Outsourcing versus technology transfer: Hotelling meets Stackelberg

We consider a Hotelling duopoly with two firms $A$ and $B$ in the final good market. Both can produce the required intermediate good, firm $B$ having a lower cost due to a superior technology. We compare two contracts: outsourcing ( $A$ orders the intermediate good from $B$ ) and technology transfer ( $B$ transfers its technology to $A$ ). An outsourcing order is equivalent to building an endogenous capacity and it generates a Stackelberg leadership effect for firm $A,$ which is absent in technology transfer. We show that compared to the situation of no contracts there are always Pareto improving outsourcing contracts (making both firms better off and all consumers at least weakly better off), but no Pareto improving technology transfer contracts. It is also shown that if firm $B$ has a relatively large bargaining power in its negotiations with $A,$ then both firms prefer technology transfer while all consumers prefer outsourcing.     

Restrictions and identification in a multidimensional risk-sharing problem

We consider $H$ expected utility maximizers that have to share a risky aggregate multivariate endowment $X\in {\mathbb {R}}^{N}$ and address the following two questions: does efficient risk-sharing imply restrictions on the form of individual consumptions as a function of $X$ ? Can one identify the individual utility functions from the observation of the risk-sharing? We show that when $H\ge \frac{2N}{N-1}$ efficient risk sharings have to satisfy a system of nonlinear PDEs. Under an additional rank condition, we prove an identification theorem.     

Optimal insurance design of ambiguous risks

We examine the characteristics of the optimal insurance contract under linear transaction costs and an ambiguous distribution of losses. Under the standard expected utility model, we know from Arrow (1965) that it contains a straight deductible. In this paper, we assume that the policyholder is ambiguity averse in the sense of Klibanoff et al. (Econometrica 73(6):1849–1892, 2005). The optimal contract depends upon the structure of the ambiguity. For example, if the set of possible priors can be ranked according to the monotone likelihood ratio order, the optimal contract contains a disappearing deductible. We also show that the policyholder’s ambiguity aversion may have the counterintuitive effect to reduce the optimal insurance coverage of an ambiguous risk.     

Essential data, budget sets and rationalization

According to a minimalist version of Afriat’s theorem, a consumer behaves as a utility maximizer if and only if a feasibility matrix associated with his choices is cyclically consistent. An “essential experiment” consists of observed consumption bundles $(x_{1}, \ldots , x_{n})$ and a feasibility matrix $\varvec{\alpha }$ . Starting with a standard experiment, in which the economist has access to precise budget sets, we show that the necessary and sufficient condition for the existence of a utility function rationalizing the experiment, namely, the cyclical consistency of the associated feasibility matrix, is equivalent to the existence, for any budget sets compatible with the deduced essential experiment, of a utility function rationalizing them (and typically depending on them). In other words, the conclusion of the standard rationalizability test, in which the economist takes budget sets for granted, does not depend on the full specification of the underlying budget sets but only on the essential data that these budget sets generate. Starting with an essential experiment $(x_{1}, \ldots , x_{n}; \varvec{\alpha }$ ) only, we show that the cyclical consistency of $\varvec{\alpha }$ , together with a further consistency condition involving both $(x_{1}, \ldots , x_{n})$ and $\varvec{\alpha }$ , guarantees the existence of a budget representation and that the essential experiment is rationalizable almost robustly, in the sense that there exists a single utility function which rationalizes at once almost all budget sets which are compatible with $(x_{1}, \ldots , x_{n}; \varvec{\alpha }$ ). The conditions are also trivially necessary.     

