative externalities and save money this overview paper presents a simple model of investment in energy using capital stock with two types of market failures first uninternalized externalities from energy consumption and second forces such as imperfect information that cause consumers and firms not to exploit privately profitable energy efficiency investments the model clarifies that only if the second type of market failure cannot be addressed directly through mechanisms such as information provision energy efficiency subsidies and standards may be merited this chapter therefore reviews the empirical work on the magnitude of profitable unexploited energy efficiency investments a literature which frequently does not meet modern standards for credibly estimating the net present value of energy cost savings and often leaves other benefits and costs unmeasured these problems notwithstanding recent empirical work in a variety of contexts implies that on average the magnitude of profitable unexploited investment opportunities is much smaller than engineering accounting studies suggest finally there is tremendous opportunity and need for policy relevant research that utilizes randomized controlled trials and quasi experimental techniques to estimate the returns to energy efficiency investments and the welfare effects of energy efficiency programs

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

the power of the last word in legislative policy making we examine legislative policy making in institutions with two empirically relevant features agenda setting occurs in real time and the default policy evolves we demonstrate that these institutions select condorcet winners when they exist provided a sufficient number of individuals have opportunities to make proposals in policy spaces with either pork barrel or pure redistributional politics where a condorcet winner does not exist the last proposer is effectively a dictator or near dictator under relatively weak conditions

offsetting behavior effects of the corporate average fuel economy standards john m yun 1 introduction consumers value many attributes of an automobile the problem for regulators is that many features are highly interrelated such as safety and fuel economy improvements both features are highly correlated with vehicle weight greater weight increases the level of safety in terms of crashworthiness but decreases the fuel economy therefore regulatory attempts to improve fuel economy such as the corporate average fuel economy cafe standards 1 are likely to alter average vehicle weight which will alter the safety of a vehicle crandall and graham 1989 find the reduction in weight attributable to cafe results in a 14 28 increase in occupant fatality risk this article seeks to determine whether drivers are changing their behavior to mitigate the detrimental safety effects of cafe which is essentially another application of peltzman s 1975 offsetting behavior hypothesis cafe through a reduction in passenger car weight will increase the ex ante cost of risky driving 2 relative to its expected benefit the reason is that once an accident occurs the probability of serious injury or death has increased the offsetting behavior hypothesis is that consumers aware of the increased vulnerability will exercise greater due care and reduce the amount of risky driving on the road as a result of cafe however cafe has not just affected the average passenger car weight godek 1997 and yun 1999 indicate that cafe has positively affected the relative sales of light trucks 3 to passenger cars if we assume that light trucks are basically heavy cars with greater visibility the same arguments made for offsetting behavior on the part of passenger car drivers can be applied here 4 the main difference is that truck drivers will be more aggressive and risky because trucks are heavier which lowers the cost of risky driving thus if cafe induces more trucks to be on the road according to the offsetting behavior hypothesis cafe will increase the amount of aggressive truck driving while simultaneously decreasing the amount of aggressive car driving although the article will focus on the offsetting behavior from changes in passenger car weight it is just as relevant for changes in relative truck miles driven section ii reviews the recent research linking automobile weight changes with cafe and recent empirical studies that apply offsetting behavior to automobile regulations 5 section iii details the methodology used to test the offsetting behavior hypothesis section iv contains a discussion of the data the results are reported in section v and section vi concludes the article ii background the cafe standards were initially set at 18 0 mpg for passenger cars and between 15 8 to 17 2 mpg for various light trucks these standards have steadily increased to the current levels of 27 5 mpg for passenger cars and 20 7 mpg for light trucks 6 the key impact of cafe on consumer safety is a reduction in the average passenger car weight figure 1 illustrates the fall in weight since cafe s passage in 1975 crandall and graham 1989 attribute 14 of the fall in weight to cafe 7 using single car accident data they estimate the elasticity of highway occupant fatality rates with respect to average car weight is between 1 22 and 2 30 which implies a 17 32 2 increase in the fatality rate due to cafe using the upper and lower bounds crandall and graham 1989 estimate that cafe is responsible for 2 200 3 900 more deaths over the life span of the cars from a given model year 8 however there is no attempt to explicitly measure possible offsetting behavior effects not all studies find a positive relationship between weight and safety the general accounting office gao 1991 acknowledges a theoretical link between automobile size and safety however they find no direct empirical link between the two

