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on Microeconomics |
| By: | Smith, John |
| Abstract: | We interpret the social identity literature and examine its economic implications. We model a population of agents from two exogenous and well defined social groups. Agents are randomly matched to play a reduced form bargaining game. We show that this struggle for resources drives a conflict through the rational destruction of surplus. We assume that the population contains both unbiased and biased players. Biased players aggressively discriminate against members of the other social group. The existence and specification of the biased player is motivated by the social identity literature. For unbiased players, group membership has no payoff relevant consequences. We show that the unbiased players can contribute to the conflict by aggressively discriminating and that this behavior is consistent with existing empirical evidence. |
| Keywords: | social identity theory; social fragmentation |
| JEL: | L14 D74 C72 |
| Date: | 2010–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23336&r=mic |
| By: | Evan Calford (Centre for Energy and Environmental Markets, School of Economics, University of New South Wales, Australia); Christoph Heinzel (Centre for Energy and Environmental Markets (CEEM) School of Economics, Australian School of Business, University of New South Wales, Australia); Regina Betz (Centre for Energy and Environmental Markets, School of Economics, University of New South Wales, Australia) |
| Abstract: | We analyse the efficiency effects of the initial permit allocation given to firms with market power in both permit and output market. We examine two models: a long-run model with endogenous technology and capacity choice, and a short-run model with fixed technology and capacity. In the long run, quantity pre-commitment with Bertrand competition can yield Cournot outcomes also under emissions trading. In the short run, Bertrand output competition reproduces the effects derived under Cournot competition, but displays higher pass-through profits. In a second-best setting of overallocation, a tighter emissions target tends to improve permit-market efficiency in the short run. |
| Keywords: | Emissions trading, Initial permit allocation, Bertrand competition, EU ETS, Endogenous technology choice, Kreps and Scheinkman |
| JEL: | L13 Q28 D43 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:eenhrr:1059&r=mic |
| By: | Picchio, Matteo (Tilburg University); van Ours, Jan C. (Tilburg University) |
| Abstract: | Recent human capital theories predict that labor market frictions and product market competition influence firm-sponsored training. Using matched worker-firm data from Dutch manufacturing, our paper empirically assesses the validity of these predictions. We find that a decrease in labor market frictions significantly reduces firms' training expenditures. Instead, product market competition does not have an effect on firm-sponsored training. We conclude that increasing competition through international integration and globalization does not pose a threat to investments in on-the-job training. An increase in labor market flexibility may reduce incentives of firms to invest in training, but the magnitude of this effect is small. |
| Keywords: | firm-sponsored training, labor market frictions, product market competition, matched worker-firm data |
| JEL: | D43 J24 J42 L22 M53 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4988&r=mic |
| By: | George Deltas (Department of Economics, University of Illinois, U.-C., United States); Thanasis Stengos (Department of Economics, University of Guelph, Canada); Eleftherios Zacharias (Department of Economics, Athens School of Economics, Greece) |
| Abstract: | This paper empirically examines the joint pricing decision of products in a firm's product line. When products are distinguished by a vertical characteristic, those products with higher values of that characteristic will command higher prices. We investigate whether, holding the value of the characteristic constant, there is a price premium for products on the industry and/or the firm frontier, i.e., for the products with the highest value of the characteristic in the market or in a firm's product line. The existence of price premia for lower ranked products is also investigated. Finally, the paper investigates whether firms set prices to avoid cannibalizing the other products in their portfolio, whether competition with rival firms is stronger for products that are closer to the frontier compared to other products, and whether a product's price declines with the time it is ownered by a firm. Using personal computer price data, we show that prices decline with the distance from the industry and firm frontiers. We find evidence that consumer tastes for brands is stronger for the consumers of frontier products (and thus competition between firms weaker in the top end of the market). Finally, there is evidence that a product's price is higher if a firm offers products with the immediately faster and immediately slower computer chip (holding the total number of a firm's offerings constant), possibly as an attempt way to reduce cannibalization. |
| Keywords: | Pricing, Multiproduct firms, Personal Computers, Product Entry and Exit |
| JEL: | L11 D43 L63 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:14_10&r=mic |