On the location of public bads: strategy-proofness under two-dimensional single-dipped preferences

In a model with finitely many agents who have single-dipped Euclidean preferences on a polytope in the Euclidean plane, a rule assigns to each profile of reported dips a point of the polytope. A point $x$ of the polytope is called single-best if there is a point $y$ of the polytope such that $x$ is the unique point of the polytope at maximal distance from $y$ . It is proved that if the polytope does not have either exactly two single-best points or exactly four single-best points which form the vertices of a rectangle, then any Pareto optimal and strategy-proof rule is dictatorial. If the polytope has exactly two single-best points, then there are non-dictatorial strategy-proof and Pareto optimal rules, which can be described by committee voting (simple games) between the two single-best points. This also holds if there are exactly four single-best points which form the vertices of a rectangle, but in that case, we limit ourselves to describing an example of such a rule. The framework under consideration models situations where public bads such as garbage dumping grounds or nuclear plants have to be located within a confined region.     

Equilibria in an overlapping generations model with transfer policies and exogenous growth

For an overlapping generations economy with varying life-cycle productivity, non-stationary endowments, continuous time starting at $-\infty $ (hence allowing for full anticipation), constant-returns-to-scale production and ces utility, we fully characterise equilibria where output is higher than investment, which is strictly positive. Net assets (aggregate savings minus the value of the capital stock) are constant in any equilibrium, and, for balanced growth equilibria (bge, defined for an economy with stationary endowments), net assets are non-zero only in the golden rule equilibrium, in accord with Gale (1973). The number of bge is finite. Their parity, however, depends on the life-cycle productivity, in particular, on the relation between the intertemporal elasticity of substitution, the minimal working age and the minimal tax age.     

Lorenz rankings of rules for the adjudication of conflicting claims

For the adjudication of conflicting claims, we develop three general approaches to obtain Lorenz rankings of rules. Our first approach concerns a parameterized family that contains several important rules (Thomson in Soc Choice Welf 31:667?C692, 2008). We give a condition that the parameters defining two members of the family should satisfy for one of them to Lorenz dominate the other. Our second approach exploits the concept of ??consistency?? (Young in Math Oper Res 12:398?C414, 1987). We derive a criterion to deduce Lorenz domination for arbitrarily many claimants from Lorenz domination in the two-claimant case. Our third approach is based on the notion of an ??operator?? on the space of rules (Thomson and Yeh in J Econ Theory 143:177?C198, 2008). We develop conditions under which operators preserve the Lorenz order, or reverse it. As corollaries of our general theorems, we obtain rankings of most of the rules that have been discussed in the literature.     

Forecasting spatially dependent origin and destination commodity flows

We explore origin–destination forecasting of commodity flows between 15 Spanish regions, using data covering the period from 1995 to 2004. The 1-year-ahead forecasts are based on a recently introduced spatial autoregressive variant of the traditional gravity model. Gravity (or spatial interaction models) attempt to explain variation in \(N = n^2\) flows between \(n\) origin and destination regions that reflect a vector arising from an \(n\) by \(n\) flow matrix. The spatial autoregressive variant of the gravity model used here takes into account spatial dependence between flows from regions neighboring both the origin and destinations during estimation and forecasting. One-year-ahead forecast accuracy of non-spatial and spatial models are compared.     

Optimality of impulse harvesting policies

We explore the link between cyclical and smooth resource exploitation. We define an impulse control framework which can generate both cyclical solutions and steady-state solutions. Our model can admit convex and concave profit functions and allows the integration of different stock-dependent profit functions. We show that the strict concavity of the profit function is only a special case of a more general condition, related to submodularity, that ensures the existence of optimal cyclical policies. We then establish a link with the discrete-time models with cyclical solutions by Benhabib and Nishimura (J Econ Theory 35:284–306, 1985) and Dawid and Kopel (J Econ Theory 76:272–297, 1997). For the steady-state solution, we explore the relation to Clark’s (1976) continuous control model.     

Motivating energy suppliers to promote energy conservation

We examine the design of regulatory policy to induce electric utilities to deliver the surplus-maximizing level of energy efficiency services, $e^{*}$ . The rebound effect (whereby increased energy efficiency stimulates the demand for energy) typically renders revenue decoupling insufficient in this regard. The additional financial incentive required to induce $e^{*}$ is shown to vary with such factors as the prevailing price of energy, the magnitude of the rebound effect, the extent of observable energy efficiency investments, and the utility’s objective.     

