repeated moral hazard and contracts with memory the case of risk neutrality we consider a repeated moral hazard problem where both the principal and the wealth constrained agent are risk neutral in each of two periods the agent can exert unobservable effort leading to success or failure incentives provided in the second period act as carrot and stick for the first period so that the effort level induced in the second period is higher after a first period success than after a failure if renegotiation cannot be prevented the principal may prefer a project with lower returns i e a project may be too good to be financed or similarly an agent can be overqualified this article offers a new perspective on dynamic moral hazard problems consider a riskneutral principal who can hire a risk neutral but wealth constrained agent the agent can exert unobservable effort which increases the likelihood of success in the one shot problem there is a well known trade off between effort incentives and rent extraction which leads to a downward distorted effort level compared to the first best solution we extend the standard model by assuming that there is a second period in which the principal can make an investment to continue the project and the agent can again exert unobservable effort it turns out that there are several interesting insights that so far have escaped the literature on repeated moral hazard which was focused on the case of risk averse agents in particular if the principal can commit not to renegotiate the second period incentives can be used to partially circumvent the limited liability constraint in the second period the principal induces the agent to choose a particularly high effort level following a first period success and a particularly low effort level following a first period failure the prospect of a higher second period rent following a first period success motivates the agent to exert more effort in the first period i e rents in the second period act as reward and punishment for the first period it should be emphasized that we assume no technological impact of a first period success or failure on the second period technology nevertheless an optimal dynamic contract exhibits memory hence if an outsider observed today a principal agent pair that was successful and another identical pair that was not successful he would be right to predict that the first pair also is more likely to succeed tomorrow in other words a serial correlation across periods which we sometimes refer to as a hot hand effect is generated endogenously merely based on incentive considerations 2

putting free riding to work a partnership solution to the common property problem the common property problem results in excessive mining hunting and extraction of oil and water the same phenomenon is also responsible for excessive investment in r d and excessive outlays in rent seeking contests we propose a partnership solution to eliminate or at least mitigate these excesses each of n players joins a partnership in the first stage and chooses his effort in the second stage under the rules of a partnership each member must pay his own cost of effort but receives an equal share of the partnership s revenue the incentive to free ride created by such partnerships turns out to be beneficial since it naturally offsets the excessive effort inherent in such problems in our two stage game this institutional arrangement can under specified circumstances induce the social optimum in a subgame perfect equilibrium no one has a unilateral incentive 1 to switch to another partnership or create a new partnership in the first stage or 2 to deviate from socially optimal actions in the second stage the game may have other subgame perfect equilibria but the one associated with the partnership solution is strictly preferred by every player we also propose a modification of the first stage which generates a unique subgame perfect equilibrium antitrust authorities should recognize that partnerships can have a less benign use by organizing as competing partnerships an industry can reduce the excessive output of cournot oligopoly to the monopoly level since no partner has any incentive to overproduce in the current period there is no need to deter cheating with threats of future punishments

statistical moments analysis of production and welfare in multi product cournot oligopoly abstract our context involves n cournot oligopolists producing m products at constant marginal costs when preferences are quasi linear we identify relationships between second moments of unit costs and second moments of firm level production for example a larger variance in unit costs of a product increases own output variance and the variance of any other output we also investigate how second moments of unit costs affect industry cost efficiency industry costs can rise if the wrong firm secures a cost reduction for quadratic preferences it is shown that zhao s zhao j 2001 a characterization for the negative welfare effects of cost reduction in cournot oligopoly international journal of industrial organization 19 455 469 3 4 march share criteria for an increase in unit costs to increase welfare extend to the multi product setting

a theory of voting equilibria a voting equilibrium arises when the voters in an electorate acting in accordance with both their preferences for the candidates and their perceptions of the relative chances of various pairs of candidates being in contention for victory generate an election result that justifies their perceptions voting equilibria always exist and the set of equilibria can vary substantially with the choice of voting system we compare equilibria under the plurality rule approval voting and the borda system we consider a candidate positioning game and find that the plurality rule imposes little restriction on the position of the winning candidate in three candidate races while approval voting leads to a winner positioned at the median of the voter distribution we contrast campaign activities intended to influence voter preferences with activities meant to influence only perceptions of candidate viability