car buyers and fuel economy abstract this research is designed to help researchers and policy makers ground their work in the reality of how us consumers are thinking and behaving with respect to automotive fuel economy our data are from semi structured interviews with 57 households across nine lifestyle sectors we found no household that analyzed their fuel costs in a systematic way in their automobile or gasoline purchases almost none of these households track gasoline costs over time or consider them explicitly in household budgets these households may know the cost of their last tank of gasoline and the unit price of gasoline on that day but this accurate information is rapidly forgotten and replaced by typical information one effect of this lack of knowledge and information is that when consumers buy a vehicle they do not have the basic building blocks of knowledge assumed by the model of economically rational decision making and they make large errors estimating gasoline costs and savings over time moreover we find that consumer value for fuel economy is not only about private cost savings fuel economy can be a symbolic value as well for example among drivers who view resource conservation or thrift as important values to communicate consumers also assign non monetary meaning to fuel prices for example seeing rising prices as evidence of conspiracy this research suggests that consumer responses to fuel economy technology and changes in fuel prices are more complex than economic assumptions suggest the us department of energy and the energy foundation supported this research the authors are solely responsible for the content and conclusions presented

the economics of invention incentives patents prizes and research contracts though public intervention in the market for research is virtually universal economists have paid surprisingly little attention to the choice of the form of research incentive in a given market structure many studies concentrate on patents but any assumption of their superiority over other incentives has been founded on intuition rather than on formal analysis in this paper i analyze the choice between three of the most common alternative means of public intervention in the research market namely patents prizes and direct contracting for research services i show why and under what conditions any one of the three may be preferred by a social welfare maximizing administrator in a competitive economy using a model that for the first time pays explicit attention to differences in the informational roles of each of these alternatives in the extensive literature on the economics of patents see arnold plant 1934 fritz machlup 1958 charles taylor and z a silberston 1973 morton kamien and nancy schwartz 1975 and f m scherer 1977 for valuable surveys formal analysis weighs the benefits of patents as a solution to the market failure associated with the inappropriability of knowledge against the welfare cost due to the restriction on the use of the knowledge generated and this tradeoff is optimized by patent life adjustment in william nordhaus 1969 scant analytical attention is paid to alternative incentive mechanisms an exception is ben yu 1981 who considers the role of prior contracting for inventions but as many writers for example dan usher 1964 yoram barzel 1968 joseph stiglitz 1969 carole kitti 1973 glenn loury 1979 partha dasgupta and stiglitz 1980a have pointed out in various contexts the incentive offered by an unlimited patent to competitive researchers may be excessive due to the common pool problem discussed further in section i below if the patent administrator and researchers share the same information as implicitly assumed in previous models then the patent life limitation can be adjusted to provide the optimal patent incentive given the common pool problem but in all such models patents would not be chosen in a fully optimized fiscal system researchers and the administrator are assumed to have identical information about the shadow price of potential inventions a patent is just a means of turning this shadow price into a monetary reward but monetary compensation can instead be offered directly to researchers by the state assuming that patent revenues incur a higher deadweight loss than an equivalent amount of public funds financed by less distortionary means for example a minimally efficient tax system appropriate prizes or government contracts are socially preferable to patents with optimal lives if the patent is ever to be the optimal incentive mechanism for research it must possess advantages not captured in existing models informal discussions of patents emphasize their informational role to include the latter as a justification for decentralized invention incentives i incorporate an ex ante imbalance of information about costs and benefits of research in the model presented in section ii but this alone is not quite enough it is further necessary to specify that the terms of the award must be fixed before department of economics economic growth center box 1987 yale station yale university new haven ct 06520 i thank with the usual caveat marguerite alejandro wright cindy arfken martin baily nuong brennan steven englander robert evenson richard levin richard nelson susan rose ackerman denis wright and two referees for assistance of various kinds