Cobb-Douglas preferences under uncertainty

This paper axiomatizes Cobb-Douglas preferences under uncertainty. First, we extend the original Trockel (Econ Lett 30:7–10, 1989)’s axiomatic foundation to a general state space framework based on the Strong Homotheticity Axiom, obtaining also the incomplete case a la Bewley (Decis Econ Financ 25:79–110, 2002). We show that this key axiom for the Cobb-Douglas expected utility specification is refuted by Ellsberg’s uncertainty aversion behavioral pattern. Our main result provides a set of meaningful axioms characterizing Cobb-Douglas min-expected utility preferences, an important class of uncertainty averse preferences for studying the consequences of ambiguity in finance and other fields. Finally, we present briefly how to obtain more general representations like the variational case.     

Modelling the Effect of Chronic Wasting Disease on Recreational Hunting Site Choice Preferences and Choice Set Formation over Time

Chronic wasting disease (CWD) is a prion disease that affects deer, elk and other cervid wildlife species. Although there is no known link between the consumption of CWD affected meat and human health, hunters are advised to have animals from CWD affected areas tested and are advised against consuming meat from CWD infected animals (Government of Alberta 2010). We model hunter response to the knowledge that deer in a wildlife management unit have been found to have CWD in Alberta, Canada. We examine hunter site choice over two hunting seasons using revealed and stated preference data in models that incorporate preferences, choice set formation, and scale. We compare a fully endogenous choice set model using the independent availability logit model (Swait in Probabilistic choice set formation in transportation demand models. Dissertation, MIT, 1984) with the availability function approach (Cascetta and Papola in Transp Res C 9(4):249–263, 2001) that approximates choice set formation. We find that CWD incidence affects choice set formation and preferences and that ignoring choice set formation would result in biased estimates of impact and welfare measures. This study contributes to the broader recreation demand literature by incorporating choice set formation, scale and temporal impacts into a random utility model of recreation demand.     

Estimating Tropical Cyclone Damages Under Climate Change in the Southern Hemisphere Using Reported Damages

This paper estimates the damages from tropical cyclones (TCs) in the Southern Hemisphere under future climate change scenarios based on the historical TC records in Australia. From the best-track TC data, we examine the changes in frequency, intensity, and economic damage of the TCs that made landfall since 1970. From the detailed individual TC reports, damage estimates are constructed based on reported damages. We find that the TC frequency has significantly declined over time. The intensity, however, does not show a significant trend. Average damage per TC has declined significantly from 43 million AUD in the 1970s to 11 million in the 1990s. This paper finds that 1 % decrease in minimum central pressure leads to 32.7 % increase in economic damage, which is more than three times larger than that found in the US hurricane study with regards to maximum wind speeds. For future damage projections, characteristics of the 14,000 TCs generated under seven different AOGCM climate models are applied. All seven climate models predict a decrease in TC frequency in the Southern Hemisphere but intensity predictions vary. By the end of the twenty second century, changes in climate are expected to increase the TC damage under the MRI ( \(+\) 94 %), the MIROC ( \(+\) 73 %), and the CSIRO ( \(+\) 66 %) model due to increased intensity. However, TC damage is expected to fall under the GFDL ( \(-\) 92 %) and the CNRM ( \(-\) 85 %) model due to decreased intensity and frequency. Adaptation will be a key determinant of the future vulnerability to TCs in the Southern Hemisphere.     

