Water allocation,crop choice,and priority services

We analyze the problem of allocating irrigation water among heterogeneous farmers when water supply is stochastic. If farmers are risk-neutral, a spot market for water is efficient; while the oft-used uniform rationing system is inefficient, both ex ante and ex post. Indeed, we show that it leads farmers to overexpose to risk, thus making shortages more severe and more frequent in case of drought. We propose instead a regulation by priority classes extending Wilson, and we derive an efficiency result. We characterize the set of farmers that would win or lose from such a reform. We also argue that a system of priority classes may be preferred to a spot market system, because scarcity is easier to manage ex ante than ex post, and because this system facilitates the supply of insurance to risk-averse agents.     

Ex ante valuation of atmospheric visibility

In a world incomplete markets for environmental goods, ex ante planned expenditures rather than ex post realized outcomes explain the values which individuals attach to these goods. We use the distance function to develop restrictions from a model of ex ante consumer behaviour involving these goods. A Contigent valuation approach is then employed to estimate policy-relavant components of the ex ante economic values that recreationists attach to differing subjective probabilities of alternative atmospheric visibility levels at a wilderness location and at an urban location in Oregon. Marginal valuations of probability changes are similar at the two sites. Marginal rates of time preference for resolving uncertainities vary between 10 and 50% and are inversely related to education. Existence value averages 10% of total value, and evidence is mixed that site-specific value act as surrogates for general environmental preferences.     

Ex ante and ex post long-run average cost functions

The traditional, neoclassical derivation of the long-run average cost(LAC) function is based on minimizing the cost of a given output. However, there are a number of reasons why the theoretical concept of this ex ante LAC function is likely to differ significantly from ex post cost-output observations when output is stochastic. In agriculture, the farmer's decision making criterion is assumed to be one of minimizing the cost of producing some planned output level. Average cost is then a function, inter alia, of planned output rather than realized output. It is argued that there is no operational significance in the cost-realized output relationship; in practice, the farmer's concern is with the cost-planned output relationship. This paper proposes a two-stage procedure to estimate the latter relationship. Cross-section data on UK dairy farms for 1980/1 are used to show significant differences in the ex ante and ex post relationships.     

Location decisions of a polluting firm and the time consistency of environmental policy

This paper considers location decisions of a monopolist, who faces a tax on its emissions in the home country, under ex post that is, time consistent, and ex ante, that is precommitment, environmental policies. We show that the monopolist will relocate more often under ex post optimal emission taxes. A government which cannot commit to an ex ante emission tax and sets its tax ex post after abatement effort has been chosen, is unable to affect the monopolist’s location decision, because it cannot commit to strategically reduce its tax level in the first stage. Domestic welfare is often higher under ex post emission taxes whenever the monopolist relocates under both policy regimes. Otherwise, welfare is higher under government commitment to an ex ante emission tax level. Thus, government commitment to a policy is not always welfare improving.     

RETAIL PRICE REGULATION AND THE OPTION TO DELAY

ABSTRACT ** :  This paper examines a two-period model of an investment decision in a network industry characterized by demand uncertainty, economies of scale and sunk costs. In the absence of regulation we identify the market conditions under which a monopolist decides to invest early as well as the underlying overall welfare output. In a regulated environment, we consider a monopolist who faces no downstream (final good) competition but is subject to retail price regulation. We identify the welfare-maximizing regulated prices when the unregulated market outcome is set as the benchmark. We show that if the regulator can commit to ex post regulation – that is, regulated prices that are contingent to future demand realization – then regulated prices that allow the firm to recover its total costs of production are welfare-maximizing. Thus, under ex post price regulation there is no need to compensate the regulated firm for the option to delay that it foregoes when investing today. We argue, however, that regulators cannot make this type of commitment and, therefore, price regulation is often ex ante – that is, regulated prices are not contingent to future demand. We show that the optimal ex ante regulation, and the extent to which regulated prices need to incorporate an option to delay, depend on the nature of demand uncertainty.     

Consumption dynamics and inequality of opportunity with an application to Uganda

This paper proposes the adoption of an opportunity egalitarian perspective to assess and compare growth processes and their distributional implications. To this aim, a set of graphical tools are introduced that allow one to evaluate the role of growth and recessions in the evolution of individuals’ opportunities over time. These tools satisfy the ex post principle of equality of opportunity and represent an extension of the “opportunity growth incidence curve,” a framework proposed by the literature to evaluate growth according to the ex ante principle of equality of opportunity. This measurement framework is applied to evaluate the economic dynamic between 2009 and 2011 in Uganda. The results show that despite a reduction in the real value of household consumption and a surge in outcome inequality, its effects appear to be less dramatic when the ex post equality of opportunity perspective is invoked.     