a bargaining model of collective choice we present a general model of legislative bargaining in which the status quo is an arbitrary point in a multidimensional policy space in contrast to other bargaining models the status quo is not assumed to be bad and delay may be pareto efficient we prove existence of stationary equilibria the possibility of equilibrium delay depends on four factors risk aversion of the legislators the dimensionality of the policy space the voting rule and the possibility of transfers across districts if legislators are risk averse if there is more than one policy dimension and if voting is by majority rule for example then delay will almost never occur in one dimension delay is possible if and only if the status quo lies in the core of the voting rule and then it is the only possible outcome this core selection result yields a game theoretic foundation for the well known median voter theorem our comparative statics analysis yield two noteworthy insights i if the status quo is close to the core t hen equilibrium policy outcomes will also be close to the core a moderate status quo produces moderate policy outcomes and ii if legislators are patient then equilibrium proposals will be close to the core legislative patience leads to policy moderation

uniqueness of stationary equilibrium payoffs in coalitional bargaining we study a model of sequential bargaining in which in each period before an agreement is reached the proposer s identity is randomly determined the proposer suggests a division of a pie of size one each other agent either approves or rejects the proposal and the proposal is implemented if the set of approving agents is a winning coalition for the proposer the theory of the fixed point index is used to show that stationary equilibrium expected payoffs of this coalitional bargaining game are unique this generalizes eraslan 34 insofar as a there are no restrictions on the structure of sets of winning coalitions b different proposers may have different sets of winning coalitions c there may be a positive probability that no proposer is selected

proposal rights and political power in a canonical model of sequential collective bargaining over a divisible good we show that equilibrium expected payoffs are not restricted by players voting rights or their impatience for all monotonic voting rules and discount factors and for all divisions of the good among players there exists a stationary proposal making rule such that this division represents players expected payoffs in a stationary subgame perfect nash equilibrium in pure strategies the result highlights the significance of proposal rights in determining political power in collective deliberations t he purpose of this article is to further our understanding of political power in a committee environment we consider the problem of a group of two or more agents who must split a fixed divisible good agents cannot use physical force to divide this good our goal is to clarify the role and relative significance of other features of the political environment such as voting rights proposal rights agents patience etc in determining political power following shapley and shubik 1954 we gauge political power in terms of expected outcomes rather than a priori equate it with individual prerogatives 1 in that spirit political power is the share of the divisible good that agents can expect to obtain when their behavior conforms to an appropriately defined equilibrium notion 2 we model committee interaction using a canonical sequential bargaining game in each period a member of the committee is recognized with some probability that is fixed across periods and proposes a division of the good committee members then vote on the proposal if the proposal is approved in accordance with the underlying voting rule the proposed division is implemented and the

patent protection and strategic delays in technology development implications for economic growth we present an endogenous growth model in which both the investment to develop a new technology that upgrades the quality of machines and entry of imitators are determined endogenously according to the model how soon the new technology machine is launched after the patent is granted is influenced by two factors returns to scale in technology development and strategic delays strategic delays in technology development are most likely to occur when earlier dates of success enable imitators to enter an industry i e when imitation is swift and relatively cheap and or patent protection is relatively lengthy we then explore the link between the optimal patent length and economic growth and find that the equilibrium investment in technology development and thus the expected rate of technological progress exhibit an inverted u shape relationship with respect to the legal patent length our results further suggest that in order to minimize the strategic delays in technology development and spur technological progress legal patent lengths should be shorter in industries where barriers to entry are relatively low

innovation intellectual property rights and economic development a unified empirical investigation two important strands of literature investigate the way the effect of intellectual property rights ipr on innovation depends on either the initial ipr level or the level of economic development we expand on this by studying their joint effect in a single unified empirical framework we find that the effect of ipr on innovation is more complex than previously thought displaying important nonlinearities depending on the initial levels of both ipr and per capita gdp the policy implications of this are examined and include the conclusion that a single global level of ipr is in general sub optimal

