Auctioning the Airwaves: The Contest for Broadband pcs Spectrum

The House and Senate of the United States Congress recently passed legislation that directs the FCC to establish a system for using auctions to allocate the use of radio spectrum for personal communications services. There is a unique and unprecedented set of issues that arise in this context, which are of interest to economists, industry analysts, regulators, and policymakers. We discuss these issues and evaluate their likely impact on the outcome of the spectrum auctions. In addition, we argue that there may be pitfalls in the auction procedure adopted by the FCC, and we discuss possible alternative procedures.     

Game theoretic modeling of increasing returns to scale

This paper surveys the analysis, by means of cooperative game theory, of economies in which there are increasing returns to scale. In the first section necessary and sufficient conditions for the existence of a core of a general equilibrium economy are considered. In the second section, the partial equilibrium approach to increasing returns production, which developed along with the natural monopoly literature, is surveyed. The close relationship between the general equilibrium and partial equilibrium approaches is emphasized.     

Incentive Regulation and The Cost Structure of The Local Telephone Exchange Network

This paper combines an engineering process model of the cost of local exchange telecommunications firms with an analytical model of optimal incentive regulation (with ex post cost observability), to study empirically the properties of the optimal regulatory mechanism. Relying on detailed properties of the cost function, we examine three issues: (i) the extent of natural monopoly when informational rents associated with regulation are taken into account; (ii) the extent of incentive correction, which expresses the divergence of pricing under the optimal mechanism from optimal pricing under complete information; (iii) the implementation of optimal regulation through a menu of linear contracts. Our findings are that, for fixed territory, strong economies of scale allow local exchange telecommunications to retain monopoly characteristics even when the (informational) costs of regulation are properly accounted for, the incentive correction term is small in magnitude, and that optimal regulation can be well approximated through relatively simple linear contracts.     

Strategic nonlinear pricing

The objective of this paper is to examine the role of nonlinear strategies in a standard oligopoly framework. We demonstrate that nonlinear pricing may indeed emerge as an equilibrium strategy, but only when firms produce differentiated products, when one firm retains market power due to a cost advantage, or as part of an equilibrium in mixed strategies. In addition, we examine the role of nonlinear pricing in a spatial-competition framework. Our main conclusion is that in highly competitive markets, nonlinear pricing strategies are not likely to emerge as an equilibrium.     

The capital structure and investment of regulated firms under alternative regulatory regimes

This paper explains how regulated firms choose their capital structure and examines the effects of this choice on investment and on regulated prices. It is shown that in equilibrium, firms have an optimal debt level and that given this debt level, the regulated price is set high enough to ensure that firms never become financially distressed. The analysis of the equilibrium yields testable hypotheses concerning the effects of changes in cost parameters and in the regulatory climate on the equilibrium investment level, capital structure, and regulated price. The analysis also shows that a regulatory restriction on the ability of the firm to issue securities may have an adverse effect on investment and consequently may harm consumers.     

The Role of Debt in Procurement Contracts

This paper develops a theory of capital structure based on the attempts of a firm to alleviate a holdup problem that arises in its bilateral relationship with a buyer. It is shown that by issuing debt to outsiders, the firm can improve its ex post bargaining position vis-a-vis the buyer and capture a larger share of the ex post gains from trade. Debt, however, is costly because the buyer may find the required price too high and refuse to trade. Since debt raises the payoff of claimholders, it strengthens the firm's incentive to make relationship-specific investments, and therefore alleviates the well-known underinvestment problem. A comparative static analysis yields a number of testable hypotheses regarding the firm's financial strategy.     

Subsidiary driven innovation within shifting MNC structures: Identifying new challenges and research directions

The multinational (MNC) is well established as an arena primed for the creation and sharing of innovations. Within this arena, the creation of innovations is borne from leveraging the unique knowledge and opportunities of its globally dispersed subsidiaries.     

Junk-food,home cooking,physical activity and obesity: The effect of the fat tax and the thin subsidy

In an effort to reduce the growing prevalence of obesity, a tax on junk-foods, known as ‘fat tax’, has been proposed, the revenue from which could be used to finance a ‘thin subsidy’ for healthy foods or exercising equipment. The present paper addresses the fat tax and thin subsidy within a food-intake rational-choice model. Assuming that healthy meals are cooked at home with purchased ingredients and time input, the paper examines the effects on obesity of a tax on junk-food meals and a subsidy to cooking ingredients, distinguishing between a weight-conscious and a non-weight conscious individual, and between a weight-conscious individual who is physically active and physically inactive. The results show that for a non-weight conscious individual a fat tax will unambiguously reduce obesity, whereas a thin subsidy may increase obesity. However, for a weight-conscious individual, particularly one who is physically active, even a fat tax may increase obesity, as it may reduce not just the consumption of junk-food, but also the time devoted to physical activity. The paper explores conditions under which obesity will rise, fall, or remain intact following the introduction of a fat tax or a thin subsidy.     

Managerial Compensation and Capital Structure

We investigate the interaction between financial structure and managerial compensation and show that risky debt affects both the probability of managerial replacement and the manager's wage if he is retained by the firm. Our model yields a rich set of predictions, including the following: (i) The market values of equity and debt decrease if the manager is replaced; moreover, the expected cash flow affirms that retain their managers exceeds that affirms that replace their managers, (ii) Managers affirms with risky debt outstanding are promised lower severance payments (golden parachutes) than managers affirms that do not have risky debt. (Hi) Controlling for firm's size, the leverage, managerial compensation, and cash flow of firms that retain their managers are positively correlated, (iv) Controlling for the firm's size, the probability of managerial turnover and firm value are negatively correlated, (v) Managerial pay-performance sensitivity is positively correlated with leverage, expected compensation, and expected cash flows.