Optimal pricing of a two-sided monopoly platform with a one-sided congestion effect

This paper studies the optimal pricing of a two-sided monopoly platform when one side is affected by congestion. We show that the divide-and-conquer pricing strategy (or skewed pricing) depends not only on the relative magnitude of the sides’ price elasticities of demand but it also depends on the marginal congestion cost that an agent imposes on the others. Compared with the no-congestion case, this pricing strategy gives rise to some interesting features that violate the results of Rochet and Tirole (J Eur Econ Assoc 1:990–1029 in 2003, Rand J Econ 37:645–667 in 2006). In the case of equal price elasticities of demand, the no-congested side is charged the highest price. On the other hand, in the case of different price elasticities, the platform congestion pricing depends on a certain threshold of the marginal congestion cost. We show, under some conditions, that the divide-and-conquer pricing strategy is reversed. In the social context, the Rochet and Tirole’s (J Eur Econ Assoc 1:990–1029 in 2003) cost allocation condition is modified by the congestion cost. We show that the congestion does not only affect the buyers’ contribution to the sellers’ surplus, but it also affects the sellers’ contribution to the buyers’.     

Comparative political economy when anarchism is on the table

Scott’s (2009) research on stateless Southeast Asia describes behavioral patterns amidst indigenous peoples that parallel certain contemporary social phenomena, especially, prohibition and military occupation. Unintended consequences caused by government are continuously interpreted to reaffirm the rationale for interventionism. Governments’ role in social processes involving violence is presumed necessary and sufficient. As a result of conceptual biases, non-governmental processes such as markets and civil society are ignored as sources for potential solutions to complex social problems. Comparative political economy should take more seriously models developed by the tradition of constitutional political economy and classical liberalism wherein the state is recognized as a significant threat to social order.     

Moments of truncated <Emphasis Type="Italic">t</Emphasis> and <Emphasis Type="Italic">F</Emphasis> distributions

Truncated distributions commonly arise in economics and related areas, see, for example, Lee (Econ Lett 3:165–169, 1979), Lien (Econ Lett 19:243–247, 1985; Econ Lett 20:45–47, 1986), Burdett (Econ Lett 52:263–267, 1996), Sercu (Insur: Math and Econ 20:79–95, 1997), Abadir and Magdalinos (Econom Theory 18:1276–1287, 2002), and Horrace (J Econom 126:335–354, 2005). In this note, we consider the most commonly encountered truncated distributions with heavy tails: the truncated t distribution and the truncated F distribution. For each of these distributions, we derive explicit expressions for the moments and estimation procedures by the method of moments and the method of maximum likelihood. An application is illustrated to a popular data set in the econometric literature.      

Matching markets with price bargaining

The extant microeconomic literature on matching markets assumes ordinal preferences for matches, while bargaining within matches is mostly excluded. Central for this paper, however, is bargaining over joint profits from potential matches. We investigate, both theoretically and experimentally, a seemingly simple allocation task in a 2×2 market with repeated negotiations. When inefficiency is possible, about 1/3 of the complete matches are inefficient and, overall, more than 3/4 of the experimental allocations are unstable. These results strongly contradict existing bargaining theories requiring efficient matches. Even with regard to efficient matches, the tested theories perform poorly. Standard bargaining and behavioral concepts, such as Selten’s (1972) Equal Division Core, are outperformed by the simplistic ε-Equal Split, i.e., an equal split of the joint profit plus/minus ε.     

Returns of Small Growth Stocks: An Empirical Analysis

I investigate the mean reversion tendency of small growth stocks. Using a carefully articulated research design employing established and empirically tested principles, my findings should support or refute the anecdotal evidence that small growth stocks make superior investments. The primary motivation for the study springs from the documented differential preference among investors for value and growth stocks. Despite evidence that value stocks tend to outperform growth stocks, investors retain strong interest in growth stocks. Yet in examining the performance of Business Week’s (BW), smaller capitalization companies (called “Hot Growth Companies”) with respect to the overall financial market, Bauman et al. [2002] found positive excess returns in the pre-publication period but negative excess returns in the post-publication period. A limitation of their study is that their analyses relied on only three criteria: sales, BW rank and return on capital, which do not represent completely a firm’s financial health. I replicate Bauman et al.’s study but use a more robust and representative variable set to test the mean reversal hypothesis — Forbes’ financial criteria — and I focus on six variables. In the current study, I look at 4,200 companies listed in Forbes from 1980 to 2000. The results of the expanded study substantiate Bauman et al.’s [2002] study showing that there are positive excess returns in the pre-publication period, but negative excess returns in the post-publication period. An expanded future study will look at five additional variables to see if they make a significant difference on the effects of the returns of small growth stocks.     

