nep-mic New Economics Papers
on Microeconomics
Issue of 2010‒05‒22
fourteen papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. Leadership Cycles By Vincenzo Denicolò; Piercarlo Zanchettin
  2. The Sugar Daddy's Game: A New Phenomenon in Professional Team Sports By Martin Grossmann; Markus Lang; Philipp Theiler
  3. Parallel Imports and Innovation in an Emerging Economy By Andrea Mantovani; Alireza Naghavi
  4. Contracting and Ideas Disclosure in the Innovation Process By Martimort, David; Poudou, Jean-Christophe; Sand-Zantman, Wilfried
  5. Competition Among Spatially Differentiated Firms: An Empirical Model with an Application to Cement By Nathan Miller; Matthew Osborne
  6. Free Riding in Procurement Design By Barbosa, Klenio
  7. Spain, Japan, and the Dangers of Early Fiscal Tightening By Javier Díaz Giménez; R. AntonBraun
  8. Reinforcing the EU Dialogue with Developing Countries on Climate Change Mitigation By Frank Vöhringer; Alain Haurie; Dabo Guan; Maryse Labriet; Valentina Bosetti; Pryadarshi R. Shukla; Philippe Thalmann
  9. Using Forward Contracts to Reduce Regulatory Capture By Felix Hoeffler; Sebastian Kranz
  10. OECD imports : diversification and quality search By Cadot, Olivier; Kukenova, Madina; Strauss-Kahn, Vanessa
  11. Are Young People's Educational Outcomes Linked to their Sense of Control? By Juan D. Barón; Deborah Cobb-Clark
  12. Is Producing a Private Label Counterproductive for a Branded Manufacturer? By Bergès, Fabian; Bouamra-Mechemache, Zohra
  13. Decomposing the social discount rate By Scarborough, Helen
  14. Information Modelling for Quality and Sustainability By Lehmann, Richard J.; Reiche, Robert; Fritz, Melanie; Schiefer, Gerhard

  1. By: Vincenzo Denicolò (University of Bologna); Piercarlo Zanchettin (University of Leicester)
    Abstract: We study a quality-ladder model of endogenous growth that produces stochastic leadership cycles. Over a cycle, industry leaders can innovate several successive times in the same industry, gradually increasing the magnitude of their technological lead before being replaced by a new entrant. Initially, new leaders are eager to enlarge their lead and do much of the research, but if they innovate repeatedly, their propensity to invest in R&D decreases. Eventually they stop doing research altogether, and as they are overtaken a new cycle starts. The model generates a skewed firm size distribution and a deviation from Gibrat’s law that accord with the empirical evidence. We also consider various policy measures, showing that in some cases policy should favour R&D by incumbents, not outsiders, and that stronger patent protection may reduce innovation and growth.
    Keywords: Technological Lead, Innovation, R&D
    JEL: O32 O4
    Date: 2010–04
  2. By: Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Philipp Theiler (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: During the last few years, professional sports leagues witnessed the appearance of so-called "sugar daddies" - people who invested enormous amounts of money into their clubs. This paper presents a contest model of a professional sports league and incorporates this new phenomenon. We analyse how the appearance of a sugar daddy alters league competition compared to a league with purely profit-maximising clubs. In particular, we show that the effect on competitive balance depends on the market sizes of the clubs and the win preference of the sugar daddy. Social welfare can increase through a sugar daddy if he invests in a large club. On the other hand, social welfare will always decrease if the sugar daddy invests in a small club. The welfare effect of revenue-sharing in a sugar daddy league is ambiguous and depends on the degree of redistribution and on whether the sugar daddy invests in a small or a large club.
    Keywords: Competitive balance, contest model, social welfare, sports leagues, sugar daddy
    JEL: L83 L2 D43 C72
    Date: 2010–05
  3. By: Andrea Mantovani (University of Bologna); Alireza Naghavi (niversity of Bologna and Fondazione Eni Enrico Mattei)
    Abstract: This paper studies the consequences of parallel import (PI) on process innovation of firms heterogeneous in their production technology. In an international setting where foreign markets differ with respect to their intellectual property rights regime, a move by a technologically inferior firm to exploit a new unregulated market can result in imitation and PI. The impact of PI on innovation is determined by the degree of heterogeneity between firms and trade costs. Increasing trade costs shifts from the market share losses brought by PI from the more to the less productive firm. This induces the former to invest more in R&D. At this point, sales in the foreign market become a determinant of the R&D decision by the technologically inferior firm. For low levels of firm heterogeneity, PI increases output by this firm targeted for the unregulated market, hence increases its innovation efforts. A tariff policy accompanied by opening borders to PI only increases welfare when the technological gap between the two firms is sufficiently large.