asymmetric regulation of identical polluters in oligopoly models studies of optimal second best environmental regulation of identical polluting agents have invariably ignored potentially welfare improving asymmetric regulation by imposing equal regulatory treatment of identical firms at the outset yet cost asymmetry between oligopoly firms may well give rise to private as well as social gains a trade off is demonstrated for the regulator between private costs savings and additional social costs when asymmetric treatment is allowed asymmetry is indeed optimal for a range of plausible parameter values further it is demonstrated that for a broad class of abatement cost functions there is scope for increasing welfare while keeping both total output and total emission constant some motivating policy issues are discussed in light of the results including international harmonization and global carbon dioxide reduction

welfare reductions from small cost reductions in differentiated oligopoly abstract this paper compares the welfare effects of cost reductions in differentiated bertrand and cournot oligopolies using a linear demand system the paper provides the critical levels of output shares below which a small cost reduction by a bertrand or cournot firm reduces welfare it then shows that the critical value is larger under bertrand competition than cournot competition

separation of powers and political accountability political constitutions are incomplete contracts and therefore leave room for abuse of power in democracies elections are the primary mechanism for disciplining public officials but they are not sufficient separation of powers between executive and legislative bodies also helps to prevent the abuse of power but only with appropriate checks and balances checks and balances work by creating a conflict of interest between the executive and the legislature yet requiring both bodies to agree on public policy in this way the two bodies discipline each other to the voters advantage under appropriate checks and balances separation of powers also helps the voters elicit information

unequal treatment of identical agents in cournot equilibrium oligopoly models where prior actions by firms affect subsequent marginal costs have been useful in illuminating policy debates in areas such as antitrust regulation environmental protection and international competition we discuss properties of such models when a cournot equilibrium occurs at the second stage aggregate production costs strictly decline with no change in gross revenue or gross consumer surplus if the prior actions strictly increase the variance of marginal costs without changing the marginal cost sum therefore unless the cost of inducing second stage asymmetry more than offsets this reduction in production costs the private and social optima are asymmetric

a theory of strategic voting in runoff elections abstract this paper analyzes the properties of runoff electoral systems when voters are strategic a model of three candidate runoff elections is presented and two new features are included the risk of upset victory in the second round is endogenous and many types of runoff systems are considered three main results emerge first runoff elections produce equilibria in which only two candidates receive a positive fraction of the votes second a sincere voting equilibrium does not always exist finally runoff systems with a threshold below 50 percent produce an ortega effect that may lead to the systematic victory of the condorcet loser jel c72 d72

hospital price regulation and expenditure cap policy abstract in several european countries governments have chosen to put a global budget cap on health care expenditure this paper analyzes the strategies of the providers facing this policy and evaluates its effects on provider and patient surplus we consider this policy when it is applied to local monopoly hospitals and when it is applied to hospitals playing as cournot competitors using a two stage model to characterize the optimal expenditure cap policy taking the hospitals optimal responses as given we prove that this policy induces a level of welfare lower than the first best outcome however we show that a second best outcome may be achieved under this policy when the number of hospitals becomes large

asymmetric contests with conditional investments rent seeking scenarios competitions for promotions and research and development r d races are examples of competitions in which participants expend resources regardless of whether they win or lose although similar in their all pay feature such competitions often differ in important dimensions these include the type of technologies employed in competition the type of asymmetries among competitors the degree to which expenditures are sunk and the number of prizes consider lobbying settings in which firms expend resources in order to influence a policymaker if expenditures take the form of monetary outlays and all firms have the same cost of capital then it is reasonable to think of firms marginal cost of influence as linear but if a firm has a reputational advantage and high costs of capital its lobbying technology may be more reasonably thought of as having convex costs relatively low marginal costs up to a moderate level of influence due to the reputational advantage and relatively high marginal costs at higher levels of influence due to the high costs of capital similarly the lobbying technology of a firm that is relatively unknown and has low costs of capital may be characterized by concave costs lobbying restrictions geographic location or preferential treatment by the policymaker further impact firms lobbying technologies inducing additional nonlinearities and asymmetries among firms in some lobbying settings firms also commit to expenditures conditional on a favorable outcome for example a firm may commit to building factories and creating new jobs if it is granted one of a limited number of manufacturing licenses thus the specification of firms lobbying technologies the type of asymmetries among firms the combination of unconditional and conditional investments and the number of eventual winners may change according to the lobbying setting studied the same is true for other competitions with an all pay feature in a competition for promotions workers often differ in their abilities experience and social skills more than one prize

bidding behavior in a repeated procurement auction a summary abstract this paper considers bidding behavior in a repeated procurement auction setting we study highway procurement data for the state of california between december 1994 and october 1998 we consider a dynamic bidding model that takes into account the presence of intertemporal constraints such as capacity constraints we estimate the model non parametrically and assess the presence of dynamic constraints in bidding

