Equilibrium models with land: A criticism and an alternative

Models of economies either of urban areas or with local public goods often involve the use of a continuum of consumers along with the use of a commodity called land; each consumer generally owns a parcel of land of positive area. The purpose of the present study is to show that such models are internally inconsistent (independent of the other assumptions employed) in that only countably many consumers can own parcels of land of non-zero area if land lies in a Euclidean space. This result applies, in particular, to monocentric city models. Moreover, it is shown that the standard justification for the use of economies with an infinity of agents, that they approximate large economies with a finite number of consumers, does not necessarily apply in the case of economies with land and a continuum of consumers. A model where land is represented by subsets of $\text{R}$² is presented as an alternative.     

Selling to Socially Responsible Consumers: Competition and The Private Provision of Public Goods

We model firms as competing for socially responsible consumers by linking the provision of a public good (environmentally friendly or socially responsible activities) to sales of their private goods. In many cases, too little of the public good is provided, but under certain conditions, competition leads to excessive provision. Further, there is generally a trade-off between more efficient provision of the private and the public good. Our results indicate that the level of private provision of the public good varies inversely with the competitiveness of the private-good market and that the types of public goods provided are biased toward those for which consumers have high participation value.     

When worlds collide: Different comparative static predictions of continuous and discrete agent models with land

This paper presents a difference in the comparative statics of general equilibrium models with land when there are finitely many agents, and when there is a continuum of agents. Restricting attention to quasi-linear and Cobb–Douglas utility, it is shown that with finitely many agents, an increase in the (marginal) commuting cost increases land rent per unit (that is, land rent averaged over the consumer's equilibrium parcel) paid by the consumer located at each fixed distance from the central business district. In contrast, with a continuum of agents, average land rent goes up for consumers at each fixed distance close to the central business district, is constant at some intermediate distance, and decreases for locations farther away. Therefore, there is a qualitative difference between the two types of models, and this difference is potentially testable.     

Trading equilibrium in a public good economy with smooth preferences and a mixed measure space of consumers

Lindahl and Nash equilibria are often used in the theory of public good. Shitovitz and Spiegel (1998) present an example of 2-person economy with one private good and one pure public good, where the core efficient Lindahl allocation does not Pareto dominate the (inefficient) Nash allocation. In this paper we introduce the new concept of Trading equilibrium for a general public good economy with smooth preferences and a mixed measure space of consumers. We obtain that this economy admits a unique Trading equilibrium. Moreover, the Trading equilibrium induces a core allocation that strictly Pareto dominates the Nash allocation.     

Nonlinear pricing in spatial oligopoly

A model of duopoly competition in nonlinear pricing when firms are imperfectly informed about consumer locations is analyzed. A continuum of consumers purchase a variable amount of a product from one of two firms located at the endpoints of the market. At the Nash equilibrium in quantity-outlay schedules, consumers buy the same quantities as they would from the same firm if it were a monopolist facing the same informational asymmetries, but they receive greater surplus. Hence, no efficiency gains result from competition. If consumers have the option to reveal their locations and have the firms deliver the goods, all consumers choose to reveal their locations in equilibrium. Thus, the inefficiencies from information asymmetries may not arise because firms can deliver the good to consumers. In contrast, with a monopoly seller, consumers have no incentives to reveal their locations.     

Pareto improving interventions in a general equilibrium model with private provision of public goods

Most of the literature on government intervention in models of voluntary public goods supply focuses on interventions that increase the total level of a public good, which is considered to be typically underprovided. However, an intervention that is successful in increasing the public good level need not benefit everyone. In this paper we take a direct approach to welfare properties of voluntary provision equilibria in a full blown general equilibrium model with public goods and study interventions that have the goal of Pareto improving on the voluntary provision outcome. Towards this end, we study a model with many private goods and non-linear production technology for the public good, and hence allow for relative price effects to serve as a powerful channel of intervention. In this setup we show that Pareto improving interventions generally do exist. In particular, direct government provision financed by “small” , or “local” , lump-sum taxes can be used generically to Pareto improve upon the voluntary provision outcome.     