    Keywords: Intellectual Property Rights, Parallel Imports, Innovation, Trade Costs, Welfare
    JEL: F12 F13 L11
    Date: 2010–04
  4. By: Martimort, David; Poudou, Jean-Christophe; Sand-Zantman, Wilfried
    Abstract: We analyze the contract between an innovator and a developer, when the former has private information on his idea and the latter must exert efforts but may also quit the relationship after having been informed. We show that the equilibrium contracts distort downwards the developer's incentives but in different ways according to the strength of intellectual property rights (IPR). For example, with intermediate IPR, only pooling contracts arise with a limited amount of information revealed.
    Date: 2009–06
  5. By: Nathan Miller (Economic Analysis Group, Antitrust Division, U.S. Department of Justice); Matthew Osborne (Bureau of Economic Analysis)
    Abstract: The theoretical literature of industrial organization shows that the distances between consumers and firms have first-order implications for competitive outcomes whenever transportation costs are large. To assess these effects empirically, we develop a structural model of competition among spatially differentiated firms and introduce a GMM estimator that recovers the structural parameters with only regional-level data. We apply the model and estimator to the portland cement industry. The estimation fits, both in-sample and out-of-sample, demonstrate that the framework explains well the salient features of competition. We estimate transportation costs to be $0.30 per tonne-mile, given diesel prices at the 2000 level, and show that these costs constrain shipping distances and provide firms with localized market power. To demonstrate policy-relevance, we conduct counter-factual simulations that quantify competitive harm from a hypothetical merger. We are able to map the distribution of harm over geographic space and identify the divestiture that best mitigates harm.
    Date: 2010–03
  6. By: Barbosa, Klenio
    Abstract: Low-powered contracts do not provide proper incentives to reduce cost; still empirical studies show that they are quite pervasive in public and private procurement. This paper argues that low-powered contracts arise due to a free-riding problem when the contractor enjoys economies of scale/scope working for different buyers. A buyer, offering a procurement contract to the contractor, does not fully internalize that higher-powered incentives provide cost reduction in the contractor's activities, benefiting other buyers. As a result, buyers offer lower-powered contracts than what would be designed by cooperative buyers. Strikingly, the higher the contractor's benefits from economies of scope/scale are, the lower the power of the procurement contracts will be. In addition, laws which force buyers to award fixed-price contracts can be welfare-enhancing.
    Keywords: free-riding, procurement, multibuyers
    JEL: H57 L24
    Date: 2009–12
  7. By: Javier Díaz Giménez; R. AntonBraun
    Abstract: Spain's current recession was preceded by an extended period of rapid growth in real estate and equity prices. The recent sudden and sharp decline in these asset prices has been followed by a deep economic contraction. Is this recession a large but transient phenomenon? Or is it perhaps instead the harbinger of a protracted period of depressed asset prices and economic stagnation? Japan experienced a similar pattern of growth in land and equity prices in the late 1980s. The collapse of the Japanese bubble economy was followed by a protracted period of declines in asset prices and depressed economic activity. We compare Japan's experience in the 1980s and 1990s with current developments in Spain. One message that emerges from this narrative is that a fiscal tightening in Japan in 1997 may have been premature. We develop a prototypical New Keynesian model, calibrate it to replicate the Japan's experience in the 1980s and 1990s, and use it to evaluate the risks of tightening fiscal policy too early when the nominal interest rate is low. We find that a premature fiscal tightening can have large and negative effects on the real economy.
    Date: 2010–03
  8. By: Frank Vöhringer (Ecole Polytechnique Fédérale de Lausanne); Alain Haurie (ORDECSYS); Dabo Guan (University of Cambridge); Maryse Labriet (KANLO Consultants); Valentina Bosetti (Fondazione Eni Enrico Mattei); Pryadarshi R. Shukla (Indian Institute of Management Ahmedabad); Philippe Thalmann (Ecole Polytechnique Fédérale de Lausanne)
    Abstract: The FP6 TOCSIN project has evaluated climate change mitigation options in China and India and the conditions for strategic cooperation on research, development and demonstration (RD&D) and technology transfer with the European Union. In particular, the project investigated the strategic dimensions of RD&D cooperation and the challenge of creating incentives to encourage the participation of developing countries in post-2012 GHG emissions reduction strategies and technological cooperation. This paper summarizes the main policy-relevant results of the project, including the requests for: (I) almost immediate decisions on ambitious mitigation; (II) a strong increase in Annex I support regarding R&D spending and technology transfer; (III) a well-designed mix of instruments and targets in an effective climate deal that addresses manifold national interests and concerns.
    Keywords: Climate Policy, Technology Transfers
    JEL: Q54 Q55
    Date: 2010–04
  9. By: Felix Hoeffler (Department WHU - Otto Beisheim School of Management); Sebastian Kranz (Bonn Graduate School of Economics, University of Bonn)
    Abstract: A fully unbundled, regulated network firm of unknown efficiency level can untertake unobservable effort to increase the likelihood of low downstream prices, e.g. by facilitating downstream competition. To incentivize such effort, the regulator can use an incentive scheme paying transfers to the firm contingent on realized downstream prices. Alternatively, the regulator can force the firm to sell the following forward contracts: the firm pays the downstream price to the owners of a contract, but recieves the expected value of the contracts when selling them to a competivitve financial market. We compare the two regulatory tools with respect to regulatory capture: if the regulator can be bribed to suppress information on the underlying state of the world (the basic propability of high downstream prices, or the type of the firm), optimal regulation uses forward contracts only.