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

a model of pre electoral coalition formation abstract in many countries three or more candidates compete against one another in single office elections i present a model of three candidates competing for a single office in which two candidates can form a coalition prior to the election a pre electoral coalition since the candidates are both policy and office motivated one candidate can incentivize the other candidate to withdraw his candidacy by choosing a joint policy platform i examine how electoral environments such as election rules ideological distance and pre election polls influence incentives to form pre electoral coalitions i find that pre electoral coalitions are more likely to form i in plurality elections than in two round runoff elections ii as the threshold for first round victory decreases in two round runoff elections iii as the two potential coalition partners ideological distance increases conditional on divided support and iv as the fraction of office value which is transferable increases moreover i analyze and compare voter welfare under plurality and the two round runoff rules

contest with pre contest investment abstract in a standard noisy contest more competition more contestants leads to lower individual equilibrium effort we show that when contestants can make pre contest investment to enhance their competency neither equilibrium investment nor individual effort is monotonic in the number of contestants individual effort may increase with the level of participation

multiproduct pricing made simple we study pricing by multiproduct firms in the context of unregulated monopoly regulated monopoly and cournot oligopoly using the concept of consumer surplus as a function of quantities rather than prices we present simple formulas for optimal prices and show that cournot equilibrium exists and corresponds to a ramsey optimum we then present a tractable class of demand systems that involve a generalized form of homothetic preferences as well as standard homothetic preferences this class includes linear and logit demand within the class profit maximizing quantities are proportional to efficient quantities we discuss cost passthrough including cases where optimal prices do not depend on other products costs finally we discuss optimal monopoly regulation when the firm has private information about its vector of marginal costs and show that if the probability distribution over costs satisfies an independence property then optimal regulation leaves relative price decisions to the firm

optimal asymmetric strategies in research joint ventures abstract this paper identifies an overlooked implication of models of research joint ventures initiated by d aspremont and jacquemin 1988 even though the aggregate r d cost of identical firms in a research joint venture would be lowest if they invested equally to reduce subsequent production costs nonetheless members may often enlarge their overall joint profit by making unequal investments such a strategy raises costs in the investment stage but may create more than offsetting benefits in the production stage since industry profits are larger there when the firms are of unequal size when the consideration leading to asymmetry prevails we find that in contrast to previous work a research joint venture can raise welfare even when there are no spillovers

on input market surplus and its relation to the downstream market game in order to analyze the welfare effects of price changes in input markets following for example a price fixing conspiracy economists have studied the relationship between the surplus measured in the input markets and the surplus in the output markets the latest results hinge on simplifying assumptions which are relaxed here by linking the input markets surplus question to another stream of literature which characterizes functions that oligopolists collectively yet unintentionally maximize it is shown that the area under the input demands is equal to the change in a function for which critical points coincide with the equilibria of the downstream game a particular case of these functions is the exact potential function afin d analyser les effets de bien etre des changements de prix dans le marche des intrants a la suite par exemple d une conspiration pour fixer les prix les economistes ont etudie la relation entre le surplus mesure dans les marches des intrants et le surplus dans les marches des produits les derniers resultats dependent de postulats simplificateurs qu on relaxe ici en reliant la question du surplus dans les marches des intrants avec un autre courant de la litterature specialisee qui caracterise les fonctions que les oligopoleurs collectivement mais sans en faire leur but avoue maximisent on montre que l espace sous les courbes de demandes des intrants est egal au changement dans une fonction pour laquelle les points critiques coincident avec les equilibres dans le jeu de marche en aval un cas particulier de ces fonctions est la fonction potentielle exacte

a note on cost arrangement and market performance in a multi product cournot oligopoly abstract model invariances have been used extensively to understand welfare and conduct consequences of firm heterogeneity in a one product cournot oligopoly nothing is known about the richer and more realistic context of firm heterogeneity in multi product cournot oligopoly in this note welfare in a two product cournot oligopoly is shown to increase decrease with an increase in correlation between unit costs when the outputs complement substitute in demand a more qualified correlation structure is required for the result to apply in a three product cournot oligopoly when products complement in demand

comparative statics for integrable nash equilibria abstract this paper derives comparative statics results for stable nash equilibria in integrable concave orthogonal games application of these results to cost curve shifts in the asymmetric cournot oligopoly immediately uncovers some apparently new comparative statics results