the impact of higher standards in patent protection for pharmaceutical industries under the trips agreement a comparative study of china and india a comparative study is undertaken that explores chinese and indian pharmaceutical industries under different patent regimes it is found that relative to india which had implemented process patent protection until 2005 china with a product patent regime since 1993 suffers from both lower drug accessibility and availability the latter is a missing parameter in the literature also china lags behind in both lower r d investment and patents filed by chinese nationals based on these findings and associated legal interpretation we conclude that higher patent protection in china generates negative impacts on the pharmaceutical industries thus governments should utilise trips flexibilities and other regimes such as price control to offset the anticompetitive effect in designing patent policies

non cooperative bargaining theory an introduction the paper provides an informal introduction to some of the main themes of the recent literature on non cooperative or sequential bargaining models it focuses in particular on the relationship between the new approach and the traditional axiomatic approach exemplified by nash bargaining theory it illustrates the new insights offered by the non cooperative approach by reference to a detailed analysis of the manner in which the presence of an outside option available to one of the parties will affect the negotiated outcome finally the difficulties which arise in extending this analysis to two person bargaining with incomplete information and to n person bargaining are discussed this is a revised version of the fourth review of economic studies lecture presented in april 1985 at the joint meeting of the association of university teachers of economics and the royal economic society held in oxford the choice of lecturer is made by a panel whose members are currently professors hahn mirrlees and nobay and the paper is refereed in the usual way this paper aims to provide an informal and elementary introduction to an approach to bargaining which has received a great deal of attention over the past few years the approach involves writing down some particular sequence of moves offers and replies to be made over time in the course of negotiations and then looking for a non cooperative equilibrium in the game thus specified in practice a perfect equilibrium or in games of incomplete information a sequential equilibrium while the approach appears at first sight to be very different in spirit from the traditional axiomatic approach in which a bargaining solution is specified by appealing to a number of general requirements which are deemed appropriate on the basis of some a priori considerations the two approaches are in fact complementary while the

short run pricing strategies to increase corporate average fuel economy short run pricing strategies to increase corporate average fuel economy i introduction in 1974 the average fuel efficiency of new automobiles sold in the united states reached a low of 14 2 miles per gallon mpg close on the heels of the arab opec oil embargo of 1973 74 and the ensuing petroleum price shocks congress passed the 1975 energy policy and conservation act the act required each manufacturer to meet sales weighted corporate average fuel economy cafe standards beginning with 18 mpg in 1978 and gradually increasing each year to 27 5 mpg in 1985 figure 1 the expressed purpose of the cafe standards was to stimulate the development of technology to improve fuel efficiency the possibility of raising the relative prices of the least energy efficient models as a strategy to meet the standards was considered but only as a last resort 1 although there continues to be intense debate as to whether fuel price increases or the cafe regulations drove the fuel economy improvements of the 1970s and 80s several studies agree that improvements in automotive engineering and design rather than pricing strategies played an overwhelmingly dominant role 2 no empirical evidence supports the effectiveness of using pricing strategies to increase the overall level of automotive fuel economy every year since 1985 automobile manufacturers have successfully petitioned the national highway traffic safety administration which determines the level of the cafe standard to reduce the target from 27 5 to 26 mpg in 1986 88 and 26 5 mpg in 1989 in each case at least one manufacturer argued that it would be unable to meet the original target with its planned product offerings and would have to resort to other strategies that would result in unacceptable economic costs this paper explores a method of estimating the costs of achieving fuel economy goals when pricing strategies are used to alter the distribution of sales the method employs the closed form equation for consumers surplus derived from the multinational logit model of discrete choice discussed by mcfadden 1973 and assumes that manufacturers must bear the full cost of meeting the fuel economy target the estimated cost represents an upper bound on the losses firms would incur by setting prices to minimize loss of profit using econometric estimates of the sensitivity of vehicle choice to vehicle price together with market shares and fuel efficiencies for 1986 i estimate the costs of short term improvements in average fuel economy using pricing strategies for general motors ford and chrysler minor adjustments of up to 1 mpg cost 1 2 percent of the price of a 10 000 car for improvements of 2 mpg or more however pricing strategies become a costly way to improve fuel economy the technique also estimates the market shares for each car line that correspond to the pricing solution it thereby identifies which car lines would be most affected the technique produces precise price changes and market shares for each car line readers should not place too much weight on the apparent precision but should consider the estimates as an approximation the usefulness of which lies in measuring the difficulty of meeting fuel economy targets via pricing strategies alone one can compare the size of these estimates to the fines for failing to meet the standards 50 per mpg per car or to typical manufacturer rebates to stimulate sales often 100 to 2 000 per car ii a formulation of the pricing problem faced with the cafe requirements a firm can respond with engineering and design improvements or by raising the prices of less efficient models and lowering the prices of those that exceed the standard technological improvements generally require a lead time of three to five years very large fluctuations in fuel prices have occurred in far shorter perids figure 1 creating the risk that a manufacturer s product offering could be out of step with the market