| By: | Michaela Trippl |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwsre:sre-disc-2010_02&r=mic |
| By: | stefano Colombo (DISCE, Università Cattolica) |
| Abstract: | The unidirectional Hotelling model where consumers can buy only from firms located on their right (left) is extended to allow for elastic demand functions. A Bertrand-type model and a Cournot-type model are considered. If firms choose location and then set prices, agglomeration never arises; instead, if firms choose location and then set quantities, agglomeration arises at one endpoint of the segment when transportation costs are low enough. Equilibrium distance between firms is lower in Cournot than Bertrand under the whole parameters’ set. We also study the impact of firms’ location on perfect collusion sustainability. We show that when consumers can buy only from firms located on their right (left), the incentive to deviate of each firm decreases the more the firm is located to the right (left) and the more the rival is located to the left (right). |
| Keywords: | Unidirectional Hotelling model; Location equilibrium; Collusion; Bertrand; Cournot. |
| JEL: | D43 L11 L41 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie3:ief0095&r=mic |
| By: | Sakellaris, Kostis |
| Abstract: | The last decade has seen an increasing application of game theoretic tools in the analysis of electricity markets and the strategic behavior of market players. This paper focuses on the model examined by Fabra et al. (2008), where the market is described by a two-stage game with the firms choosing their capacity in the first stage and then competing in prices in the second stage. By allowing the firms to endogenously determine their capacity, through the capacity investment stage of the game, they can greatly affect competition in the subsequent pricing stage. Extending this model to the demand uncertainty case gives a very good candidate for modeling the strategic aspect of the investment decisions in an electricity market. After investigating the required assumptions for applying the model in electricity markets, we present some numerical examples of the model on the resulting equilibrium capacities, prices and profits of the firms. We then proceed with two results on the minimum value of price caps and the minimum required revenue from capacity mechanisms in order to induce adequate investments. |
| Keywords: | Capacity Constraints; Electricity Markets; Regulatory Policy; Strategic Behaviour; |
| JEL: | C63 L94 C72 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23317&r=mic |
| By: | Thorsten Chmura (University of Bonn); Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Markus Englerth (Max Planck Institute for Research on Collective Goods, Bonn); Thomas Pitz (Max Planck Institute for Research on Collective Goods, Bonn) |
| Abstract: | Do criminals maximise money? Are criminals more or less selfish than the average subject? Can prisons apply measures that reduce the degree of selfishness of their inmates? Using a tried and tested tool from experimental economics, we cast new light on these old criminological questions. In a standard dictator game, prisoners give a substantial amount, which calls for more refined versions of utility in rational choice theories of crime. Prisoners do not give less than average subjects, not even than subjects from other closely knit communities. This speaks against the idea that people commit crimes because they are excessively selfish. Finally those who receive better marks at prison school give more, as do those who improve their marks over time. This suggests that this correctional intervention also reduces selfishness. |
| Keywords: | experiment, Crime, Prison, Dictator Game, Hurdle Model |
| JEL: | K42 C91 K14 C34 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2010_27&r=mic |
| By: | Cristina Pardo-Garcia (ERI-CES) |
| Abstract: | This industry is formed by single-component producers whose components are combined to create composite goods. When a given firm has the possibility of merging with either a complement or a substitute good producer, its equilibrium choice depends on the degree of product differentiation in the composite good market. A merger between complements, which allows for mixed bundling, only happens when composite goods are very differentiated. Private incentives do not always go along with social interests and the equilibrium merger can differ from the socially optimal merger. After a merger, outsiders have also the opportunity to react and merge to other outsiders or to join the previous merge. |
| Keywords: | merger, composite goods, substitutes, complements, pricing strategies, countermerger |
| JEL: | L13 L41 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:dbe:wpaper:0410&r=mic |
| By: | Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Neustadt, Ilja (Socioeconomic Institute (SOI), Faculty of Economics, University of Zurich) |
