Environmental taxes and strategic delegation

This paper analyzes a managerial delegation model in which the government chooses an environmental tax to control environmental damage. By giving the managers of firms an incentive scheme based on a linear combination of profit and sales revenue, we show that firm owners have to pay a higher environmental tax and both environmental damage and social welfare increase compared to the profit-maximization case. Financial support from UPV (Subvención a grupos, 2001), UPV (HB-8238/2000) and MEC (BEC 2000-0301) is gratefully acknowledged. We would like to thank A. Saracho and two referees for helpful comments. The usual disclaimer applies.     

PROFIT TAX AND FIRM MOBILITY IN A THREE‐COUNTRY MODEL

We construct a three‐country model that incorporates international relocation by imperfectly competitive firms and examine both the effects of each country's profit tax reduction on the consumption and welfare of all countries, and the incentive for the countries to decrease the profit tax. In such a model, both the terms of trade and international relocation of firms offer the key to understanding the impacts of one country's profit tax policy. In particular, we note that the relocation of firms from the other two countries is positively related to the wage incomes of the third country through a shift in labour demand, and the terms‐of‐trade improvement is not only positively related to the wage incomes, but also negatively related to profit incomes through a shift in world consumption demand. We show that (i) in a three‐country world economy, regardless of the reduction's source, the profit tax reduction of each country leads to relocation of firms away from foreign countries toward its own economy and deteriorates the terms of trade of its economy and (ii) this becomes a ‘beggar‐thy‐neighbour’ policy in the sense that it lowers the welfare of the other foreign countries.     

Corporate profit tax,firm entry with unemployment,and income inequality

In this paper, we provide a general equilibrium analysis of corporate profit tax on income distribution, unemployment, and wage inequality. With firm dynamics in industrial sector, we identify a new channel through which profit tax affects income and wage inequality: profit tax cut will widen not only the wage gap between skilled and unskilled labor, but also exacerbate the wage inequality of unskilled labor among different sectors. The welfare effect of profit tax cut depends on unemployment deepening (labor-distortion effect) and more manufacturing firms enter the market (business-creation effect), eroding the market share of incumbent firms (business-stealing effect).     

The design of voluntary agreements in oligopolistic markets

This paper analyses the conditions under which a group of firms have the incentive to sign a voluntary agreement (VA) to control polluting emissions even in the presence of free-riding by other firms in the industry. We consider a policy framework in which firms in a given industry decide whether or not to sign a VA proposed by an environmental regulator. We identify the features that a VA should possess in order to provide firms with an incentive to participate in the VA and to enhance its economic and environmental effectiveness. Under very general conditions on the shape of the demand schedule, we obtain the following results. First, a VA does not belong to the equilibrium of the coalition game when benefits from voluntary emission abatement are a pure public good, unless an industry emission target is set by the regulator. Second, in the presence of partial spillovers—i.e. when signatories obtain more benefits from the VA than non-signatories—a VA can belong to the equilibrium only if a minimum participation rule is guaranteed. Third, a VA with a minimum participation rule and a minimum mandatory emission abatement may improve welfare (and even industry profits) compared to a VA in which firms are free to set their own profit maximizing abatement level.     

TIMING OF LUMPY INVESTMENT,PRICING AND TECHNICAL PROGRESS

In equipment‐intensive sectors – such as water utilities, power generation, and gas – billions of dollars are spent in capital equipment. The nature of the investment is often lumpy: at some point a plant has to be replaced and a large investment is required. We characterize the dynamic optimal investment policy of profit‐maximizing and welfare‐maximizing firms. We first show that, when there is no technical progress, the duration of the plant is longer for a profit‐maximizing firm. We then consider technical progress leading to either capacity expansion or to operating costs reduction. We show that duration tends to increase when the installed capacity increases over time, while it tends to decrease when technical progress reduces operating costs, both for profit‐maximizing and welfare‐maximizing firms. Under some conditions, when capacity expands over time the duration of the plant is longer for a profit‐maximizing firm than for a welfare‐maximizing firm.     

