nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒05‒23
five papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Monopoly, asymmetric information, and optimal environmental taxation By Manel Antelo
  2. Advertising and pricing at multiple-output firms: evidence from U.S. thrift institutions By Robert DeYoung; Evren Örs
  3. Barriers to network-specific innovation By Antoine Martin; Michael J. Orlando
  4. Two-part pricing under revenue cap regulation By Lantz, Björn
  5. Pareto's Law of Income Distribution: Evidence for Grermany, the United Kingdom, and the United States By Fabio Clementi; Mauro Gallegati

  1. By: Manel Antelo (Universidad de Santiago de Compostela)
    Abstract: This paper aims to examine optimal environmental taxation in an incomplete-information two-period model in which a monopolistic firm produces and pollutes. It is assumed that the polluting firm is privately informed about its costs of production, and the policymaker, which can only infer the firm's costs from observing the output produced in the first period, has the chance to set environmental taxes to affect emissions; the emitter of pollution may then choose a non-optimal level of production in such a period in order to manipulate the policymaker's beliefs concerning its costs. If the policymaker values environmental quality sufficiently, the low-cost polluter has an incentive to misrepresent itself as a high-cost firm in order to secure a low environmental tax in the second period. This leads the high-cost polluting firm to produce, in the first period, an output level that is not higher than output which would be optimal if only short-term considerations were taken into account. The optimal environmental tax rate in the first period, when the firm's output is a signal of its cost, is then lower than or equal to what it would be if the firm's output was not a signal of firm's costs. The expected emissions in the former context are also lower than or equal to those in the latter case. By contrast, when the policymaker's valuation of the environment is sufficiently low, the environmental tax is negative (a subsidy per unit of pollutant emitted) in both the signaling and non-signaling contexts and no less in the former context than in the latter.
    Keywords: Environmental tax and subsidy policy, monopolistic polluting firm, vertical asymmetric information, signaling and non-signaling
    JEL: D62 D82 L13
    Date: 2005
  2. By: Robert DeYoung; Evren Örs
    Abstract: We derive five hypotheses regarding market competition, price, and advertising from a theoretical model of a profit maximizing depository institution, and test these conjectures in a simultaneous system of deposit interest rates and advertising expenditures for a data panel of 1,867 thrift institutions that offer 13 different deposit products in 666 local markets in the U.S. between 1994 and 2000. We find some support for each of our hypotheses – branding, information, Dorfman-Steiner, structure-advertising, and structure-price – with the strength of the results often depending on the attributes of the deposit products or the characteristics of the thrifts.
    Keywords: Advertising ; Thrift institutions
    Date: 2004
  3. By: Antoine Martin; Michael J. Orlando
    Abstract: We consider an environment in which participants make payments over a network and can invest in a technology that reduces the marginal cost of using the network. A network effect results in multiple equilibria; either all agents invest and usage of the network is high or no agents invest and usage of the network is low. The high-usage equilibrium can be implemented through introduction of a coordinator. Under monopoly network ownership, however, fixed costs associated with use of the network-specific technology result in a hold-up problem that implements the low-investment equilibrium. And even where subsidies can avoid such hold-up, optimal monopoly pricing of network usage may avoid investment in the network-specific technology if demand for on-network transactions is sufficiently inelastic.
    Keywords: Payment systems
    Date: 2004
  4. By: Lantz, Björn (Department of Business Administration, School of Economics and Commercial Law, Göteborg University)
    Abstract: This paper aims at developing the theoretical understanding of revenue capping as a way of regulating monopolistic firms. It is shown that the fact that a standard monopolist regulated by a fixed revenue cap will raise its price above the unregulated monopoly level is robust to two-part pricing. It is also shown that when regulation of a two-part pricing monopolist is based on a hybrid revenue cap defined as a linear function of quantity, it is the slope of the cap that determines its incentives for efficiencient behaviour while the intercept of the cap only affects the profit level of the firm. This also holds if the cap is defined as a hybrid price-revenue cap. The general conclusion of this is that the slope of the hybrid cap needs to be steeper that the slope of the firm’s cost function in order to prevent the incentive to raise price above the unregulated monopoly level. <p>
    Keywords: Monopoly regulation; incentive regulation; revenue cap regulation
    Date: 2005–05–17
  5. By: Fabio Clementi (Department of Public Economics, University of Rome 'La Sapienza'); Mauro Gallegati (Department of Economics, Università Politecnica delle Marche)
    Abstract: We analyze three sets of income data: the US Panel Study of Income Dynamics (PSID), the British Household Panel Survey (BHPS), and the German Socio-Economic Panel (GSOEP). It is shown that the empirical income distribution is consistent with a two-parameter lognormal function for the low-middle income group (97\%-99\% of the population), and with a Pareto or power law function for the high income group (1\%- 3\% of the population). This mixture of two qualitatively different analytical distributions seems stable over the years covered by our data sets, although their parameters significantly change in time. It is also found that the probability density of income growth rates almost has the form of an exponential function.
    Keywords: Personal income; Lognormal distribution; Pareto's law; Income growth rate
    JEL: D1 D2 D3 D4
    Date: 2005–05–18

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