household adjustment to gasoline price change an analysis using 9 years of us survey data this paper examines the dynamics and composition of household adjustment to changes in the real price of gasoline using a panel of us households by decomposing the demand for gasoline into the demand for vehicle miles traveled and the demand for household composite miles per gallon we are able to add rich detail to the description of how households respond to gasoline price changes while obtaining total price elasticity estimates well within the range found in the literature we find that consumers initially respond to a price rise with a much larger decrease in consumption than would be indicated by the total elasticity in addition households respond to price changes by adjusting vehicle miles traveled more than composite miles per gallon in the year after a price change

a three player dynamic majoritarian bargaining game this file contains two sets of calculations first we report the calculations of demands and continuation values of proposition 1 second the mixing probabilities of proposition 1 are shown to be well defined

voting and vetoing the consequences of veto power in committees is analyzed using the appro ach of noncooperative bargaining theory it is first shown that in equilibrium nonveto players do not share in the benefits gained by the decision making of the committee that is in every equilibrium outcome of the bargaining game nonveto players earn zero some measures for reducing the excessive power of veto members in committees are analyzed specifically i study the effects of imposing a deadline on negotiations and of expanding the committee by increasing the number of nonveto players quantitative results are given for the case of the un security council

market segmentation by price quality schedules some evidence from automobiles discrimination among heterogeneous buyers of a product is possible through the use of multiple quality variants this article quantifies various implications of the standard mussa rosen model of price quality discrimination as applied to the u s automobile industry it demonstrates that the price quality variants of a major manufacturer indeed segment the market as predicted by the model distortions in the range and nature of products offered in their prices and in the resulting consumer surplus in the automobile market are measured and shown to be significant copyright 1992 by university of chicago press

the dynamics of political compromise we characterize efficient self enforcing divisions of political or economic surplus between two parties that interact repeatedly the party in power can decide the allocation and the parties political strength changes according to a markov process we find that the share of the party currently in power depends not only on its current strength but also on whether it had previously been even stronger since it last came to power we find that the constitutional supermajority requirements that attempt to constrain the use of power can counterproductively create less compromise

the effects of the corporate average fuel efficiency standards in the us this paper examines the effects of the corporate average fuel economy standards cafe on automobile sales prices and fuel consumption first a discrete choice model of automobile demand and a continuous model of vehicle utilization are estimated using micro data from the consumer expenditure survey for 1984 1990 next the demand side model is combined with a model of oligopoly and product differentiation on the supply side with these elements in place the effects of the cafe regulation are assessed through simulations and compared to the effects of alternative policy instruments such as an increase in gasoline tax

gasoline demand and car choice estimating gasoline demand using household information in recent years calls for carbon taxes as a policy tool to combat global warming have kept a discussion of the price and income elasticities of gasoline demand alive to date gasoline demand elasticity estimates are almost exclusively based on aggregate data that are subject to aggregation problems and make distributional concerns impossible to address by using household level data from the panel study of income dynamics psid and imputed fuel efficiency measures and gasoline prices i estimate household demand for gasoline and the corresponding price and income demand elasticities an attempt is made to include data on the car stock in the estimation since car portfolio and gasoline demand decisions are closely related empirical results from a selection corrected gasoline demand regression suggest low short run price and income elasticities and clear differences in gasoline demand across the population these results suggest that a gasoline tax is not likely to result in large decreases in gasoline consumption while potentially imposing hardship on identifiable segments of the population