A model of sliding-scale regulation

Price caps, while widely touted, are less commonly implemented. Most incentive schemes involve profit sharing and are, thus, variants of sliding-scale regulation. I show that, relative to price caps, some degree of profit sharing always increases expected welfare. Numerical simulations show that welfare may be enhanced by large amounts of profit sharing and by granting the firm a greater share of gains than of losses. Simulations also suggest profit sharing is most beneficial when the firm's initial cost is high and cost-reducing innovations are difficult to achieve but offer the potential for substantial savings.This paper has benefitted from the comments of Mark Bagnoli, Jim Burgess, Michael Crew, Steve Hackett, Paul Kleindorfer, Michael Riordan, Ted Stefos, Ingo Vogelsang, Dennis Weisman, two anonymous referees, and workshop participants at the First Annual Northeastern Health Economics Conference, the Fourth Annual Health Economics Conference, GTE, Indiana University, the Rutgers Advanced Workshop in Regulation and Public Utility Economics, and the 20th Telecommunications Policy Research Conference. Financial support from the Management Science Group of the Department of Veterans Affairs and from Indiana University is gratefully acknowledged.     

Mixed oligopoly, optimal privatization, and foreign penetration

This paper examines the impact of foreign penetration on privatization in a mixed oligopolistic market. In contrast to the simple framework of single domestic market with foreign entry by entry mode of foreign direct investment (FDI) or exports, our result shows that government should increase the degree of privatization along with increasing proportion of domestic ownership of multinational firms. Furthermore, we show that an increase in domestic ownership of multinational firms raises all domestic private firms' profit and social welfare, while it may either increase or decrease public firm's profit. With the aid of numerical example, intensive competition from private firms in general will enhance the degree of privatization gradually; in particular, the degree of privatization is lower in the presence of multinational firms.     

The merger paradox in a mixed oligopoly

This paper examines the set of surplus maximizing mergers in a model of mixed oligopoly. The presence of a welfare maximizing public firm reduces the set of mergers for which two private firms can profitably merge. When a public firm and private firm merge, the changes in welfare and profit depend on the resulting extent of private ownership in the newly merged firm. When the government sets that share to maximize post merger welfare as assumed in the privatization literature, the merger paradox will often remain and the merger will not take place. Yet, we show there always exists scope for mergers that increase profit and increase (if not maximize) welfare. Interestingly, these mergers often include complete privatization.     

International Joint Venture And Host-Country Policies

In the presence of international joint ventures, effects of policies like foreign equity cap, trade protection and domestic resource requirement restriction towards equity sharing and welfare are analysed. Foreign equity cap reduces host country's welfare. Trade protection lowers equity share for the local firm. It has a first-order source of welfare gain as the internal efficiency of the firm improves. Also, there is a first-order loss resulting from a leakage effect, since a part of the surplus goes to a foreign firm. A marginal domestic resource requirement restriction enhances the joint surplus of the venture and social welfare.     

A Bluff-Bidding Exercise

Consider an auction in which one potential buyer wishes to participate, but the other potential buyer would rather the bidding not start. However, once bidding starts, the reluctant firm participates (submits “bluff bids”) simply to make the eventual winner pay more. This incentive exists when the marginal effect of the winning bid is to increase a rival's profit. In 2004, AT&T Wireless placed itself for sale in an English auction. Some predicted Vodafone would make bluff bids (to make Cingular pay more. Students experience this sort of activity in the game that this article describes. Students also learn that bluff bidding affects profits of the firms involved and therefore has important implications for stock prices of participating firms.     

International Outsourcing,Tax, and Patent Protection

We show the implications of strengthening patent protection in a developing country in the presence of a vertical technology transfer, which, despite its empirical relevance, did not get due attention in the literature. We show that if there is imperfect knowledge spillover under a weak patent protection, a strong patent protection in the developing country increases the profit of the developed‐country firm if there is a uniform tax rate in the developing country. However, if there is either perfect knowledge spillover under weak patent protection or discriminatory tax policy in the developing country, the profits of the developed‐country firms are the same under weak and strong patent protections in the developing countries.     

企业特征、高管薪酬结构与企业绩效

利用2005—2010年我国沪深两市A股非金融保险行业1654家上市公司的高管年度薪酬数据,结合企业特征,对不同类型企业的高管薪酬结构与企业绩效的关系进行了实证研究,细化锦标赛理论和行为理论在不同类型企业中可能形成的差异化实施效应。结果显示:我国不同类型的企业都比较适宜采用锦标赛理论制定高管薪酬激励政策,竞争性的高管薪酬结构对于提升企业绩效具有正面作用,均等化高管薪酬结构不利于企业的价值创造;相对于民营企业、小规模企业、低成长企业而言,我国国有企业、大规模企业、高成长企业更宜采用锦标赛理论设计企业高管薪酬结构。因此我国不宜对非金融保险行业国有企业的高管薪酬进行过度均等化的管制,否则会负面影响企业绩效提升和企业价值创造。     