political culture and discrimination in contests abstract many economic and political decisions are the outcome of strategic contests for a given prize the nature of such contests can be determined by a designer who is driven by political considerations with a specific political culture the main objective of this study is to analyze the effect of political culture and of valuation asymmetry on discrimination between the contestants the weights assigned to the public well being and the contestants efforts represent the political culture while discrimination is an endogenous variable that characterizes the mechanism allocating the prize we consider situations under which the optimal bias of the designer is in favor of the contestant with the larger or smaller prize valuation and examine the effect of changes in the political culture and in valuation asymmetry on the designer s preferred discrimination between the contestants focusing on the two most widely studied types of contest success functions deterministic all pay auctions and logit csfs we show that an all pay auction is always the preferred csf from the point of view of the contest designer this result provides a new political economic micro foundation to some of the most commonly used models in the contest literature

a theory of oil igopoly cournot equilibrium in exhaustible resource markets with fixed supplies the emergence of an effective and powerful cartel in the international petroleum market has stimulated considerable effort among economists to develop models of pricing and supply behavior for this industry 2 this modeling task poses two basic difficulties first as in the standard oligopoly problem one must characterize the behavior of several sellers in a market aware of each other and of their effect on market price second there is here the added difficulty of treating the explicitly intertemporal nature of suppliers decision wherein a limited stock must be optimally allocated over time this paper studies the implications of the simplest non trivial postulates about these two aspects of the problem it is assumed that suppliers are non cooperative cournot nash players each of whom is imagined to select an optimal supply strategy taking as given the strategies of the others moreover it is hypothesized that the feasible strategies are limited to open loop paths chosen at the initial date to maximize the present value of profits in light of the paths of supply which the others have chosen 3 these basic postulates together with a few technical assumptions concerning the structure of resource demand permit one to demonstrate the existence of at least one non cooperative equilibrium concerning thisequilibrium we show that 1 the average and marginal return on resource stocks is inversely related to the size of a player s initial endowment 2 aggregate production decreases over time until all stocks are exhausted while firms with smaller stocks exhaust their supplies no later than firms with larger stocks do 3 the present value of price net of extraction cost declines over time 4 industry production maximizes a weighted average of intertemporal consumer s surplus and producers profits

market competition r d and firm profits in asymmetric oligopoly we investigate a cournot model with strategic r d investments wherein efficient low cost firms compete against less efficient high cost firms we findthat an increase in the number of high cost firms can stimulate r d by the low cost firms while it always reduces r d by the high cost firms more importantly this force can be strong enough to compensate for the loss that arises from more intense market competition the low cost firms profits may indeed increase with the number of high cost firms an implication of this result is far reaching as it gives low cost firms an incentive to help rather than harm high cost competitors we relate this implication to a practice known as open knowledge disclosure especially ford s strategy of disclosing its know how publicly and extensively at the beginning of the 20th century

pre electoral commitments and government formation recent studies show that pre electoral commitments and the ideological distance between parties influence government formation but do pre electoral pacts or rejections of party combinations really have an independent impact on the outcome of the government formation game which policy areas matter when parties agree to build a coalition this paper addresses these questions by applying a dataset that includes information on preferred rejected coalition partners and the policy area specific programmatic heterogeneity of all potential coalitions the results show that pre electoral commitments have a significant impact on government formation after controlling for endogeneity problems there is also evidence that not only diversity in economic issues determines the partisan composition of governments

welfare maximizing and revenue maximizing tariffs with a few domestic firms in this paper we compare the orthodox optimal tariff formula with the appropriate welfare maximizing tariff when there are a few producing or importing firms the welfare maximizing tariff can be very low voire negative in some cases while in others it can even exceed the maximum revenue tariff the relationship between the welfare maximizing tariff and the number of firms need not be monotonically increasing because the tariff is not strictly used to internalize terms of trade externality it is also used to manipulate cost asym metries between producing and importing firms welfare maximizing specific tariffs are never worse than their ad valorem counterparts jel classification f13 l13

quality heterogeneity and welfare abstract in a differentiated product oligopoly with linear demand an increase in the degree of quality heterogeneity across firms increases both aggregate profit and consumer surplus this result is robust to whether firms set prices or quantities

an analysis of cooperative research and development i analyze the effects of cooperative research whereby member firms agree to share the costs andfruits of a research project before they undertake it in this model industrywide agreements tend to have socially beneficial effects when the degree ofproduct market competition is low when there are r d spillovers in the absence of cooperation when a high degree of sharing is technologically feasible and when the agreement concerns basic research rather than development activities i show that a royalty free cross licensing agreement among any number offirms lowers the equilibrium level of innovation even though it increases the efficiency of r d through sharing