proposal power and majority rule in multilateral bargaining with costly recognition this paper studies a sequential bargaining model in which agents expend efforts to be the proposer in equilibrium agents effort choices are influenced by the prize and cost effects the endogenous prize is 9

rational inattention and energy efficiency abstractthis paper argues that it will often be rational for consumers to pay limited attention to energy efficiency when choosing among energy consuming durable goods like automobiles or home appliances the reason is that the proper valuation of energy efficiency requires time and effort but differences in efficiency across products will rarely be pivotal to choice when consumers have strong preferences regarding other product attributes the paper first explains why proper valuation of efficiency is difficult even in the presence of government energy labels it next develops a model that shows how to value additional information about energy efficiency in a discrete choice context it then uses data on automobiles to show that consumers experience only small welfare losses when forced to choose a car without detailed information about fuel costs finally the paper discusses the implications of rational inattention for both economic research and public policy

distribution of surplus in sequential bargaining with endogenous recognition i examine a sequential bargaining situation in which agents contest the right to propose an allocation the contest can either take place at a pre bargaining stage yielding persistent recognition to propose or recur throughout the bargaining yielding transitory recognition equilibrium analysis reveals that surplus is distributed more unequally under persistent recognition social cost is higher under persistent recognition if and only if it attracts a sufficient number of active bargainers and individual s incentive to propose under transitory recognition may actually increase in the number of agents while this incentive always diminishes under persistent recognition

market structure innovation and optimal patent life m uch work has been directed at determining the relative efficiency of various market structures in the allocation of resources to invention while the conclusions are not entirely clear it seems certain that no single market structure results in a pareto efficient allocation of resources to research and development r d in the light of this certain secondbest procedures must be examined social controls may provide an attractive method of lessening the inefficiencies described above 2 while government research and development subsidies and award programs do exist the most prevalent form of social control is the patent system granting the inventor a monopoly on the use of the discovery for a specified period of time eliminates the free rider problem thus restoring the incentive to invent extension of the duration of protection will increase incentives for private resource allocation toward technical advance unfortunately extension of patent protection by definition brings with it the social inefficiencies recognized in a monopolistic market the

on allocative distortions in problems of self selection this article considers the general structure of self selection models by imposing conditions which permit the ordering of agents by their preferences we provide a characterization of the distortions inherent in the sorting process

why has the introduction of natural gas vehicles failed in germany lessons on the role of market failure in markets for alternative fuel vehicles despite private investments exceeding two billion euros and tax incentives of more than 500 million euros the market share of natural gas vehicles ngvs in germany has lagged far behind expectations and behind market developments in other countries with total cost of ownership being on average lower for ngvs than for gasoline and diesel vehicles this raises the question of the existence of market failure in the german ngv market we use a case study approach where we combine quantitative data with insights from a multi industry expert panel and in depth interviews with experts from industry government and civil society in order to examine whether and how different types of market failure contribute to the status quo in the german market for ngvs we conclude that coordination failure in complementary markets an artificially created monopoly of service stations at motorways imperfect information bounded consumer rationality and principle agent problems are the most prominent market failures inhibiting the development of a functioning market for ngvs our results are instructive for the design of effective public policies and investor strategies aiming to create markets for alternative fuel vehicles

conspicuous conservation the prius halo and willingness to pay for environmental bona fides abstract this paper develops a theory of conspicuous conservation a phenomenon related to conspicuous consumption in which individuals seek status through displays of austerity amid growing concern about environmental protection we identify a statistically and economically significant conspicuous conservation effect in vehicle purchase decisions and estimate a mean willingness to pay for the green signal provided by the distinctively designed toyota prius in the range of 430 4200 depending upon the owner s location results are related to the growing literature on green markets and suggest that policy should target less conspicuous conservation investments that will be under provided relative to those that confer a status benefit

