MEASURING QUANTITY‐QUALITY TRADE‐OFFS IN REGULATION: THE BRAZILIAN FREIGHT RAILWAYS CASE*

ABSTRACT ** ** Résumé en fin d'article; Zusammenfassung am Ende des Artikels; resumen al fin del artículo.
: The quantity vs. quality trade‐offs in network industries are well known from the theoretical literature and have been the subject of many empirical assessments, although mostly for the telecoms and energy sectors. The purpose of this paper is to expand the evidence for the railway sector by documenting the importance of this trade‐off in the context of the Brazilian freight railway industry reform, the first example of a railway sector in which tariff revisions are subject to joint output and quality performance indicators. The analysis is based on the calculation of the Malmquist productivity index proposed by Färe et al. (1995) . The decomposable nature of this total factor productivity (TFP) index reveals the prevalence of quantity‐quality trade‐offs up to the end of the reform period, but a positive correlation between them during the period just afterwards. This type of information would certainly be useful for regulation purposes, particularly as an alternative way of taking into account quality without introducing complex, and very often ineffective, penalty schemes.     

LEARNING-BY-DOING AND ASYMMETRIC INFORMATION IN A MODEL OF MONOPOLY REGULATION*

This paper combines learning-by-doing and asymmetric information in a model of monopoly regulation with and without foreign competition. The principal source of the information asymmetry is unobservable firm effort in the learning process, although unobservable costs are also considered. The major result is that a post-learning all-or-nothing output-contingent lump-sum subsidy can achieve the regulator's complete information welfare maximum. With foreign competition this model can best be thought of as one involving infant industry regulation.     

ENDOGENOUS TIMING IN A MIXED DUOPOLY AND PRIVATE DUOPOLY –‘CAPACITY‐THEN‐QUANTITY’ GAME: THE LINEAR DEMAND CASE*

We consider a game of endogenous timing of sequential choice of capacity and quantity with observable delay in a mixed duopoly and a private duopoly. In mixed duopoly, we find that a simultaneous play at the capacity stage or at the quantity stage can never be supported as subgame perfect Nash equilibrium (SPNE); whereas a simultaneous play at each stage turns out to be the unique SPNE in a private duopoly. In mixed duopoly there is multiplicity of equilibria and all SPNEs require sequentiality at the capacity as well as quantity stage.     

WATER QUALITY TRADING IN THE PRESENCE OF ABATEMENT‐COST SHARING

This paper examines how water quality trading interacts with nonpoint‐source abatement‐cost sharing (e.g., as currently practiced by the National Resource Conservation Service through its Environmental Quality Incentives Program [EQIP]) to promote the participation of nonpoint sources in a water quality market, participation that has thus far been noticeably lacking nationwide. As such, an idealized version of water quality trading is envisioned, where water quality trading and nonpoint cost sharing are treated as complementary policy instruments rather than substitutes. Toward this end, the subgame‐perfect equilibrium concept is used to model a “multilateral contracting” relationship between the regulatory authority and nonpoint sources when the regulator has incomplete information about the nonpoint sources' production costs. We characterize ex ante (or second‐best) nonpoint abatement levels when the regulator chooses cost‐share rates in concert with a water quality market. Numerical analysis indicates that current EQIP cost‐share rates would likely be lower and more flexibly determined in the presence of water quality trading. (JEL Q53)     

ASSESSING THE QUALITY ERROR IN OUTPUT MEASURES: THE CASE OF REFRIGERATORS*

This paper computes new indexes of output for refrigerators, using hedonic methods to adjust for quality change. The hedonic technique is applied in a new way (it is used to make quality adjustments to prices before they are used in the index), and the results are compared with those from methods used in previous hedonic investigations. There are three major findings. (1) Overall (1960–1972), our hedonic deflated output series rise more rapidly than conventional measures, because the price indexes used for deflation rise more slowly. (2) The output measures fluctuate more than do output measures produced by conventional methods, because adding hedonic quality adjustments to WPI indexes moves them up in some years and down in others, and the resulting adjustments to the output series were positively correlated with changes in output. (3) Applying methods used in previous studies produces larger adjustments to the published indexes, suggesting that some of the differences noted in previous studies between hedonic indexes and official published indexes are related to computational methods, not to quality adjustment.     

THE FOUNDATION OF MARKET QUALITY ECONOMICS*

This study is based on my observation that high quality markets are indispensable for the healthy growth of a modern economy. Many problems surrounding markets are attributable to the lack of high quality markets. An industrial revolution creates extremely vibrant but unhealthy markets. This study introduces a concept of fairness in dealing and pricing (competitive fairness), which differs from efficiency, and defines market quality as a measure for the efficiency of allocation and the fairness of dealing and pricing. This study shows that competitive fairness is achieved by several market mechanisms that I constructed in my previous work.     

ACHIEVING FISCAL BALANCE IN JAPAN*

Japan is aging and has the highest government debt‐to‐output ratio among advanced economies. In this article, we build a micro data‐based, large‐scale overlapping generations model for Japan in which individuals differ in age, gender, employment type, income, and asset holdings, and incorporate the Japanese pension rules. Using existing pension law, current fiscal policy, and medium variants of demographic projections, we produce future paths for government expenditures and tax revenues, with implications for government debt and the public pension fund. Additional pension reform, a higher consumption tax, and higher female labor force participation help achieve fiscal stability.     

TESTING THE ONE‐WAY EFFECT IN THE PRESENCE OF TREND BREAKS*

This paper provides an approach to testing the measures of the one‐way effect for cointegrated vector time‐series in the presence of trend breaks. We propose Wald testing the measures and their computational algorithm, an extension of previous work by Hosoya and Yao and Hosoya, to the case where trend breaks are explicitly taken into account in the cointegration relationship. On the basis of the proposed inferential method and the derived evidence, we present a causal structure characterization of money supply and income as well as interest rates for the last 44 years of the Japanese economy, and contrast it with the results of Yao and Hosoya.