Hold-up and externality: the firm as a nexus of incomplete rights?

The Coasean theory of the firm (Coase in Economica 4:386–405, 1937) has flourished with the theory of incomplete contracts. Transaction costs in the form of enforcement costs have been deemed to be the main determinants of the decision to ‘make’ versus ‘buy’. Surprisingly, this stream of literature has almost neglected that transaction costs may also generate incomplete property rights (Coase in J Law Econ 3:1–44, 1960). As firm’s activities entail both contractual and property rights, these two domains interfere each other on the decision to carry out a transaction within the firm. When property rights are incomplete, potential externalities may increase the cost of using the price mechanism to procure the assets needed in a given transaction. The resulting ‘Coasean firm’ would not only centralize incomplete contracts under a unified governance system, but it will also aggregate incomplete property rights under a unified ownership structure.     

Barriers to technological adoption in Spain and Portugal

Since 1945, both Spain and Portugal have experienced significant market transformations. These countries were both led by dictators for many years until the mid 1970s when each moved toward more democratic governments and more open markets. As a result, each experienced significant changes in output with Spain’s becoming a model for proper market based transformations. Although Portugal’s transformation has been less impressive it experienced improvements too. This paper uses a Parente and Prescott (J Polit Econ 102(2), 298–321, 1994; 2000) type model to investigate the recent transformations in each of these countries and quantify the extent to which barriers to technological adoption may have played for these two development experiences. Our results indicate that from 1945 to 2003 these barriers have fallen considerably but remain high, and are somewhat higher in Portugal than in Spain.     

Spatial Welfare Economics Versus Ecological Footprint: A Sensitivity Analysis Introducing Strong Sustainability

The aim of this paper is a sensitivity analysis with the core-periphery model of ‘new economic geography’ put forward in Grazi et al. (Environ Resour Econ 38:135–153, 2007). This model comprises interregional trade, agglomeration advantages and resource (land) use or environmental externalities. Grazi et al. (2007, GBR) compare a social welfare (SW) indicator with the ecological footprint (EF) indicator for measuring spatial sustainability of a set of land use configurations. Their main result is that the SW and the EF indicator can yield completely different rankings and only for extreme parameterizations of environmental externalities the rankings coincide. We adapt the model by interpreting total natural land as a resource constraint and differentiate between weak and strong sustainability. In a sensitivity analysis we show that the main results of GBR (2007) correspond to the case of weak sustainability in our adapted model version. In the case of strong sustainability our adapted model version shows the same welfare rankings for both indicators without the extreme parameterization that is necessary to obtain the same results in the original GBR (2007) model.     

Inflation and output in the long and short run in Turkey

This paper firstly discusses the impact of inflation on real output in different theoretical models and then investigates this impact empirically in an economy facing persistent high inflation. We find some evidence of Sidrauski’s (Am Econ Rev 57:534–544, 1967) superneutrality of money for Turkey in the long run. However, it seems that inflation affects real output negatively in the short run. These results are more compatible with a class of utility functions in which real money balances and consumption are perfect complements as Asako (Econometrica 51(5):1593–1596, 1983) elucidates.     

Reaching for the stars: the appointment of celebrities to corporate boards

For a sample of over 700 celebrity appointments to corporate boards of directors over the period 1985–2006, we find positive excess market returns at the time of their announcement. The 1-, 2-, and 3-year long-run performance of the appointing firms provide corroborating evidence of the value of these appointments. We conclude that the appointment of celebrities as directors increase a firm’s visibility in a fashion consistent with Merton’s (J Finance 42:483–510, 1987) investor recognition hypothesis.     