energy efficiency versus gains in consumer amenities an example from new cars sold in sweden technological developments that increase energy efficiency result in net energy saving benefits provided the increased efficiency is not offset by enhanced consumer amenities this paper analyzes the technology development consumer amenities trade off for new cars sold in sweden between 1975 and 2010 we combine lessons learned from the policies in place and interviews with key actors in the car purchasing process with statistical modeling of trends in vehicle attributes and technological development until 2007 consumer amenities were continuously enhanced offsetting most of the efficiency gains of technological development there was no strong policy push toward energy efficiency in recent years two major shifts have occurred first there has been a shift in the majority of new cars sold from gasoline powered engines to diesel engines flex fuel vehicles have also contributed to a decline in the sales share of pure gasoline engines the observed shift of fuels especially to flex fuels has been encouraged by policies second after 2007 there have been major technological improvements while attributes related to consumer amenities have remained flat reversing the trends so that 77 of the technological development resulted in actual reduction of specific fuel consumption eu targets tax reforms and consumer awareness have contributed to this trend change

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

automobile quality choice under pollution control regulation in this paper we develop a modified quality choice model to study the effects of various mobile source air pollution control regulations we have a single producer that supplies a fixed number of car types two but faces a spectrum of consumers differing in their valuation of car quality the car manufacturer chooses the quality levels of the two car types as well as the sales mix between the two types and the size of the market it wishes to supply by endogenizing both the sales mix and the market size while still allowing quality to be a choice variable we are able to more completely analyze the impact of any car pollution control regulation existing studies of this impact either focus on the model line adjustment response shifts in the quality array or on the price adjustment response changes in the sales mix and market size in allowing for both the model line and the price adjustment options we find that the corporate average fuel efficiency cafe standard is unambiguously welfare superior to the low emission vehicle quantity constraint lev and zero emission vehicle zev programs we also show that the effects of the cafe standard are not equivalent to those of a fuel tax as previously found and that for a given car pollution target the former is preferred to the latter

quality distortion by a discriminating monopolist the standard model of monopolistic imperfect quality discrimination involving consumer self selection has shown that no distortion occurs at the highest quality level while all lower quality levels are degraded in order to maintain profitable market segmentation this result flows from the assumption that consumers with a higher total utility of quality also have a higher marginal utility of quality the paper develops a reasonable model in which the standard assumption is not satisfied and this alternative model yields vastly different conclusions regarding the form of quality distortion in particular quality may be enhanced not degraded to maintain profitable market segmentation copyright 1989 by american economic association

bargaining over new ideas the distribution of rents and the stability of innovative firms we develop a theory of the rent distribution and stability of innovative firms our theory is based on a model of bargaining over new ideas the model accounts for the problem of information leakage namely the diffusion of information about new ideas among the agents that participate in the bargaining our main results draw a link between the strength of intellectual property rights enforcement and the distribution of rents in firms as well as between the size and organization of firms and their stability our theory explains why small firms are advantaged in introducing innovation into the market and why spin outs tend to emerge from large established firms jel l1 l2 c7

some unpleasant bargaining arithmetic abstract it is commonly believed that voting rules that are relatively more inclusive e g unanimity or supermajority are likely to yield relatively more equitable outcomes than simple majority rule we show that this is not necessarily the case in bargaining environments we study a multilateral bargaining model a la baron and ferejohn 1989 where players are heterogeneous with respect to the potential surplus they bring to the bargaining table we show that unanimity rule may generate equilibrium outcomes that are more unequal or less equitable than under majority rule in fact as players become relatively more patient we show that the more inclusive the voting rule the less equitable the equilibrium allocations

do green tech policies need to pass the consumer test the case of ethanol fuel abstract this paper investigates a question sometimes overlooked by policymakers and regulators namely the need of a robust value proposition for green technologies to successfully enter the market in particular results from consumer choice models are used to develop measures of consumer acceptance of ethanol blends and flex fuel vehicles is studied a fuel vehicle system that has received attention in a variety of federal and state policies the analysis suggests that under projected fuel prices and given the characteristics of the competing vehicle fuel systems consumers are unlikely to substitute ethanol blends for gasoline the analysis also highlights the need for further research in this area