endogenous strength in conflicts in this paper we study a two period contest where the strength of players in the second period depends on the result of the contest in the first stage we show that in contrast to one shot contests in the same setting heterogeneous players exert different efforts in the first stage and rent dissipation in the first period may be large we study the conditions under which the discouragement effect holds in addition new issues emerge like the evolution of the strengths and the shares of the prize during the game

auctionin entry into tournaments a research tournament model with heterogeneous contestants is presented for a large class of contests the optimal number of competitors is two this insight makes designing the tournament easier and highlights the importance of selecting highly qualified contestants while customary uniform price and discriminatory price auctions are intuitively appealing mechanisms for solving this adverse selection problem in practice they generally will not be efficient mechanism for selecting contestants instead we propose an alternative auction format that is equally simple to implement and efficiently selects the most qualified contestants to compete regardless of the form of contestant heterogeneity

coalitional bargaining games with random proposers theory and application abstract we consider a non cooperative coalitional bargaining game with random proposers in a general situation for which players differ in recognition probability and time preference we characterize an efficient equilibrium as the generalized nash bargaining solution that belongs to the core the model is applied to wage bargaining between an employer and multiple workers although involuntary unemployment may occur in equilibrium full employment emerges as players become sufficiently patient

tax progressivity income distribution and tax non compliance this article examines the determinants of tax non compliance when we recognise the existence of an imperfectly competitive tax advice industry supplying schemes which help taxpayers reduce their tax liability we apply a traditional industrial organisation framework to model the behaviour of this industry this tells us that an important factor determining the equilibrium price and hence the level of noncompliance is the convexity of the demand schedule we show that in this context this convexity is affected by the distribution of pre tax income the progressivity of the tax schedule and the way in which monitoring and penalties vary with income it is shown that lower pre tax income inequality as well as a less progressive tax code may cause more tax minimisation activities therefore the frequently advocated policy of reducing the highest tax rate may fail as a policy directed at improving tax discipline one way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of the penalty and monitoring functions

idiosyncratic shocks in an asymmetric cournot oligopoly abstract several authors have studied the impact of a marginal cost variation in the cournot model on consumers surplus firms profits and social welfare we unify and extend the results when all marginal costs change simultaneously hence we bring together two strands of literature respectively on mean preserving and subgroup common shocks the effect of any shock is decomposed into two parts an average impact ai and a heterogeneity effect he the former improves welfare if the inverse demand function is concave enough and the market is concentrated enough the latter when the diffusion of the shock is negatively correlated with the market share distribution finally we apply our decomposition to various special cases

technology asymmetries group algebra and multiplant cost minimization for a homogeneous good this article studies firm level production activities when the firm controls a plural number of plants through careful construction of cost function technology asymmetries we inquire into the ordinal structure of the production vector for multiplant cost minimizers when schur convexity of a reference pseudo cost technology is the principal functional assumption then ordinal concepts of technical asymmetries map into rank order on the equilibrium production vector under a more generalized characterization of the technical asymmetries a multiplant firm encounters group theory is used to map a cardinal concept of asymmetries into cardinal bounds on the optimum allocation

option exercise games an application to the equilibrium investment strategies of firms under the standard real options approach to investment under uncertainty agents formulate optimal exercise strategies in isolation and ignore competitive interactions however in many real world asset markets exercise strategies cannot be determined separately but must be formed as part of a strategic equilibrium this article provides a tractable approach for deriving equilibrium investment strategies in a continuous time cournot nash framework the impact of competition on exercise strategies is dramatic for example while standard real options models emphasize that a valuable option to wait leads firms to invest only at large positive net present values the impact of competition drastically erodes the value of the option to wait and leads to investment at very near the zero net present value threshold copyright 2002 oxford university press

optimal design of research contests procurement of an innovation often requires substantial effort by potential suppliers motivating effort may be difficult if the level of effort and quality of the resulting innovation are unverifiable if innovators cannot benefit directly by marketing their innovations and if the buyer cannot extract up front payments from suppliers we study the use of contests to procure an innovation in such an environment an auction in which two suppliers are invited to innovate and then bid their prizes is optimal in a large class of contests if contestants are asymmetric it is optimal to handicap the most efficient one