The Welfare Impact of Self-supplied Water Pricing in Canada: A Computable General Equilibrium Assessment

This paper uses a computable general equilibrium model to assess the welfare cost of changing the method of water allocation in Canada towards one that uses prices to ration demand. We model the introduction of a price on both water that is abstracted as well as water that is consumed (that is abstracted, and not returned to the source). We estimate that reducing water consumption by 25 % would require imposition of a price on water consumption of around $$\$0.21/\text{ m }^{3}$$ . Similarly, introduction of a water abstraction charge of about $$\$0.013/\text{ m }^{3}$$ would be sufficient to reduce water abstraction by 25 %. We find that if revenues from water pricing are returned in lump sum to households, the introduction of water pricing would result in a modest welfare loss. When revenues from water pricing are used to offset existing taxes, we find a gain in welfare corresponding to a ‘strong double dividend.’     

Specification and Aggregation Errors in Environmentally Extended Input–Output Models

This article considers the specification and aggregation errors that arise from estimating embodied $\text{ CO }_{2}$ emissions and embodied water use with environmentally extended national input–output (IO) models, instead of with an environmentally extended international IO model. Model specification errors result from the use of domestic environmental and domestic technology coefficients to estimate emissions or resources that are embodied in international trade. For $\text{ CO }_{2}$ footprints, unacceptably large overestimations arise from using domestic emission coefficients, which are only partly canceled out by using domestic technology coefficients. For water use footprints both specification errors are smaller, but hardly cancel out. Sectoral aggregation errors occur when combining the 129 EXIOPOL industries to 59 EU industries and 10 broad sectors. The latter aggregation creates the largest errors. Spatial aggregation errors arise from combining 43 individual EXIOPOL countries in four broad regions and “the rest of the world”. Substantial, unacceptable errors occur again, now especially in relation to water use.     

Egalitarian division under Leontief Preferences

We consider the problem of fairly dividing $l$ divisible goods among $n$ agents with the generalized Leontief preferences. We propose and characterize the class of generalized egalitarian rules which satisfy efficiency, group strategy-proofness, anonymity, resource monotonicity, population monotonicity, envy-freeness and consistency. On the Leontief domain, our rules generalize the egalitarian-equivalent rules with reference bundles. We also extend our rules to agent-specific and endowment-specific egalitarian rules. The former is a larger class of rules satisfying all the previous properties except anonymity and envy-freeness. The latter is a class of efficient, group strategy-proof, anonymous and individually rational rules when the resources are assumed to be privately owned.     

Household behavior and individual autonomy: an extended Lindahl mechanism

We present a comprehensive model of household economic decision covering both full cooperation and noncooperation as well as semi-cooperative cases, varying with income distribution and a parameter vector $\theta $ representing degrees of individual autonomy with respect to the public goods. In this model, the concept of “household $\theta $ -equilibrium” is introduced through the reformulation of the Lindahl equilibrium for Nash implementation and its extension to semi-cooperation. Existence is proved and some generic properties derived. An example is given to illustrate. An important benefit of this approach is to allow for a compact and unified investigation of the testable (local) restrictions of household demand. A particular decomposition of the pseudo-Slutsky matrix is derived and the testability of the various models discussed.     

Bliss,Catastrophe, and Rational Policy

Lotteries with infinite expected utility are inconsistent with the axioms of expected utility theory. To rule them out, either the set of permissible lotteries must be restricted (to exclude, at a minimum, “fat-tailed” distributions such as that underlying the St. Petersburg Paradox and power laws that are popular in models of climate change), or the utility function must be bounded. This note explores the second approach and proposes a number of tractable specifications leading to utility functions that are bounded both from above and below. This property is intimately related to that of increasing relative risk aversion as first hypothesized by Arrow (1965).     

Second-order ambiguous beliefs

This paper axiomatizes models of second-order ambiguous beliefs in the original domain of preferences of Anscombe and Aumann (Ann Math Stat 34:199–205, 1963) by weakening the first-stage independence postulate. The models we propose include the second-order subjective expected utility (SOSEU) of Seo (Econometrica 77:1575–1605, 2009) as a particular case. We characterize the intersection of our models of second-order ambiguity with the canonical models of (first-order) ambiguity aversion and provide a further generalization of SOSEU by relaxing the completeness axiom.