On the efficiency of ex ante and ex post pricing institutions

Summary This paper compares the performance of three pricing institutions in a decentralized matching model in which random matching occurs. In the first, sellers make public ex ante commitments to trade at pre-specified prices before matching occurs. In the second, the buyer and seller engage in an alternating offer bargaining game once a match has occurred. In the final pricing institution, one party is chosen at random to make a take it or leave it price offer. The steady state equilibrium with ex ante pricing pareto dominates the steady state equilibrium with ex post take it or leave it offers, which in turn pareto dominates the steady state equilibrium with alternating offers. As the discount factor goes to one, the equilibrium with ex ante pricing generates participation rates that tend toward the pareto efficient level. The ex post pricing institutions generate participation rates that are bounded away from efficient levels. The surplus loss associated with switching from ex ante pricing to take it or leave it offers is small when the discount factor is close to one. Contrary to many models of decentralized trade, ex post pricing institutions encourage too much search by buyers.The financial support of the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged. The research for this paper was completed while the author was visiting the University of California at San Diego. The author thanks Douglas Gale for comments.     

EX POST VERSUS EX ANTE MEASURES OF THE USER COST OF CAPITAL

Should we use ex post or ex ante measures of user costs to calculate the contribution of capital in a growth accounting exercise? The answer, based on a simple model of temporary equilibrium, is that ex post is better in theory. In practice researchers usually calculate ex post user costs by assuming that the rate of return is equalized across assets. But this is only true if expectations are correct. In general, the ex post rate of return differs between assets, even though ex ante it is the same. I propose a hybrid method. The index of capital services is estimated using ex ante weights; the contribution of capital is the growth of this index multiplied by the ex post income share of capital. I show that this method is theoretically correct if the production function is CES. I compare the ex post, ex ante and hybrid methods using data for 31 U.K. industries from 1970 to 2000.     

Complexity and Renegotiation: A Foundation for Incomplete Contracts

The paper considers a hold-up model where only one of n future trading opportunities will prove to be efficient, and where ex post renegotiation of the ex ante contract cannot be prevented. As the environment becomes more complex ( n →∞), the outcome under any message-contingent long-term contract converges to that of the "incomplete contracting" model where trade is contractible ex post , but not ex ante . When trades are costly to describe, both ex ante and ex post , the incomplete contracting result is extended to a broader class of environments.     

从事前效率问题到事后效率问题——不完全合同理论的几类经典模型比较

通过对不完全合同经典理论模型的组成要素的梳理和分类,本文首次将不完全合同理论的模型分为四种类型:行动事前不可缔约而事后可缔约的事前效率问题模型,行动事前和事后都不可缔约的事前和事后效率问题模型,事前部分可缔约的事前和事后效率问题模型,收益事后不可证实的事前和事后效率问题模型。这些不同的理论被纳入一个统一的框架中进行表述。传统的产权理论具有一些缺陷,而事后不可缔约的模型更适合研究权威、授权、科层等问题。相对于关于投资激励的事前效率问题,事后效率问题的来源要多得多。对事前与事后缔约性问题的探讨以及对事后效率问题的研究是丰富不完全合同理论发展的动力。     

On competitive balance in the group stage of the UEFA Champions League*

This article examines competitive balance in the group stage of the UEFA Champions League over the last two decades (1999/2000–2017/2018). Competitive balance is considered both before and after a competition. Have the groups been designed in such a way as to ensure similar levels of competitive balance ex ante? Have the demonstrated strengths (ex post competitive balance) of the different groups been similar over each season? What is the relationship between the competitive balance in the designed groups and that achieved in the same groups after the competition? Are the performance achieved in terms of ex post competitive balance similar to ex ante competitive balance levels? We found that, despite expectations, the groups' ex ante competitive balance was not homogeneous. Although ex ante competitive balance serves as a good predictor, on average, of ex post competitive balance, we observed significant differences at the levels of group and seasons. Therefore, it is possible to improve the design mechanism of the groups that make up the group stage of the champions so that they are composed homogeneously in terms of ex ante competitive balance.     

Addressing Negative Willingness to Pay in Dichotomous Choice Contingent Valuation

This paper has four purposes. First, we outline the controversy surroundingthe issue of negative willingness to pay (WTP)in contingent valuation (CV) studies. Second,we use Monte Carlo simulation to examine theperformance of alternative distributionalassumptions in estimating WTP in the presenceof varying proportions of the populationholding negative WTP values. We focus ondichotomous choice CV (DC-CV), where negativeWTP values may be especially difficult todetect. Third, we extend the simulation toinvestigate the performance of the mixturemodels that have recently been proposed forhandling/identifying non-positive WTP values. Fourth, we extend the simulation to investigatethe performance of the nonparametric lowerbound Turnbull approach. Results indicate thatthe relative performance of the DC-CV modelingalternatives evaluated here, which assumepositive WTP, varies across the simulationsetting (e.g., proportion of negative WTP); butnone can be said to reasonably ``solve' theproblem ex post. This underscores theimportance of ex ante efforts to identify ifnegative WTP is likely to be prominent in agiven valuation setting. In such cases,appropriately handling negative WTP must beaddressed through ex ante survey design andmodeling choices that allow negative WTP.     