Anonymous price taking equilibrium in Tiebout economies with a continuum of agents: Existence and characterization

We introduce a model of a local public goods economy with a continuum of agents and jurisdictions with finite but unbounded populations, where the set of possible projects for each jurisdiction/club is unrestricted in size. Under boundedness of per capita payoffs, which simply ensures that equal treatment payoffs are bounded above, we apply results of Kaneko and Wooders (1986) to obtain nonemptiness of the core of the economy. We then demonstrate, under the stronger condition of strict small group effectiveness, that the equal treatment core coincides with the set of price-taking equilibrium outcomes with anonymous prices—that is, prices for public goods depend only on observable characteristics of agents. Existence of equilibrium follows from nonemptiness of the core and equivalence of the core to the set of equilibrium outcomes. Our approach provides a new technique for showing existence of equilibrium in economies with a continuum of agents.     

Swimming on Land: Some Suggestions for Today’s Public Administration

In recent decades researchers have suggested various models for public administration organizations. These models and reforms, generally called New Public Management and Post-New Public Management, ignore the different developmental phases of public organizations, especially when dealing with non-Western countries. Instead of asking how public organizations should look, we suggest asking what should they do? To answer this question, we present several principles on the individual and organizational levels that can serve as a good compass for public managers. On the individual level, we maintain that public employees should focus on listening, helping and learning. On the organizational level, we advocate incorporating public policy with public administration, embracing core principles as opposed to trying to achieve ends, and returning public administration to its key role. These principles reinforce each other and thus can enhance the capability of public organizations.     

Collusive equilibria with switching costs: The effect of consumer concentration

I study the ability of two competing firms to set collusive prices in markets where consumers have switching costs. In consumer markets (with a small number of consumers), I find an antifolk result in which collusion, in the presence of switching costs, does not arise with patient firms. Patient firms compete aggressively and consumers expect a large utility. A collusive equilibrium is unstable because a deviating firm incorporates the future consumer utility in its deviating price. Also, consumers have a strategic impact so, with the prospects of large utility, they decide to switch to destabilize the firms' collusive agreement. These results do not eventuate in markets with a large number of consumers. In mass markets (a continuum of consumers), a single consumer lacks a strategic impact to destabilize a collusive agreement and a deviating firm cannot appropriate the consumer utility when deviating from collusion. Collusion, then, becomes straightforward to achieve. We show that for any number of consumers, switching costs make collusion easy to sustain.     

HOW ORGANIC IS YOUR ORGANIZATION?– DETERMINANTS OF ORGANIC/MECHANISTIC TENDENCIES IN A PUBLIC ACCOUNTING FIRM

This study compares two units within a major public accounting firm in order to determine their organic/mechanistic tendencies and establish the variables most closely related to these organizational characteristics. Results from a sample of 67 professionals balanced by unit and hierarchical level indicate that the process-oriented elements of an organization are the more relevant indicators of organizational development and provide a system for evaluating an organization on an organic/mechanistic continuum.     

Hierarchies in organisations and labour market competition

This paper studies the endogenous determination of hierarchies in firms. Firms can design a hierarchy with a continuum of ranks, one for each ability level. Nevertheless, in the market equilibrium, they choose to have only a finite number of ranks, so that in each rank there are workers of different abilities, who produce different output, and receive the same wage. It is also shown that an increase in the extent of labour market competition reduces the number of ranks in the hierarchy.     

Public Report,Price, and Quality

A monopolist produces a good with two qualities. All consumers have the same valuation of the first quality, but their valuations of the second vary, and are their private information. A public agency can verify qualities, and make credible reports to consumers. In Full Quality Report, the public agency reports both qualities. In Average Quality Report, it reports a weighted average of qualities. The equilibrium prices and qualities in Full Quality Report can be implemented by Average Quality Report. Equilibrium prices and qualities in Average Quality Report give higher consumer surplus than Full Quality Report. Bertrand competition under Average Quality Report yields first‐best prices and qualities.     

State and local tax competition in a spatial model with sales taxes and residential property taxes

This paper presents a theoretical model with a uniformly populated line that is divided into local jurisdictions (and/or states). If one level of government imposes sales and residential property taxes, and if the spatial extent of each taxing jurisdiction is positive and finite, then (in Nash equilibrium) the sales tax rate is less than residential property tax rate, housing consumption is suboptimal, and the public good is underprovided in each jurisdiction. If a very large state (or country) is divided into local jurisdictions, and if both levels of government choose tax rates endogenously, then under some assumptions there is an efficient outcome.     

Ratchet consumption over finite and infinite planning horizons

Ratchet consumers want their spending to always increase and never decrease. We find an optimal consumption rule for ratchet consumers by maximizing an expected utility that eschews spending declines, yet permits a range of choices for felicity and time preference functions. This solution can be tailored to fit both retirees with finite planning horizons and endowments with infinite planning horizons. We assume complete markets modeled by a pricing kernel generated by a Lévy process. When the kernel is log-normal, we obtain closed-form solutions for both finite and infinite horizons.     