manipulation through political endorsements abstract we study elections with three candidates under plurality voting a candidate is a condorcet loser if the majority of the voters place that candidate at the bottom of their preference rankings we first show that a condorcet loser might win the election in a three way race next we introduce to the model an endorser who has private information about the true probability distribution of the preferences of the voters observable endorsements facilitate coordination among voters who may otherwise split their votes and lead to the victory of the condorcet loser when the endorser has an ideological bias towards one of the candidates the coordination impact of endorsements remains unaltered moreover the endorser successfully manipulates the outcome of the election in favor of his bias even if his ideological bias is known by the voters the results are true for any endorsement cost and any magnitude of bias as long as the electorate is large enough

pass through in a concentrated industry empirical evidence and regulatory implications we estimate pass through with thirty years of data from a concentrated industry the empirical model accounts for oligopoly interactions yet facilitates estimation with aggregate price data robust statistical evidence supports that industry wide cost changes are more than completely transmitted downstream and that this industry pass through is largely unaected by competitive conditions the industry in question portland cement is a major focus of environmental and antitrust regulators we use our pass through estimates to i evaluate the welfare consequences of marketbased co2 regulation ii predict the magnitude and location of price eects due to a merger under review by antitrust authorities and iii corroborate the simulation based analysis of the epa regarding its impending regulation of local pollutants

repeated moral hazard the role of memory commitment and the access to credit markets abstract the dynamic dimension introduces new questions in moral hazard models thus the roles of memory and commitment have recently raised a marked interest the goal of this paper is to discuss and clarify the issues at hand and to present some new results we show that two conditions are necessary for the optimal long term contract to be implementable via spot contracts first the long term optimum should be renegotiation proof second spot contracts should provide efficient consumption smoothing we discuss how the availability of credit to the agent affects these two prerequisites we also study the hitherto neglected case in which the repetition of the moral hazard problem generates hidden information at recontracting dates the optimal renegotiation proof contract then implements the minimum effort level unless it involves randomized savings

carrots and sticks prizes and punishments in contests i introduction contests are widely used to model political lobbying sports competitions job promotions and r d races in most cases the contest s organizer has some control over the structure of rewards and punishments teachers determine who passes and who fails the exam a company sets rules about promotions and layoffs and sport governing bodies choose the number of teams advancing to a higher league and the number of those relegated to a lower one in this paper we characterize the optimal prize structure in a contest where the designer can use both rewards carrots and punishments sticks in order to motivate participants to exert effort 1 although both rewards and punishments are part of many existing incentive contracts the literature on contests focused on the incentive role of rewards because a contest that uses some punishments can be replicated by one that uses only rewards and yields the same incentives but this equivalence breaks down if the contest designer faces a budget constraint and if both rewards and punishments are costly the main focus of the present paper is to study contest design when the designer is budget constrained and it is costly to punish or reward players costly punishments appear in many situations for example in labor tournaments a firm usually incurs costs when firing workers who perform poorly e g worker compensation production disruption loss of clients and usually face search and replacement costs e g think about a faculty denying tenure to some candidates in other instances punishments are less costly to implement e g relegation in sport tournaments and we also briefly deal with this set up we assume here that the designer has a limited budget which means that costly punishments cannot be arbitrarily high subject to her budget constraint the designer determines the number and size of prizes punishments in order to maximize the participants expected total effort in particular some prizes can be positive rewards or negative punishments given the prize structure players choose their effort levels in order to maximize their expected payoff it is important to note that in a contest with n participants the marginal effect of each of n prizes on the participants total effort is different and can be either positive or negative if the marginal effect of the k th prize is positive its value given a budget constraint should be positive reward or zero and if the marginal effect is negative its value should be negative punishment or zero thus given that the contest designer has a limited budget he will prefer to distribute the entire prize sum to the prize with the highest marginal effect on the participants total effort relative to its cost in this paper we show that the relative effectiveness of punishments compared to rewards crucially depends on the curvature of the distribution of player abilities exploiting results about normalized spacings among order statistics developed by barlow and prochan 1966 we first revisit one of the main results in moldovanu and sela 2001 if punishment is not feasible the optimal prize structure offers a single reward to the top performer if rewards are not feasible we then show that the designer should only punish the player with the lowest performance if the distribution of abilities has an increasing hazard or failure rate if this last condition is not satisfied more punishments may be optimal if the designer can punish as well as reward the optimal prize structure will depend on the relative marginal cost of punishments and on the distribution of the players abilities for example if the marginal cost of punishments is the same as the marginal cost of rewards it is optimal to punish the worst performing player if the distribution of abilities is convex if that player is punished even high types will work hard to avoid performing worst because they know that there is a relatively high probability that competitors also have high types

