nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒04‒30
eight papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. The Economics of Books By Marcel F. M. Canoy; Jan C. van Ours; Frederick van der Ploeg
  2. Lobbying and Compromise By Gil S. Epstein; Shmuel Nitzan
  3. Relative Performance Evaluation in a Multi-Plant Firm By Annalisa Luporini
  4. Rational Information Choice in Financial Market Equilibrium By Marc Andreas Mündler
  5. Intra-Generational Externalities and Inter-Generational Transfers By Martin Kolmar; Volker Meier
  6. A Case for Taxing Education By Tomer Blumkin; Efraim Sadka
  7. Bargaining Power and Equilibrium Consumption By Hans Gersbach; Hans Haller
  8. Divide and Conquer By Zhijun Chen

  1. By: Marcel F. M. Canoy; Jan C. van Ours; Frederick van der Ploeg
    Abstract: The tensions between books and book markets as expressions of culture and books as products in profit-making businesses are analysed and insights from the theory of industrial organisation are given. Governments intervene in the market for books through laws concerning prices of books, grants for authors and publishers, a lower value-added tax, public libraries and education in order to stimulate the diversity of books on offer, increase the density of retail outlets and to promote reading. An overview of the different ways by which countries differ in terms of market structures and government policies is given. Particular attention is paid to retail price maintenance. Due to differences between European countries it is not a good idea to harmonise European book policies. Our analysis suggests that the book market seems quite able to invent solutions to specific problems of the book trade and that, apart from promoting reading, there is little need for government intervention.
    Keywords: books, publishers, authors, diversity, monopolistic competition, retail price maintenance, subsidies, libraries, internet
    JEL: D40 D60 L10 L40 Z11
    Date: 2005
  2. By: Gil S. Epstein; Shmuel Nitzan
    Abstract: The compromise enhancing effect of lobbying on public policy has been established in two typical settings. In the first, lobbies are assumed to act as 'principals' and the setters of the policy (the candidates in a Downsian electoral competition or the elected policy maker in a citizen- candidate model of electoral competition) are conceived as 'agents'. In the second setting, the proposed policies are solely determined by the lobbies who are assumed to take the dual role of 'principals' in one stage of the public-policy game and 'agents' in its second stage. The objective of this paper is to demonstrate that in the latter setting, the compromising effect of lobbying need not exist. Our reduced-form, two-stage public-policy contest, where two interest groups compete on the approval or rejection of the policy set by a politician, is sufficient to show that the proposed and possibly implemented policy can be more extreme and less efficient than the preferred policies of the interest groups. In such situations then more than the calf (interest groups) wish to suck the cow (politician) desires to suckle thereby threatening the public well being more than the lobbying interest groups. The main result specifies the conditions that give rise to such a situation under both the perfectly and imperfectly discriminating contests.
    Keywords: public-policy contests, interest groups, policy makers, lobbying, compromise
    JEL: D60 D72
    Date: 2005
  3. By: Annalisa Luporini
    Abstract: We analyze optimal compensation schedules for the directors of two plants belonging to the same owner and producing the same good but serving geographically differentiated markets. Since the outcome of each director depends on his own effort and on a random variable representing market conditions, the problem takes the form of a principal multi-agent model. We first provide appropriate extensions of the MLR and CDF conditions that ensure the validity of the first-order approach in the single agent case. Then, we show that affiliation of the random variables is a necessary and sufficient condition for the compensation of one director to negatively and monotonically depend on the performance of the other.
    Keywords: principal-agent problems, relative performance evaluation, first-order approach, monotone likelihood ratio, affiliation
    JEL: D23 D82
    Date: 2005
  4. By: Marc Andreas Mündler
    Abstract: Adding a stage of signal acquisition to the expected utility model shows that Bayesian updating results in a well defined law of demand for financial information when asset return distributions are conjugate priors to signals such as in the gamma-Poisson case. Signals have a positive marginal utility value that falls in their number if and only if investors are risk averse, asset markets large, and variance-mean ratios of asset returns high in fully revealing rational expectations equilibrium. Expected asset price increases in the number of signals so that expected excess return drops. The diminishing excess return prevents Bayesian investors from unbounded information demand even if signals are costless, unless the riskfree asset is removed. Signals mutually benefit homogeneous investors because revealing asset price permits updating so that a Pareto criterion judges competitive equilibrium as not sufficiently informative. However, asset price responses make incentives for signal acquisition dependent on portfolios so that welfare and distributional consequences become intricately linked when investors are heterogeneous.
    JEL: D81 D83 G14
    Date: 2005
  5. By: Martin Kolmar; Volker Meier
    Abstract: In an environment with asymmetric information the implementation of a first-best efficient Clarke-Groves-Vickrey (D’Aspremont-Gérard-Varet) mechanism may not be feasible if it has to be self-financing. By using intergenerational transfers, the arising budget deficit can generally be covered in every generation if the growth rate of the economy is positive. This result yields an alternative explanation for the existence of pay-as-you-go financed transfer mechanisms.
    Keywords: pay-as-you-go, externalities, mechanism design, adverse selection
    JEL: D82 H23 H55
    Date: 2005
  6. By: Tomer Blumkin; Efraim Sadka
    Abstract: We illustrate a novel informational feature of education, which the government may utilize. Discretionary decisions of individuals to acquire education may serve as an additional signal (to earned labor income) on the underlying unobserved innate earning ability, thereby mitigating the informational constraint faced by the government. We establish a case for taxing education, as a supplement to the labor income tax.
    Keywords: optimal taxation, re-distribution, education, inequality
    JEL: D60 H20
    Date: 2005
  7. By: Hans Gersbach; Hans Haller
    Abstract: We examine how a shift of bargaining power within households operating in a competitive market environment affects equilibrium allocation and welfare. If price effects are sufficiently small, then typically an individual benefits from an increase of bargaining power, necessarily to the detriment of others. If price effects are drastic the welfare of all household members moves in the same direction when bargaining power shifts, at the expense (or for the benefit) of outside consumers. Typically a shift of bargaining power within a set of households also impacts upon other households. We show that each individual of a sociological group tends to benefit if he can increase his bargaining power, but suffers if others in his group do the same.
    Keywords: household behavior, bargaining power, local and global changes, price effects, general equilibrium
    JEL: D10 D50 D62 D70
    Date: 2005
  8. By: Zhijun Chen (GREMAQ Toulouse universite 1)
    Abstract: Tournaments are well known to be vulnerable to collusion as shown by the impossibility theorem in Ishiguro (2004), which asserts that efficient effort levels are impossible to be implemented through a collusion-proof contract. However, we argue that this impossibility is a product of simple mechanisms that prevail in collusion-proof mechanism design. In this paper, we explore more sophisticated mechanisms with discrimination and asymmetric information to prevent collusion, outlining the principle of “divide and conquer”. As a result, we establish a possibility theorem of implementing efficient effort levels, and thus break down the impossibility theorem in Ishiguro (2004).
    Keywords: Collusion, Discrimination, Moral Hazard, Tournament Model
    JEL: D20 J30
    Date: 2005–04–28

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