    Keywords: incentive regulation, regulatory capture, virtual power plants
    JEL: L42 L51 K23 L94
    Date: 2010–02
  10. By: Cadot, Olivier; Kukenova, Madina; Strauss-Kahn, Vanessa
    Abstract: This paper explores the evolution of OECD imports over time and as a function of income levels, measuring the concentration of those imports across origin countries at the product level. The authors find evidence of diversification followed, in the last years of the sample period (post-2000), by a slight re-concentration. This re-concentration is entirely explained by the growing importance of Chinese products in OECD imports. They also find evidence of relatively more volatile concentration levels for differentiated goods, consistent with a simple model of adverse selection and screening of suppliers by OECD buyers. Finally, they find that"accession"to OECD markets occurs directly (rather than after acquiring prior export experience on other markets) for more than half of the (extra-OECD) exporter/product pairs, but that one to eight years of experience enhances subsequent survival on OECD markets. Exports that reach OECD markets after more than eight years of experience elsewhere tend to survive less.
    Keywords: Markets and Market Access,Economic Theory&Research,Labor Policies,Debt Markets,Microfinance
    Date: 2010–04–01
  11. By: Juan D. Barón; Deborah Cobb-Clark
    Abstract: This paper analyzes the link between young people's sense (locus) of control over their lives and their investments in education. We find that young people with a more internal locus of control have a higher probability of finishing secondary school and, conditional on completion, meeting the requirements to obtain a university entrance rank. Moreover, those with an internal locus of control who obtain a university entrance rank achieve somewhat higher rankings than do their peers who have a more external locus of control. Not surprisingly, there is a negative relationship between growing up in disadvantage and educational outcomes. However, this effect does not appear to operate indirectly by increasing the likelihood of having a more external locus of control. In particular, we find no significant relationship between family welfare history and young people's locus of control.
    Date: 2010–05–09
  12. By: Bergès, Fabian; Bouamra-Mechemache, Zohra
    Abstract: Branded food manufacturers vindicate the use of excess production capacities (idle otherwise) to justify their production of retailers' brands. We study the distributor and food manufacturer's private label strategy for production within a framework featuring endogenous store brand quality, bargaining power, possible differences in production technology and potential capacity constraint for the branded manufacturer. According to the structure of capacity constraint (applying to both products or private label only), the retailer may prefer to choose an independent firm whereas he selected the branded manufacturer when unconstrained. The conclusions of our article thus partially confirm branded manufacturers' thinking: they may produce store brands when they are not capacity constrained
    JEL: L11 L13 Q13
    Date: 2009–12
  13. By: Scarborough, Helen
    Abstract: Recent modelling of the costs and benefits of climate change has renewed debate surrounding assumptions regarding the social discount rate in analysing the impacts of environmental change. Previous literature segments the social discount rate into being influenced by two key factors; the rate of pure time preference and the elasticity of marginal utility of future consumption. These components of the social discount rate reinforce the linkages between the choice of social discount rate and intergenerational distribution. In an extension of previous work by the author on intergenerational distributional preferences, this paper discusses the relationship between intergenerational equity and the social discount rate. The work has significant policy implications given the sensitivity of Cost Benefit Analysis outcomes to assumptions regarding the social discount rate.
    Keywords: Intergenerational equity, Social discount rate, Environmental Economics and Policy,
    Date: 2010
  14. By: Lehmann, Richard J.; Reiche, Robert; Fritz, Melanie; Schiefer, Gerhard
    Abstract: The food sector is confronted with a growing number of public and private requirements, which call for provision of information about the quality and sustainability of food, such as, e.g., its origin, safety and production conditions. This forces enterprises to innovate towards demand driven and knowledge-based production of food. As a consequence, intra- and inter-enterprise production and information processes have to be integrated and suitable information systems need to be developed to provide information for related decision processes. The present paper introduces a generalized modelling framework for model-based decision support systems (DSS) involving production and information processes across whole supply networks. The different phases of a decision process are supported by the integration of functional, behavioural and informational network models using the Unified Modeling Language (UML) and discrete-event simulation.
    Keywords: Supply chain management, Model-based decision support systems (DSS), Process integration, Unified Modeling Language (UML), Discrete-event simulation, Agribusiness, Agricultural and Food Policy, Farm Management, Food Consumption/Nutrition/Food Safety, Research and Development/Tech Change/Emerging Technologies, Risk and Uncertainty,
    Date: 2009–10

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