Asymmetric information, optimal money growth targets, and fed secrecy in a monetary policy game

This paper analyzes the impact on inflation of requiring the monetary authority to announce money supply targets and punishing it for deviations from same. Two regimes are considered. In one, called the ex ante regime, the target is announced prior to the authority's obtaining information concerning relevant economic shocks. In the other, called the ex post regime, the announcement is made after the authority obtains relevant information and thus provides the public with data concerning the authority's private information. It is shown that the ex ante regime may dominate the ex post regime. This follows because an ex post regime may yield a higher mean inflation rate as the monetary authority attempts to exploit the relationship between its announcement and expected inflation.     

Frontrunners and Laggards: The Strategy of Environmental Regulation under Uncertainty

The extant literature on the political economy of environmental regulation does not provide a unified theoretical explanation for three salient stylized facts. First, companies voluntarily invest to reduce the environmental burden that they cause under threat of regulation. Second, ex ante estimates of the compliance cost tend to be systematically higher than ex post estimates. Finally, regulators use limited information provided by the industry. I construct a game-theoretic model of environmental regulation under uncertainty with a benevolent regulator. In equilibrium, companies undertake voluntary action to induce regulation that raises barriers to entry. This profit-driven behavior is not always socially detrimental, however, as the regulator obtains a credible commitment to production and a more accurate estimate of the compliance cost. Additionally, the results provide a selection explanation for the mismatch between ex ante and ex post cost estimates: if companies condition compliance on the installation cost, only low-cost companies install in equilibrium. The analysis combines “regulatory capture” with social welfare maximization to explain the curious combination of voluntary action and low ex post compliance cost without serious information collection by the regulator.     

风险偏好的差异性与融资的多样性

我们认为,公众公司(public company)的企业价值不仅依赖于企业家事后的管理行动,而且依赖于企业家的事前努力。为了实现企业价值最大化,不仅需要给予投资者企业的控制权以遏止企业家的机会主义行为,而且还需要激励企业家的事前努力。也就是说,企业价值不仅受到控制权安排的影响,而且离不开一份企业家收益与企业绩效直接挂钩的激励计划。在如此一份激励计划下,投资者的风险偏好差异性不再是无关紧要的,因为一种区分投资者偏好的融资方式可以节约企业的融资成本,使企业有更多的现金流来激励企业家努力工作。本文证明了,多样性的融资方式,即适当比例的债权—股权融资,在一定的条件下是一种最优的融资机制。而且,在企业家拥有一定初始财富的假定下,我们解释了为什么存在各种各样的资本结构。     

The Analysis of Professional Sports Leagues as Joint Ventures

This paper addresses whether the welfare analysis of the agreements and rules of a professional sports league should depend on the organisational form chosen by the league's participants. Courts have analysed sports leagues both as associations of horizontal competitors and as single entities. The former approach suggests much less tolerance for rules that affect competition. Drawing on the distinction between ex ante and ex post competition that has been found useful in the economic analysis of intellectual property rights, the authors suggest a middle road in the horizontal competitors versus single entity characterisations of professional sports leagues.     

Increasing consumer well-being: risk as potential driver of happiness

This article investigates the relation between risk and individual well-being. We propose a theoretical model of happiness that makes a distinction between ex ante evaluations of happiness and ex post assessments. The main assumptions of the model are tested through three studies based on anchoring vignettes. We show that, even if, ex ante, consumers fear high risk and do not associate it to a high level of happiness, their ex post evaluation of well-being is generally higher when identical consequences result from a high-risk situation than from a low-risk situation. Control over risk-taking reinforces the gap between ex ante and ex post measures of happiness. Thus, our article provides empirical evidence about a positive relation between risk and individual well-being, suggesting that risky experiences have the potential to increase consumer well-being.     

The role of ex ante and ex post decisions in the valuation of life

This paper examines the use of ex ante and ex post criteria in the evaluation of projects involving the risk of death. One issue concerns the appropriate welfare function, and it is argued that this should reflect both ex post and ex ante considerations, but not in the form of restrictions on the welfare function. The second issue concerns the form of compensation. The argument in favour of ex post compensation as a means of reducing the cost of risk-bearing needs to be modified when risks involve more than a single dimension as they do in projects involving the risk of death.     

Alternative theories of wage dispersion

We analyze labor market models where the law of one price fails—i.e., models with equilibrium wage dispersion. We begin considering ex ante heterogeneous workers, but highlight a problem with this approach: If search is costly the market shuts down. We then assume homogeneous workers but ex post heterogeneous matches. This model is robust to search costs, and delivers equilibrium wage dispersion. However, we prove that the law of two prices holds: Equilibrium implies at most two wages. We explore other models, including one combining ex ante and ex post heterogeneity which is robust and delivers more realistic wage dispersion.     

Experiments on unemployment benefit sanctions and job search behavior

This paper presents the results of an experimental study on unemployment benefit sanctions. The experimental set-up allows us to distinguish between the effect of benefit sanctions once they are imposed (the ex post effect) and the threat of getting a benefit sanction imposed (the ex ante effect). We find that both effects matter. Moreover, the ex ante effect turns out to be substantial and bigger than the ex post effect. Benefits sanctions stimulate the outflow from unemployment.