Socially responsible firms and endogenous choice of strategic incentives

In this paper we are analyzing a mixed quantity-setting duopoly consisting of a socially concerned firm and a profit-maximizing firm. The socially concerned firm considers one group of stakeholders in its objective function and maximizes its profit plus a share of consumer surplus. Both firms have the option to hire a manager who determines the production quantity on behalf of the firm's owner. We find that in the subgame-perfect equilibrium of this game both firms hire a manager and delegate the production choice. If the unit production costs of the firms are similar, then the socially concerned firm has a higher market share and even higher profit. Interestingly, we observe that the relationship between the share of consumer surplus taken into account by the socially concerned firm and its profit is non-monotonic. As the share increases, the socially concerned firm's profit first increases and then decreases. The conclusion is that it pays off to take stakeholder interests into account, but not too much.     

The adoption and termination of profit sharing for employees: does management’s attitude play a role?

Examinations on the determinants of profit sharing usually focus on objective firm characteristics. Using data from manufacturing firms in Germany, this study shows that managers’ subjective attitudes towards profit sharing also play an important role in the adoption and termination of this payment scheme. Positive management attitudes are associated with an increased likelihood of adopting profit sharing. While to some extent this entails failed experimentation, positive managerial attitudes also substantially contribute to a sustained use of profit sharing. The pattern of results holds even when controlling for a variety of objective firm characteristics.     

Price dispersion in a model of identical agents with perfect information

Abstract. The objective of this paper is to demonstrate that price dispersion is possible even in a world of perfect information and identical consumers and firms. The driving force in the model is service capacity and congestion cost. Each firm chooses a service capacity. Customers of a firm bear a congestion cost which, for a fixed service capacity, is an increasing function of the number of customers served by this firm. We demonstrate that under certain conditions the combined profit of two firms and the total surplus are higher in a price-dispersion equilibrium than in a single-price equilibrium.     

The macro-economic impact of changing the rate of corporation tax

This paper considers the impact of changes in the rate of corporation tax in Ireland affecting the business and financial services sector. A model is estimated that relates services exports and output to world activity, competitiveness and the rate of corporation tax. This model indicates that a reduction in the rate of corporation tax in the 1990s stimulated exports and, even allowing for profit repatriations by foreign firms and replacement of lost tax revenue, it resulted in an increase in domestic output. The increase in profitability suggests that some of the increased output involved relocation of profits to Ireland by multinational firms.     

Incentive Regulation and Efficient Pricing

Abstract ** :  One objective of introducing incentive regulation to the newly privatized UK utilities over the past 20 years was to encourage efficient pricing structures. Caps have been imposed on average price levels, giving firms freedom to rebalance amongst prices within the basket. We test how firms have responded to the incentives within such discretion through an extensive review of the relative prices charged within UK price capped industries. We find surprisingly little response to these incentives, suggesting that strategic behaviour dominates short‐term profit incentives even after the introduction or threat of competition .     

Some Implications of Imperfect Competition For Recent Trade Theory*

This paper argues that in a general-equilibrium context, it is not sensible for oligopolistic (and mono-polistically competitive) firms to maximize profit, because the outcome would be sensitive to the choice of the numeraire. the natural objective of these firms would be to maximize the utility of the shareholders if the shareholders are identical. I show that even if each firm takes the representative individual's marginal utility of income as given, the outcome of the utility maximization objective is Pareto optimal, and in equilibrium, each firm equates price with marginal cost.     

On the Uniqueness of the Welfare–maximizing Number of Firms Under Cournot Oligopoly

Under Cournot oligopoly with a homogeneous product, we present a sufficient condition that guarantees the uniqueness of the welfare–maximizing number of firms to attain the global maximum level of welfare by implementation of a piecemeal policy changing the number of firms gradually. We adopt Selten's (1973) 'fitting–in function' method, which relates an individual firm's output to an industry's output. When the number of firms is unique, then introducing a lump–sum profit tax (subsidy) can attain the optimal level of welfare. Indirect entry regulation is superior to direct entry regulation from the standpoint of welfare if each entrant engages in rent–seeking activities.     

Barriers to entry, deregulation and workplace training: A theoretical model with evidence from Europe

We study the impact of regulatory barriers to entry on workplace training. We develop a model of training in imperfectly competitive product and labour markets. The model indicates that there are two contrasting effects of deregulation on training. As stressed in the literature, with a given number of firms, deregulation reduces the size of rents per unit of output that firms can reap by training their employees. Yet, the number of firms increases following deregulation, thereby raising output and profit gains from training and improving investment incentives. The latter effect prevails. In line with the predictions of the theoretical model, we find that the substantial deregulation in the 1990s of heavily regulated European industries (energy, transport and communication) increased training incidence.     

