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.     

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.     

Information and \sigma -algebras

In this work, we clarify the relationship between the information that an agent receives from a signal, from an experiment or from his own ability to determine the true state of nature that occurs and the information that an agent receives from a $\sigma $ -algebra. We show that, for countably generated $\sigma $ -algebras, the larger it is, the larger the information is. The same is true for general $\sigma $ -algebras after the removal of a negligible set of states.     

Semantics for intuitionistic epistemic logics of shallow depths for game theory

Epistemic logic of shallow depths has been developed by Kaneko–Suzuki using classical logic. In this paper, we adopt intuitionistic logic as the base logic to limit each player’s reasoning to constructive one. The resulting logical system is denoted by IG $_{EF}$ , and we introduce epistemic possible world semantics for IG $_{EF}$ . We show the soundness and completeness of IG $_{EF}$ with respect to this semantics for it. We also show some applications to game theoretical decision making.     

Eco-Efficiency and Convergence in OECD Countries

This paper assesses the convergence in eco-efficiency of a group of 22 OECD countries over the period 1980–2008. In doing so, three air pollutants representing the impact on the environment of economic activities are considered, namely, carbon dioxide ( ${\text{ CO}}_{2}$ ), nitrogen oxides ( ${\text{ NO}}_\mathrm{X}$ ) and sulphur oxides ( ${\text{ SO}}_\mathrm{X}$ ); furthermore, eco-efficiency scores at both country and air-pollutant-specific level are computed using Data Envelopment Analysis techniques. Then, convergence is evaluated using the recent approach by Phillips and Sul Econometrica 75:1771–1855 (2007), which tests for the existence of convergence groups. First, we find that eco-efficiency has improved over the period, with the exception of ${\text{ NO}}_\mathrm{X}$ emissions. Second, Switzerland is the most eco-efficient country, followed by some Scandinavian economies, such as Sweden, Iceland, Norway and Denmark. In contrast, Southern European countries such as Portugal, Spain and Greece, in addition to Hungary, Turkey, Canada and the United States, are among the worst performers. Finally, we find that both the most eco-efficient countries and the worst tend to form clubs of convergence.     

Removing biases in forecasts of fishery status

A recent highly cited paper from this journal develops a model predicting maximum sustainable yield ( \(MSY\) ) of a fishery using the historical maximum catch ( \(MaxCatch\) ). The model is parameterized with a small sample of fisheries from the United States, and is subsequently applied globally to estimate the benefits of fishery recovery. That empirical relationship has been adopted for many subsequent high-profile analyses. Unfortunately, the analysis suffers from two important oversights: (1) because the model is non-linear, it suffers from “retransformation bias” and therefore the results significantly understate \(MSY\) and (2) the analysis is parameterized from of a very limited data set and so generalizability of the fitted empirical relationship between \(MSY\) and \(MaxCatch\) to global fisheries is questionable. Here, we rectify both oversights and provide an updated estimate of the relationship between \(MSY\) and \(MaxCatch\) .     

Asymmetric first-price auctions with uniform distributions: analytic solutions to the general case

In 1961, Vickrey posed the problem of finding an analytic solution to a first-price auction with two buyers having valuations uniformly distributed on ${[\underline{v}_{1}, \overline{v}_{1}]}$ and ${[\underline{v}_{2}, \overline{v}_{2}]}$ . To date, only special cases of the problem have been solved. In this paper, we solve this general problem and in addition allow for the possibility of a binding minimum bid. Several interesting examples are presented, including a class where the two bid functions are linear.     

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.     

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.     

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.     

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.     

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.     

Liquidity and the marginal value of information

We revisit Kyle’s (Econometrica 53:1315–1335, 1985) model of price formation in the presence of private information. We begin by using Back’s (Rev Financ Stud 5(3):387–409, 1992) approach, demonstrating that if standard assumptions are imposed, the model has a unique equilibrium solution and that the insider’s trading strategy has a martingale property. That in turn implies that the insider’s strategies are linear in total order flow. We also show that for arbitrary prior distributions, the insider’s trading strategy is uniquely determined by a Doob $h$ -transform that expresses the insider’s informational advantage. This allows us to reformulate the model so that Kyle’s liquidity parameter $\lambda $ is characterized by a Lagrange multiplier that is the marginal value or shadow price of information. Based on these findings, we can then interpret liquidity as the marginal value of information.     

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.     

Strategies in the principal-agent model

In this paper, we study the principal-agent problem. It is well known that in continuous-time, it is possible to prove the existence of an equilibrium $ (u^{*},S^{*})$ in a considerably general setting, and however little is known about the strategies themselves. Our goal is to present a universal way to construct these strategies as limiting strategies of a very simple type.     

Consistent strategy-proof assignment by hierarchical exchange

We characterize the family of efficient, consistent, and strategy-proof rules in house allocation problems. These rules follow an endowment inheritance and trade procedure as in Pápai’s hierarchical exchange rules (Pápai in Econometrica 68, 1403–1433, 2000) and closely resemble Ergin’s priority rules (Ergin in Econometrica 70, 2489–2497, 2002). We prove that if there are at least four objects, these are the only rules that are efficient in two-agent problems, $2$ -consistent, and strategy-proof. A corollary is that these three basic properties together imply the full requirements of efficiency, consistency, group strategy-proofness, and reallocation-proofness.     

Getting Cars Off the Road: The Cost-Effectiveness of an Episodic Pollution Control Program

Ground-level ozone remains a serious problem in the United States. Because ozone non-attainment is a summer problem, episodic rather than continuous controls of ozone precursors are possible. We evaluate the costs and emissions reductions of a program that requires people to buy permits to drive on high-ozone days. We estimate the demand function for permits based on a survey of 1,300 households in the Washington, DC, metropolitan area. Assuming that all vehicle owners comply with the scheme, the permit program would reduce nitrogen oxides ( $\text{ NO }_{\mathrm{x}}$ ) by 42 tons per Code Red day at a permit price of $75. Allowing for non-compliance by 15 % of respondents reduces the effectiveness of the scheme to 33 tons of $\text{ NO }_{\mathrm{x}}$ per day. The cost per ozone season of achieving these reductions is approximately $9 million (2008 USD). Although year-round measures, such as the Tier II emissions standards, might be preferred on benefit-cost grounds, an episodic permit system might be considered as an interim measure before the Tier II emissions standards are fully reflected in the vehicle fleet.     

Inferior factor in Cournot oligopoly revisited

We reconsider the recent work by Okuguchi (J Econ 101:125–131, 2010) on (possibly asymmetric) Cournotian firms with two production factors, one being inferior for each firm. It is shown there that an increase in the price of the inferior factor does raise the equilibrium industry output. In addition of providing a simpler and more rigorous proof of that result, we generalize it to the case of technologies with $s\ge 2$ factors and also allow some firms not to use the inferior one.