welfare and non linear pricing in a cournot oligopoly a simple second degree price discrimination model involving nonlinear pricing of packets of a homogeneous product is shown to exhibit a welfare loss compared to the situation when nonlinear pricing is prohibited the result holds for a cournot oligopoly as well as monopoly further analysis considers the welfare loss from the market supplying too large a packet copyright 1991 by royal economic society

oligopoly and welfare a unified presentation with applications to trade and development abstract we develop a unified sequence of models to examine the determinants of price output profitability and concentration for different kinds of oligopolistic market we relate various magnitudes of significance to judges of welfare and to policy makers such as consumer surplus profit or added benefits of employment or trade surplus to observable magnitudes such as the size and concentration of the market it emerges that various appropriately formulated herfindahl indices are useful in several of these relations we attempt to present results in a way that is useful for empirical investigations and pay particular attention to applications in trade and development

two remarks on cournot equilibria abstract we describe two simple results in the theory of cournot equilibria the first has to do with the effect of taxation in a cournot industry and the second describes under what conditions a cournot equilibrium will implicity maximize an objective function these results are probably known but are not well known and they seem useful enough to be worth spelling out

on the effects of the distribution of initial endowments in a nonrenewable resource duopoly abstract this paper studies the effects on equilibrium output and profits of modifying the resource endowments in a nonrenewable resource duopoly when the firms equilibrium terminal dates may differ

competition market selection and growth we study the effect of the competitive selection process on the economy s rate of growth in an extension of standard quality ladder models of endogenous growth we allow for the possibility that in each period several asymmetric firms representing an endogenously determined number of past innovators may be simultaneously active in an industry stronger competitive pressure then has conflicting effects on the incentive to innovate lowering prices but also selecting the more efficient firms we show that the market selection effect of competition always increases the incentive to innovate and find circumstances in which it can outweigh the traditional negative effect of lower prices

network effects market structure and industry performance abstract this paper analyzes oligopolistic markets with network externalities exploiting a minimal complementarity structure on the model primitives that allows for pure network goods we prove existence of non trivial fulfilled expectations equilibrium we formalize the concept of industry viability investigate its determinants and show that it improves with more firms in the market and or by technological progress these results enlighten some well known conclusions from case studies in the management strategy literature we also characterize the effects of market structure on industry performance which depart substantially from ordinary markets the approach relies on lattice theoretic methods supplemented with basic insights from nonsmooth analysis

a noncooperative theory of coalitional bargaining the authors explore a sequential offers model of n person coalitional bargaining with transferable utility and with time discounting their focus is on the efficiency properties of stationary equilibria of strictly superadditive games when the discount factor delta is sufficiently large it is shown that delay and the formation of inefficient subcoalitions can occur in equilibrium the latter for some or all orders of proposer however efficient stationary equilibrium payoffs converge to a point in the core as delta approaches one strict convexity is a sufficient condition for there to exist an efficient stationary equilibrium payoff vector for sufficiently high delta

on the theory of strategic voting many analyses of plurality rule elections predict the complete coor dination of strategic voting and hence support for only two candidates here i suggest that stable multi candidate support will arise in equilibrium a group of voters must partially coordinate behind one of two challenging candidates in order to dislodge a disliked incumbent in a departure from existing models the popular support for each challenger is uncertain this support must be inferred from the private observation of informative signals such as the social communication of pref erences throughout the electorate or the imperfect observation of opinion polls the uniquely stable voting equilibrium entails only limited strategic voting and hence incomplete coordination this is due to the surprising presence of negative feed back an increase in the degree of strategic voting by others reduces the incentives for an individual to vote strategically the incentive to vote strategically is lower in relatively marginal elections after controlling for the distance from contention of a trailing preferred challenger a calibration of the model applied to the uk general election of 1997 is consistent with the impact of strategic voting and the reported accuracy of voters understanding of the electoral situation it suggests that nearly 50 seats may have been lost by the conservative party due to strategic voting 1 plurality rule elections and strategic voting 1 1 strategic voting and duverger s law plurality rule elections where the winner is the candidate who receives the largest number of votes are vulnerable to strategic voting a voter might well switch away from her preferred candidate and toward a perceived leader in the hope of exerting a greater influence over the outcome of the election this phenomenon has long been the focus of both economic and political scientific study in an influential essay riker 1982b cited droop s 1871 eloquent exposition of the strategic voting problem 1 i oer my grateful thanks to the many friends colleagues seminar participants referees and editors who have oered insightful comments during the long gestation of this paper its antecedents and companion work special thanks go to steve fisher whose empirical analysis of strategic voting raised many of the questions that i seek to answer in this paper and to chris wallace this particular paper brings together much of the analysis previously circulated in the papers a new theory of strategic voting strategic voting under the qualified majority rule and idiosyncrasy information and the impact of strategic voting