| Abstract: | In a perfectly competitive market with a possibility of technological innovation we contrast guaranteed feed-in tariffs for electricity from renewables and tradable green certificates from a dynamic efficiency and social welfare point of view. Specifically, we model decisions about the technological innovation with convex costs within the framework of a game-theoretic model, and discuss implications for optimal policy design under different assumptions regarding regulatory pre-commitment. We find that for the case of technological innovation with convex costs subsidy policies are preferable over quota-based policies. Further, in terms of dynamic efficiency, no pre-commitment policies are shown to be at least as good as the pre-commitment ones. Thus, a government with a preference for innovation being performed if the achievable cost reduction is high should be in favor of the no pre-commitment regime. |
| Keywords: | Renewable Electricity; Feed-In Tariffs; Regulatory Pre-Commitment; Tradable Green Certificates; Quota Target; Innovation; Energy Policy |
| JEL: | Q42 Q48 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:fcnwpa:2010_004&r=mic |
| By: | Bourlès, R.; Cette, G.; Lopez, J.; Mairesse, J.; Nicoletti, G. |
| Abstract: | The paper focuses on the influence of upstream competition for productivity outcomes in downstream sectors. This relation is illustrated with a neo-Schumpeterian theoretical model of innovation (Aghion et al., 1997) with market imperfections in the production of intermediate goods. In this context, upstream market imperfections create barriers to competition in downstream markets and upstream producers use their market power to share innovation rents sought by downstream firms. Thus, lack of competition in upstream markets curbs incentives to improve productivity downstream, negatively affecting productivity outcomes. We test this prediction by estimating an error correction model that differentiates the potential downstream effects of lack of upstream competition in situations close and far from the global technological frontier. We measure competition upstream with regulatory burden indicators derived from OECD data on sectoral product market regulation and the industry-level efficiency improvement and the distance to frontier variables by means of a multifactor productivity (MFP) index. Panel regressions are run for 15 OECD countries and 20 sectors over the 1985-2007 period with country, sector and year fixed effects. We find clear evidence that anticompetitive regulations in upstream sectors have curbed MFP growth downstream over the past 15 years. These effects tend to be strongest for observations (i.e. country/sector/period triads) that are close to the global technological frontier. Our results suggest that, measured at the average distance to frontier and average level of anticompetitive regulations, the marginal effect of increasing competition by easing such regulations is to increase MFP growth by between 1 and 1.5 per cent per year in the OECD countries covered by our sample. Our results are robust to changes in the way MFP and the regulatory burden indicators are constructed, as well as to variations in the sample of countries and/or sectors. |
| Keywords: | Productivity, Growth, Regulations, Competition, Catch-up. |
| JEL: | O43 L5 O57 L16 C23 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:283&r=mic |
| By: | Bargain, Olivier; González, Libertad; Keane, Claire; Özcan, Berkay |
| Abstract: | If participation in the labour market helps to secure women's outside options in the case of divorce/separation, an increase in the perceived risk of marital dissolution may accelerate the increase in female labour supply. This simple prediction has been tested in the literature using time and/or spatial variation in divorce legislation (e.g., across US states), leading to mixed results. In this paper, we suggest testing this hypothesis by exploiting a more radical policy change, i.e., the legalization of divorce. In Ireland, the right to divorce was introduced in 1996, followed by an acceleration of marriage breakdown rates. We use this fundamental change in the Irish society as a natural experiment. We follow a difference-in-difference approach, using families for whom the dissolution risk is small as a control group. Our results suggest that the legalization of divorce contributed to a significant increase in female labour supply, mostly at the extensive margin. Results are not driven by selection and are robust to several specification checks, including the introduction of household fixed effects and an improved match between control and treatment groups using propensity score reweighting. |
| Keywords: | divorce law/fixed effects/labour supply/natural experiment/propensity score |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp346&r=mic |
| By: | Manacorda, Marco |
| Abstract: | This paper uses administrative longitudinal micro data on Junior High school students in Uruguay to measure the effect of grade failure on students’ subsequent school outcomes. Exploiting the discontinuity induced by a rule establishing automatic grade failure for pupils with more than three failed subjects, I show that grade failure leads to substantial drop-out and lower educational attainment even four to five years after grade failure first occurred. |
| Keywords: | grade retention; regression discontinuity; school drop-out |
| JEL: | I21 I22 J20 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:7889&r=mic |
| By: | Juan Esteban Carranza |