欧盟反倾销政策特征及涉案企业战略行为分析

在分析欧盟反倾销政策的基础上,建立一个两阶段动态竞争模型,对进口国和出口国企业在反倾销博弈中的战略行为及其动机进行了分析。在此分析基础上可得,当中国企业遭遇欧盟反倾销措施时,需要在调查期间减少出口量．欧盟企业在反倾销税的影响下为追求利润最大化会改变产出,中国企业应关注欧盟企业的战略行为以对抗其反倾销措施,为中国企业应对欧盟反倾销措施提出了对策建议。     

Collusion in mixed oligopolies and the coordinated effects of privatization

We study the sustainability of collusion in mixed oligopolies where private and public firms only differ in their objective: private firms maximize profits, while public firms maximize total surplus. If marginal costs are increasing, public firms do not supply the entire market, leaving room for private firms to produce and possibly cooperate by restricting output. The presence of public firms makes collusion among private firms harder to sustain, and maybe even unprofitable. As the number of private firms increases, collusion may become easier or harder to sustain. Privatization makes collusion easier to sustain, and is socially detrimental whenever firms are able to collude after privatization (which is always the case if they are sufficiently patient). Coordinated effects thus reverse the traditional result according to which privatization is socially desirable if there are many firms in the industry.     

COOPERATIVE FIRMS AND THE CRISIS: EVIDENCE FROM SOME ITALIAN MIXED OLIGOPOLIES

We investigate how cooperative firms reacted to the current crisis. This allows us to compare the behaviour of cooperative and conventional firms facing exogenous shifts in demand. After a short survey of a stream of theoretical literature, we analyze a large group of Italian production cooperatives in the periods 2003–2010 and 1994–2011 and we contrast co‐ops behaviour with the overall trend in the industries in which they operate. Our sample's evidence suggests that the cooperative's behaviour has a stabilizing effect on employment with respect to shocks in output demand. Unlike profit‐maximizers, cooperative firms seem to be adjusting pay more than employment when facing shocks. Production co‐ops look better equipped than their profit‐maximizing counterparts in tackling the long recession also because they have been very cautious in their profit policies over time. Unlike conventional firms, they have significantly increased their own equity during ‘good’ years instead of distributing large dividends to their members.     

WELFARE ENHANCING COORDINATION IN CONSUMER COOPERATIVES UNDER MIXED OLIGOPOLY

The recent globalization of world economies has led the retail markets of developed countries towards increasing levels of integration and strategic interdependence. A non negligible share of retail and food markets is currently served by co‐operative societies. Consistently with this trend, the consumer cooperatives have recently experienced increasing levels of integration. The main aim of this paper is to study the welfare effects of coordination among consumer cooperatives competing in quantities in a mixed oligopoly against profit‐maximizing firms. We show that, in absence of agency problems, under increasing or constant returns to scale a higher output coordination of the consumer cooperatives does not affect the total welfare as long as a nonnegative profit constraint holds in these firms. On the other hand, under decreasing returns to scale, the consumer cooperatives contribute more to social welfare when acting on behalf of all consumers. This is because, by coordinating consumers’ preferences, these firms can reduce their market output, thus helping the market to come closer to the first best. All together these results seem to provide an argument in favour of the recent process of integration involving consumer cooperatives in many developed countries.     

中国工业产业结构与企业技术研发行为的实证分析

产业结构升级一直是我国经济学界所关心的一个问题，工业产业的升级更是一个众所关注的焦点。本文在前人研究的基础上，利用中国工业产业数据，采用了经典的SCP范式模型．对熊彼特的两个经典假说进行了验证。发现竞争与企业利润同时对企业研发具有促进作用．熊彼特两个相互矛盾的结论同时得到了支持。通过对应分析，我们对中国工业内产业不同特点和企业不同特点进行了归类，提出国有企业在不同行业的产值比重是导致了这两个看似矛盾的结论同时并存的原因。     

Managerial compensation and incentives in for-profit and nonprofit hospitals

Differential economic behavior of for-profit and nonprofit institutionscan be manifest in both output and input markets. When behaviorin output markets is difficult to observe, behavior in inputmarkets can be useful proxies. We examine monetary compensationand its composition between base salary and bonus, and the associatedincentive structures, in the U.S. hospital industry. Our datapermit controlling for interinstitutional differences in thescope and complexity of jobs having the same titles, as wellas differences in organization size and other variables. Wefind (1) total monetary compensation for the two top executivejobs is substantially higher in the for-profit sector; and (2)the composition of compensation as between base salary and bonusdiffers materially across forms of organization, bonuses beingabsolutely and relatively greater in the for-profit sector.Particularly noteworthy is the finding that for-profit hospitalsutilize compensation mechanisms that, by involving larger contingentcomponents, provide stronger incentives - greater rewards -as compared with nonprofit hospitals, for performance that ismore easily monitored. While our findings are consistent withmore than one model of comparative organizations differ in theirgoals and, hence, in the kinds of managers they demand and thereward structures they offer. Nonprofit organizations may pursueobjectives that reflect greater concern about collective goodsor other outputs that are more difficult to measure and reward.Alternatively, nonprofits, confronted by a nondistribution constrainton the payout of profit to managers, may lack incentives forefficiency, and so may pursue other goals such as a quiet life.Such differential objective functions, together with the differentialconstraints on the distribution of profit to managers, havetwo kinds of implications. (1) Nonprofit and for-profit organizationsmay attract different kinds of managers, especially at the toplevels, because nonprofits prefer working for a nonprofit organizationand, hence, may offer a lower supply price to them. (2) Thetwo types of organizations can be expected to offer differentialcomposition of compensation as between base salary and performance-basedbonus, providing different incentives for managers. Our analysisis positive in character, the goal being to identify systematicdifferences in organization behavior.     