The role of ethics and product personality in the intention to purchase organic food products: a structural equation modeling approach

The aim of the present study is to examine the role of ethical dimensions and product personality in the purchasing intention of organic food products. The Prospect method (Caprara et al. in Test Psicomet Metodol 7(3–4):113–128, 2000), which integrates the Five factors model of personality (cf. Digman in Annu Rev Psychol 41(1):417–440, 1990) and the Theory of planned behavior (Ajzen in Organ Behav Hum Decis Process, 50(2):179–211, 1991) extended to an ethical dimension, was employed, by using a Structural Equation Modeling approach. Results showed that moral norms—i.e., personal beliefs regarding what is right or wrong (Parker et al. in Br J Soc Psychol, 34(2):127–137, 1995)—can be considered the main motivator of purchasing intention, and they are, in turn, affected by subjective norms and product personality traits of Naturalness and Authenticity. Marketing implications for firms operating in the organic food industry are discussed, in their intent to shift from a “niche” market to a broader diffusion of these products.     

Information and political failures: to what extent does rational ignorance explain irrational beliefs formation?

This paper discusses Bryan Caplan’s “rational irrationality” theory. In particular, it shows that this theory neglects the impact of social construction of information in the beliefs formation process. Conversely, Kuran and Sunstein’s competing theory which explains the beliefs formation process through information and reputation cascades mechanisms takes into account this influence (Kuran and Sunstein in Stanford Law Rev 51: 683–768, 1999). Besides, this theory keeps the rational ignorance assumption into the analysis and emphasizes the role of activist interest groups who strategically use voters’ ignorance. In this way it provides an economic theory of irrational beliefs formation based on sound political epistemology.     

Evolution of networks—an experimental analysis

It is the main aim of our paper to study network formation in experimental setups in discrete and continuous time. Our design is inspired by the theoretical model on network formation by Bala and Goyal (Econometrica, 68(5): 1181–1229, 2000) as well as the experiments by Callander and Plott (J. Public Econ., 89: 1469–1495, 2005) and Falk and Kosfeld (IEW Working Paper, University of Zürich, Zürich, Switzerland, No. 146, 2003). In particular, we analyze the role of star-shaped networks which are strict Nash-equilibria of the corresponding network formation game. Our experimental results show that strict Nash networks prove to be a good indicator for predicting network formation, particularly in continuous time. In explaining our results, it turns out that, among others, the complexity in coordinating on stars, the inequity aversion against unequal payoff distribution in the network, and the groups’ degrees of activity are the most important determinants for the formation of strict Nash networks.      

Illustrating the importance of Austrian business cycle theory: A reply to Murphy,Barnett, and Block; A call for quantitative study

Murphy et al. (2009) criticize Young’s (2005) test of Austrian business cycle theory (ABCT) using US industry-level quarterly job reallocation data and the federal funds rate as a monetary policy indicator. I argue that not only are Murphy et al.’s specific criticisms misguided; more importantly, they all but completely rule out the type of empirical study that Young (2005) advocates: specifically, one that (1) is quantitative and distinguishes between statistical and economic significance and (2) attempts to exploit a hypothesis that is both a prediction of ABCT and not a prediction of competing monetary theories of the cycle. I argue that empirical studies embodying (1) and (2) are critical to ABCT as a research program. Furthermore, I review the existing econometric studies of ABCT from the last 10 years and conclude that there is much room for improvement along these lines.     

Detrimental externalities, pollution rights, and the “Coase theorem”

This paper, which builds on Chipman (The economist’s vision. Essays in modern economic perspectives, 131–162, 1998), analyzes a simple model formulated by Hurwicz (Jpn World Econ 7:49–74, 1995) of two agents—a polluter and a pollutee—and two commodities: “money” (standing for an exchangeable private good desired by both agents) and “pollution” (a public commodity desired by the polluter but undesired by the pollutee). There is also a government that issues legal rights to the two agents to emit a certain amount of pollution, which can be bought and sold with money. It is assumed that both agents act as price-takers in the market for pollution rights, so that competitive equilibrium is possible. The “Coase theorem” (so-called by Stigler (The theory of price, 1966) asserts that the equilibrium amount of pollution is independent of the allocation of pollution rights. A sufficient condition for this was (in another context) obtained by Edgeworth (Giorn Econ 2:233–245, 1891), namely that preferences of the two agents be “parallel” in the money commodity, whose marginal utility is constant. Hurwicz (Jpn World Econ 7:49–74, 1995) argued that this parallelism is also necessary. This paper, which provides an exposition of the problem, raises some questions about this result and provides an alternative necessary and sufficient condition.     

