Alfred E. Kahn, 1917–2010

Our introduction to this compendium reviews Alfred Kahn’s academic and policy interests, his activities as a regulator and advisor to governments and companies, and the interactions between these aspects of his life as an economist. Although best known for his research on the economics of regulation and his application of microeconomic principles in his role as a regulator and advisor, Kahn’s academic research portfolio was much more diverse. He wrote about patent policy, economic development, antitrust policy, and other topics, in addition to his work on regulation and deregulation. Even before becoming a regulator he was actively involved in applying economic principles to regulatory problems as an advisor and consultant. In all of his work Kahn recognized that markets were imperfect, but that policies aimed at improving market performance often made things worse. His experience as a regulator and consultant strengthened his recognition that the costs of imperfect regulation had to be carefully balanced against the costs of imperfect markets. One had to search for the best that could be done in an imperfect world. Kahn was particularly fascinated by the challenges of designing and implementing policies to govern the transition from regulated monopoly or oligopoly to an industry that would ultimately rely primarily on competitive markets to govern firm behavior and performance. Fred Kahn was an extraordinary man who is missed greatly by his many friends and colleagues representing a wide range of political orientations and approaches to economic and public policy analysis.     

Public Finance,Public Economics,and Public Choice: A Survey of Undergraduate Textbooks

The changing scope and approaches in the public finance courses as reflected in a spectrum of undergraduate texts are reviewed. The major texts are examined for content, difficulty, and ideology.     

An interactional perspective on perceived empowerment: the role of personal needs and task context

This study examines the influence of individual needs and task characteristics on a multifaceted definition of perceived empowerment using an interactional perspective. Respondents were Hong Kong Chinese employees and most of them lower-level or nonmanagerial level workers in business organizations. We used regression analyses to test a number of hypotheses informed by social psychology theories. The significant findings indicate that perceived empowerment is predicted by individual characteristics (need for achievement, need for power), task situations (receipt of task feedback, competency-based reward system, participation in goal setting) and their interactions. Limitations of the study and implications for future research are discussed.     

Product differentiation and the gains from trade under Bertrand duopoly

Abstract.  In the literature on the welfare effects of free trade under imperfect competition, one important case seems to have been overlooked, and that is the Bertrand duopoly model with differentiated products. Although many authors have analysed the welfare effects of free trade under Cournot duopoly and demonstrated the possibility of losses from trade, there has been no thorough analysis of the welfare effects of free trade under Bertrand duopoly. In this article we present a thorough analysis of the welfare effects of free trade under Bertrand duopoly with differentiated products, and it is shown that there are always gains from trade. JEL Classification: F12     

Exploring the Structure of the Illegal Market for Cannabis

Summary This paper explores the middle and retail levels of the illegal market for cannabis in New Zealand using national household drug survey data. Those who reported purchasing half or full ounces of cannabis were defined as middle level market participants, while those who purchased smaller weights or merely used cannabis were defined as retail level participants. Those who had purchased cannabis were then further categorised as either cannabis ‘buyers’ (i.e. those who only purchased sufficient cannabis for their own consumption needs) or cannabis ‘dealers’ based on whether the surplus of cannabis they had, after their own personal consumption was deducted, exceeded the legal definition of cannabis dealing (i.e. possession of 28 g of cannabis or more). Nine per cent of those who had purchased cannabis in the previous year were categorised as middle level participants with 69% of these defined as middle level dealers and 31% as middle level buyers. Middle level cannabis dealers were projected to earn, on average, $2927 (NZD) net annual profit from selling surplus (rate of return of 34%). There was a wide variation in the projected net earnings of the middle level cannabis dealers with the majority earning only modest incomes (bottom 50% – $260 per year, top 10% – $25000 per year). Participants at all levels of the market commonly reported receiving cannabis for ‘free’ and this is likely to reflect the social sharing of cannabis during group consumption and non-cash payments for cannabis. This barter and gift giving tradition may provide cannabis users with a degree of insulation from any price increases for cannabis brought about by law enforcement activity. Cannabis selling creates a convenient source of income for heavy cannabis users to finance their own personal cannabis consumption, which may also dampen the impact of any rise in price brought about by law enforcement success.The 2003 HBS-Drug Use was funded by the New Zealand Ministry of Health and carried out as part of the Public Health Intelligence (PHI) Health Behaviours Survey Monitor. The statistical design for the 2003 survey was completed by Dr. Megan Pledger at SHORE, and by James L. Reilly from Statistical-Insights. The questionnaire was adapted and extended from the National Drug Survey questionnaire for the Health Behaviours programme by Dr. Chris Wilkins. Data collection was managed by Dr. Chris Wilkins, Rachael Lane, Joe Morley and Mary Blade. The statistical analysis of 2003 HBS-Drug Use was completed by Paul Sweetsur. The analysis in this paper was partly funded by the New Zealand Police.     

A Theory of Constitutional Standards and Civil Liberty

Why would potentially intolerant majorities in a democracy protect the rights of unpopular groups? This paper models the formation of legal standards that determine the extent of civil liberty in a society. It is shown that tolerant legal standards emerge over time, despite all individuals having intolerant preferences. Each period citizens choose activities that have social consequences. A majority vote determines which of these activities are legally protected. Because of errors in interpreting the symbolic content of these activities, voters from the majority will not impose excessively intolerant standards, otherwise they may end up severely punishing members of their own group by mistake.
Extending this framework to a dynamic model, we examine Markovian equilibria of the game when government improves with time in its ability to correctly interpret citizens' activities. These improvements allow an unchanging majority to impose increasingly intolerant standards over time. It is shown that societies with high political turnover due to population changes are apt to choose tolerant legal standards. Societies with low turnover are more apt to choose more intolerant and unstable ones. Each group seeks to prevent auditing capabilities of government from improving too much over time in order to prevent future majorities from successfully enforcing more intolerant standards.     

On the dynamic selection of mechanisms for provision of public projects

How do individuals' spatial decisions affect the institutions for public goods provision over time? This paper describes a dynamic model in which the provision mechanism for a public project is itself the object of locational choice of individuals. Individuals in an ongoing society must choose between a location with a Majority Rule mechanism and one with a Voluntary Contribution mechanism. Each mechanism determines a funding decision for a local public project which is repeated over time. Generations of individuals asynchronously supercede their ‘parents’, creating an entry/exit process that allows individuals with possibly different beliefs to enter society. A self-confirming equilibrium (SCE) belief process describes an evolution of beliefs in this society consistent with a self-confirming equilibrium (Fudenberg and Levine, 1993) of the repeated location/provision game. It is shown that the process with belief mutation as new individuals enter society results in a globally absorbing state in which the Majority Rule mechanism is the unique survivor of the two.