sequential voting in large elections with multiple candidates abstract i analyze strategic voting incentives in large elections with three candidates when voting takes place sequentially voters have perfect information about their private preferences but do not know the distribution from which other voters preferences are drawn if a candidate finishes last in an early voting round voters deduce that this candidate is likely to be less popular amongst the remaining voters and the remaining voters almost always have an incentive to stop voting for this candidate by contrast sincere voting equilibria can exist under either simultaneous voting or an early voting round of sequential voting without knife edge assumptions

favoring the winner or loser in repeated contests should a firm favor a weaker or stronger employee in a contest despite a widespread emphasis on rewarding the best employees managers continue to tolerate and even favor poor performers contest theory reveals that evenly matched contests are the most intense which implies that a contest designer can maximize each player s effort by artificially boosting the underdog s chances we apply this type of handicapping to a two period repeated contest between employees in which the only information available about their abilities is their performance in the first period in this setting employees are strategic and forward looking such that they fully anticipate the potential impact of the first period contest result on the second period contest and thus adjust their behaviors accordingly the manager also incorporates these strategic behaviors of employees when determining an optimal handicapping policy if employees abilities are sufficiently different favoring the first period loser in the second period increases the total effort over both periods however if abilities are sufficiently similar we find the opposite result occurs total effort increases the most in response to a handicapping strategy of favoring the first period winner

the logic of gamson s law pre election coalitions and portfolio allocations gamson s law the proposition that coalition governments will distribute portfolios in proportion to each member party s contribution of seats to the coalition has been one of the most prominent landmarks in coalitional studies since the 1970s however standard bargaining models of government formation argue that gamson s law should not hold once one controls for relevant indicators of bargaining power in this article we extend these bargaining models by allowing parties to form pre election pacts we argue that campaign investments by pact signatories depend on how they anticipate portfolios will be distributed and thus signatories have an incentive to precommit to portfolio allocation rules we show that pacts will sometimes agree to allocate portfolios partly or wholly in proportion to members contributions of seats to the coalition this increases each signatory s investment in the campaign thereby conferring external benefits in the form of a larger probability of an alliance majority on other coalition members empirical tests support the model s predictions

when are nash equilibria independent of the distribution of agents characteristics author s bergstrom ted varian hal r abstract we present examples of nash equilibria that do not vary with the distribution of a parameter across agents and then offer a general theorem that characterizes this independence

moral hazard in repeated procurement of services this paper analyzes repeated procurement of services as a two period model with a potential repeated agency relationship in the first period there is an incumbent who provides a service in the second period there is a contest stage in which the principal selects the next service provider the agents effort is non contractible and the contest stage is the mechanism to mitigate potential moral hazard problems the principal takes account of the past service effort in the contest stage by choosing the weight of past effort and the degree of substitutability between past and current efforts the results show that when the principal does not value contest effort considering past effort as the relevant effort in the contest is optimal when the principal values contest effort and effort cost increases decreasing substitutability between efforts is optimal

incentives versus competitive balance abstract when players compete repeatedly prizes won in earlier contests may improve the players abilities in later contests this paper determines the allocation of prizes within and across contests that maximizes the weighted sum of aggregate efforts

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

cournot oligopoly with bargaining abstract the generalized nash bargaining solutions is used to model output decisions of rival firms in a cournot oligopoly expressions for price cost margins and the objective function that a cournot equilibrium implicitly maximizes are obtained as compared with the situation where firms maximize profits these are shown to involve additional cost terms

digging for golden carrots an analysis of research tournaments contracting for research is often infeasible because research inputs are unobservable and research outcomes cannot be verified by a court sponsoring a research tournament can resolve these problems a model is presented in which contestants compete to find the innovation of highest value to the tournament sponsor the winner receives a prespecified prize the tournament game has a unique subgame perfect equilibrium free entry is not optimal because equilibrium effort by each researcher decreases in the number of contestants an optimally designed research tournament balances the probability of overshooting the first best quality level against the probability of falling short copyright 1995 by american economic association