Hidden costs of control: four repetitions and an extension

We report four repetitions of Falk and Kosfeld’s (Am. Econ. Rev. 96(5):1611–1630, 2006) low and medium control treatments with 476 subjects. Each repetition employs a sample drawn from a standard subject pool of students and demographics vary across samples. We largely confirm the existence of hidden costs of control but, contrary to the original study, hidden costs of control are usually not substantial enough to significantly undermine the effectiveness of economic incentives. Our subjects were asked, at the end of the experimental session, to complete a questionnaire in which they had to state their work motivation in hypothetical scenarios. Our questionnaires are identical to the ones administered in Falk and Kosfeld’s (Am. Econ. Rev. 96(5):1611–1630, 2006) questionnaire study. In contrast to the game play data, our questionnaire data are similar to those of the original questionnaire study. In an attempt to solve this puzzle, we report an extension with 228 subjects where performance-contingent earnings are absent i.e. both principals and agents are paid according to a flat participation fee. We observe that hidden costs significantly outweigh benefits of control under hypothetical incentives.     

Specialists and citizens all: A reply to Boettke,Koppl, and Holcombe

Peter Boettke (2007) argues that economists need not act pluralistically in order for pluralism to thrive in the marketplace of economic ideas. From a market process perspective, Boettke sees intellectual diversity and openness as catallactic outputs, not inputs—emergent by-products of academic specialization and trade. To expect individual scholars to behave in a pluralistic manner is unnecessary and “completely inappropriate” since it detracts from their central task: “to commit themselves to an approach and pursue it doggedly, even in the face of great doubt and resistance by one’s peers” (Boettke 2007). This paper proposes a Smithian revision of Boettke’s position. The author argues that scholarly pluralism is best understood as a constitutional rule of academic life—a virtue ethic that promotes learning and intellectual freedom by mitigating tyranny and autarky in the republic of science. Drawing from the writings of Adam Smith, Friedrich Hayek, Deirdre McCloskey, Bruce Caldwell, James Buchanan, Don Lavoie, and Boettke himself, the author argues that scholarly pluralism has been, and continues to be, a necessary condition for the flourishing of Austrian economists as free, responsible, efficacious thinkers.     

Reciprocity—an indirect evolutionary analysis

This paper investigates agents who face a stylized pecuniary ‘game of life’ comprising the ultimatum game and the dictator game. Utility may but need not be attached to equity and reciprocity, as formalized by Falk and Fischbacher (Games Econom Behav, 54(2): 293–315, 2006) but, critically, this social component of preferences cannot be conditioned on whether an ultimatum or a dictator game is played. Evolutionary fitness of agents is determined solely by material success. Under these conditions, a strong preference for reciprocity, but little interest in equity as such evolves. Possible exogenous constraints that link reciprocity and equity concerns imply long-run levels of both which depend on the relative frequency of ultimatum vs. dictator interaction in agents’ multi-game environment. Financial support from the German Academic Exchange Service (DAAD) is gratefully acknowledged.     

Ambiguity attitude, R&D investments and economic growth

The process aimed at discovering new ideas is an economic activity the returns from which are intrinsically uncertain. We extend the neo-Schumpeterian growth framework to investigate the role of strong uncertainty in the innovative process. In particular, we postulate that, when deciding upon R&D efforts, investors hold ‘ambiguous beliefs’ about the exact probability of arrival of the next vertical innovation, and that they face ambiguity via the α −MEU decision rule (Ghirardato et al., J Econ Theory 118:133–173, 2004). Along the balanced growth path, the higher the agent’s ambiguity aversion (α), the lower the R&D efforts and the economic performance. Consistent with cross-country empirical evidence, this causal mechanism suggests that, together with the profitability conditions of the economy, different ‘cultural’ attitudes towards ambiguity may help explain the different R&D efforts observed across countries.