Dynamic voluntary provision of public goods with uncertainty: a stochastic differential game model

Fershtman and Nitzan (Eur. Econ. Rev. 35:1057–1067, 1991) presented a continuous dynamic public good game and solved the model for feedback Nash equilibria. Wirl (Eur. J. Polit. Econ. 12:555–560, 1996) extended the model and considered nonlinear strategies. Both models do not include uncertainty and hence neglect an important factor in the theory of public goods. We extend the framework of Nitzan and Fershtman and include a diffusion term. We consider two cases. In the first case, the volatility of the diffusion term is dependent on the current level of the public good. This set-up will in principle lead to the same type of feedback strategies computed under certainty. In the second case, the volatility is dependent on the current rate of public good provision by the agents. The results are qualitatively different. We provide a detailed discussion as well as numerical examples. In particular, we show that in both cases uncertainty signifies the free rider effect.     

On the foundations of land use theory : Discrete versus continuous populations

Urban economists and location theorists have long employed land use models with a continuum of agents distributed over a continuum of locations. However, these continous models have been criticized on behavioral grounds in that individual households can consume only zero amounts of land in equilibrium. Hence the central purpose of this paper is to propose an alternative interpretation of these continous models as limiting approximations of discrete population models. In particular, it is shown that for large population sizes, the population distributions of the classical continuous model uniformly approximate the equilibrium population distributions generated by an appropriately defined class of discrete population models.     

THE ECONOMICS OF NETWORKS: A SURVEY OF THE EMPIRICAL LITERATURE

Abstract.  Network effects, the increase in value of consuming a product if many other consumers use the same product, are a feature of many markets and in particular of many high-technology products. This paper surveys the burgeoning empirical literature that has developed especially during the last years. After theoretical work dominated the earlier years of research in this area, newer research has combined theoretical models with empirical studies and applied work with direct implications for public policy, marketing and company strategies. Furthermore, insights from the study of social networks have been applied to analyse how consumers interact with each other. The paper argues that a closer analysis of the network structure of consumer interaction promises fruitful future research avenues and advances in our understanding of how network effects operate.     

Consumer surplus analysis under uncertainty: A general equilibrium perspective

This paper derives an exact form of partial equilibrium efficiency measure under uncertainty which is consistent with expected utility maximization in a general equilibrium situation with ex-post spot markets for many goods and asset markets which are in general incomplete.We consider that the good under consideration tends to be negligibly small compared to the entire set of commodity characteristics which is assumed to be a continuum, and look into the limit property of preferences over state-contingent consumption of the good and state-contingent income transfer associated to it. We show that the limit preference exhibits risk neutrality, not only that it exhibits no income effect, meaning that the two conditions are tied together. We also show that the marginal rate of substitution between extra income transfers at different states of the world converges to the ratio between the Lagrange multipliers associated to those states. When the asset markets are complete such ratios are equalized between consumers, but it is not the case in general when the asset markets are incomplete. This means that using the aggregate expected consumer surplus as the welfare measure will be in general inconsistent with individuals’ expected utility maximization in the general equilibrium environment or with ex-ante Pareto efficiency.     

On the existence of walrasian equilibrium in large-square economies

An existence theorem for Walrasian equilibrium is demonstrated for an economy with a continuum of consumers and an infinite-dimensional commodity space, such as l₁ or c₀, having an ‘order-compatible’ basis.     

The median voter and the median consumer: Local private goods and population composition

When a product's product provision entails fixed costs, it will be made available only if a sufficient number of people want it. Some products are produced and consumed locally, so that provision requires not only a large group favoring the product but a large number nearby. Just as local governments provide public goods appealing to individuals sharing the median voter's preferences for local public goods, product markets may provide an analogous benefit to individuals sharing living communities whose consumers tend to share his preferences in private goods. Using zip code level data on chain restaurants and restaurants overall, this paper documents how the mix of locally available restaurants responds to the local mix of consumers, with three findings. First, based on survey data on chain restaurant patronage, restaurant preferences differ substantially by race and education. Second, there is a strong relationship between restaurants and population at the zip code level, suggesting that restaurants' geographic markets are small. Finally, the mix of locally available chain restaurants is sensitive to the zip code demographic mix by race and by education. Hence, differentiated product markets provide a benefit—proximity to preferred restaurants—to persons in geographic markets whose customers tend to share their preferences.