Voluntary Environmental Agreements vs. Emission Taxes in Strategic Trade Models

The purpose of the paper is to narrow the gap between the widespread use of voluntary agreements and research on the rationale of such approaches. A topical example are voluntary agreements of many industries to reduce carbon dioxide emissions because of global warming. If the industry anticipates that taxes and fees will be introduced in the coming years, it seems rational to act in advance in order to mitigate the tax levels.The conventional approach in strategic trade and tax models was to look at a two-stage game where governments set taxes first and then firms react. In such a policy regime the government is concerned about the international competitiveness of its firms and sets taxes below marginal damages. In this paper, we consider a policy regime with a reversed timing. Firms commit themselves in the face of emission taxes to abatement efforts and to lower levels of the environmentally intensive output. Then the government introduces the tax. Under this timing of strategies the tax is equal to marginal damage. Firms waive profit and reduce output in order to use less of the polluting input. The reward for this behavior will be a less strict use of policy instruments and hence lower abatement costs in the near future.     

University‐firm competition in basic research and university funding policy

We characterize equilibrium investments in basic research by the commercial and university sectors contingent on public funding of the university. We find that firms invest in basic research despite the opportunities for free riding and we present conditions under which firms even have incentives to augment the public funding to the university. We characterize the socially optimal volume of public funding for the university sector. Finally, we compare total investments in a mixed duopoly with those of duopolies composed of two universities as well as two profit‐maximizing firms.     

Irrationality and monopolistic competition: An evolutionary approach

This paper shows that a monopolistically competitive equilibrium can evolve without purposive profit maximization. Specifically, this paper formulates a precise evolutionary dynamic model of an industry where there is continuous entry of firms that randomly select their output levels on entry and fix their output levels thereafter. Firms exit the industry if they fail to pass the survival test of making nonnegative wealth. This paper shows that the industry converges in probability to the monopolistically competitive equilibrium as the size of each firm becomes infinitesimally small relative to the market, as the entry cost becomes sufficiently small, and as time gets sufficiently large. Consequently, in the limit, the only surviving firms are those producing at the tangency of the demand curve to the average cost curve and no potential entrant can make a positive profit by entry.     

STRATEGIC DEBT AND RJV COMPETITION*

Firms first choose their debt level, next form an RJV and choose R&D investment, and then choose output in Cornot competition. Through the use of debt, a firm commits an aggressive stance, a higher output level, and higher R&D investment, whereby the latter helps solve the free‐riding problem that usually exists in R&D studies. However, a firm in an unleveraged industry gains the highest profit, while a leveraged firm in an asymmetric industry (which achieves the highest profit in Brander and Lewis (1988)) gains the lowest profit. As a result, both firms using debt and both firms not using debt are the two equilibria, and the latter survives as a focal outcome. This is in sharp contrast to Brander and Lewis who find that both firms using debt is a prisoner's dilemma outcome.     

ON THE EMERGENCE OF NON‐PROFIT FIRMS AS ALTERNATIVES TO THE GOVERNMENT*

It is well known that many non‐profit firms coexist with government firms in industries that provide collectively consumed goods and services, such as education, healthcare, social services, and art and culture. This paper explores the specific circumstances under which non‐profit firms can emerge as alternatives to the government. We show that a non‐profit firm emerges only when the residents’ median preference for a collective good is significantly low. This finding implies that, somewhat paradoxically, a non‐profit firm emerges to replace the government and provide a collective good only when the majority of residents consider the good non‐essential.     

OUTPUT CONTINGENT SECURITIES AND EFFICIENT INVESTMENT BY FIRMS

We analyze competitive economies with risky investments. Unlike the classic Arrow–Debreu framing, firms and agents cannot contract upon the exogenous states underlying production risks. They can trade equities and any security written on the endogenous aggregate output. This financial structure is rich enough to promote efficient risk sharing among consumers. However, markets are incomplete from the production perspective, and the absence of prices for each primitive state of nature raises the question about the objective of firms. We show that output‐contingent asset prices convey sufficient information to compute the competitive shareholder value that leads to efficient investment by firms.