| Abstract: | This paper contains an empirical dynamic model of supply and demand in the market for digital cameras with endogenous product innovation. On the demand side, heterogeneous consumers time optimally the purchase of goods depending on the expected evolution of prices and characteristics of available cameras. On the supply side, firms introduce new camera models accounting for the dynamic value of new products and the optimal behavior of consumers. The model is estimated using data from the market for digital cameras and the estimated model replicates rich dynamic features of the data. The estimated model is used to perform counterfactual computations, which suggest that more competition or lower product introduction costs generate more product variety but lower average product quality. |
| Date: | 2010–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:col:000130:007127&r=mic |
| By: | Ricardo Monges-Gonzalez; John Hewitt |
| Abstract: | This paper addresses the relationships between innovation, research and development (R&D) and productivity in domestic ICT firms in Costa Rica. Factors considered were the types of innovation outputs produced by domestic ICT firms, the relative importance of innovation inputs, the impacts of innovation on firm productivity, the protection of innovations, and impediments to innovation. While most firms engaged in all types of output and input innovations, they appear to be driven by retaining or increasing market share rather than increasing productivity. Half of firms do not formally protect the intellectual property created by their innovations, are not familiar with methods for protecting innovation or the availability of government grants for such purposes, and face barriers associated with the Costa Rican Patent Office. Other impediments include lack of knowledge about financial resources available and scarcity of human resources. There is also evidence of knowledge spillovers through worker mobility from multinationals operating in Costa Rica to domestic ICT firms. |
| Keywords: | Research and development, Information communications technology, Innovation, Costa Rica |
| JEL: | L20 L63 L86 O31 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4670&r=mic |
| By: | Altmann, Steffen (IZA); Falk, Armin (University of Bonn); Huffman, David (Swarthmore College) |
| Abstract: | We analyze the impact of imperfect contract enforcement on the emergence of unemployment. In an experimental labor market where trading parties can form long-term employment relationships, we compare a work environment where effort is observable, but not verifiable to a situation where explicit contracts are feasible. Our main result shows that unemployment is much higher when third-party contract enforcement is absent. Unemployment is involuntary, being caused by firms' employment and contracting policy. Moreover, we show that implicit contracting can lead to a segmentation of the labor market. Firms in both segments earn similar profits, but workers in the secondary sector face much less favorable conditions than their counterparts in primary-sector jobs. |
| Keywords: | incentives, implicit contracts, unemployment, fairness, dual labor markets |
| JEL: | C92 J64 M55 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5001&r=mic |
| By: | José Pineda and Francisco Rodríguez (Human Development Report Office, UNDP; Human Development Report Office, UNDP) |
| Abstract: | This paper argues against a natural resource curse for human development. We find evidence that changes in human development from 1970 to 2005, proxied by changes in the Human Development Index, are positively and significantly correlated with natural resource abundance. While our results are consistent with those of other authors who have recently argued that natural resources do not adversely affect growth, we find strong evidence that natural resources have a positive effect on human development and particularly on its non-income dimensions. However, results from Latin America interactions show that the positive impact of natural resources in this region is significantly smaller than in the rest of the world. These results contribute to a broader discussion about the “resource curse” by showing that natural resources may be a blessing rather than a curse for human development, primarily through its effects on education and health rather than income. |
| Keywords: | Natural resources, Growth, Development |
| JEL: | O1 O13 O5 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:hdr:papers:hdrp-2010-04&r=mic |
| By: | Olivier Coibion; Yuriy Gorodnichenko; Johannes F. Wieland |
| Abstract: | We study the effects of positive steady-state inflation in New Keynesian models subject to the zero bound on interest rates. We derive the utility-based welfare loss function taking into account the effects of positive steady-state inflation and show that steady-state inflation affects welfare through three distinct channels: steady-state effects, the magnitude of the coefficients in the utility-function approximation, and the dynamics of the model. We solve for the optimal level of inflation in the model and find that, for plausible calibrations, the optimal inflation rate is low, less than two percent, even after considering a variety of extensions, including price indexation, endogenous price stickiness, capital formation, model-uncertainty, and downward nominal wage rigidities. In our models, price level targeting delivers large welfare gains and a very low optimal inflation rate consistent with price stability. |
| JEL: | E3 E4 E5 |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16093&r=mic |