强自然垄断定价理论与中国电价规制制度分析

强自然垄断行业由于其定价方面的两难困境 ,需要规制者对其产品定价进行规制以在厂商利润与社会福利之间进行权衡。边际成本定价原则并不适合于自然垄断厂商。本文在规制定价理论以及激励规制理论的基础上 ,对中国电力定价问题进行了分析 ,认为电价改革的第一步应在发电环节中引入竞争的基础上 ,对不同效率类型的电力厂商设计不同激励强度的定价机制 ,另外本文尝试着对不同技术效率的电力厂商列出了不同激励强度的价格规制方案菜单     

考虑集成商营销努力的养老服务提供商服务质量激励研究

在考虑养老服务集成商营销努力的情况下,通过设计成本分担契约、收益共享契约激励养老服务提供商改善服务质量,分析了两类激励契约的适用条件;比较了对养老服务质量、营销水平决策和各成员利润的改善作用。研究结果表明：提供商的服务质量、利润会随着成本分担比例的增加而递增,随着收益共享比例的增加而递减;集成商的营销水平会随着成本分担比例的增加而增加,而随着收益共享比例的增加而递减,利润水平会随着成本分担比例和收益共享比例的增加而递减;需求影响系数对三种情境下的提供商和集成商利润产生正向作用,签订成本分担契约对提供商较为有利,集成商可能更倾向于收益共享契约;成本影响系数则对利润产生负向作用,签订收益共享契约对提供商较为有利,对于集成商来说,其利润在三种情境下的差异不大;成本分担契约对激励提供商改善服务质量和集成商提升营销水平具有最佳的激励作用。在大多数情况下,提供商获得的利润总是高于集成商。     

Asymmetric Contributions to Research Joint Ventures

We show that ex ante identical oligopolists may find it optimal to contribute asymmetrically to a research joint venture. The reason is found in the trade-off between the desire to increase the variance of the distribution of unit costs within the oligopoly (which increases gross profit, though not necessarily net profit, of the group) and the incentive to efficiently carry out R&D activities by equalizing marginal R&D costs across firms. Conditions for non-existence of symmetric contributions are given. We also propose a profit sharing rule for asymmetric research joint ventures.
JEL Classification Numbers: L13, L23.     

The welfare effects of FDI: A quantitative analysis

Foreign direct investment (FDI) can increase productivity and wages. However, it is also often accompanied by primary income deficits as foreign-owned firms repatriate their profits. The welfare effects of FDI are thus ambiguous. A particularly illustrative example of this phenomenon are the Visegrád 4 (V4) countries (Czech Republic, Hungary, Poland, Slovakia). This paper investigates whether FDI can be beneficial in the presence of profit repatriation using a general equilibrium model calibrated to the V4 economies. Counterfactual simulations suggest that the benefits of FDI outweigh the costs for these countries. On average, a 1% increase in the share of foreign firms is associated with a 0.17% increase in welfare. However, incentivising foreign firms to reinvest more of their profits domestically is, ceteris paribus, welfare-improving. A 10-percentage-point increase in the profit repatriation rate is associated with a 1.06% welfare gain on average.     

Team Incentives and Organizational Form

Conventional wisdom regarding nonprofit firms is that the absence of a profit motive renders them inefficient. However, the costs and product quality realized by profit-taking firms is determined by how well those firms deal with a variety of internal incentive and information problems, and this should be equally true for nonprofits. This article analyzes the team incentive problem in nonprofit organizations. Holmstrom (1982) showed that the introduction of a budget-breaker into a team permitted the creation of incentives to provide efficient effort when it is otherwise impossible. A similar result obtains for a nonprofit team, but the role of principal differs from that found in profit-taking teams. It is shown that any of: donors, government regulators, or Trustees can fulfill this role in a nonprofit team. One implication of this is shown to be that nonprofit firms may indeed pay employees less than otherwise identical employees earn in identical jobs in profit-taking firms.     

Bundling strategy and product differentiation

The existing literature shows that a decrease in the degree of substitutability increases a monopoly’s incentive to bundle. This paper in addition takes into account competition in the second product market and then re-examines how intra-brand and inter-brand product differentiations affect the incentive to bundle. In order to formally examine the above conjectures, this research builds up a two-firm, two-product model in which product 1 (monopoly product) is produced only by the bundling firm and product 2 (competing product) is produced by both firms. The analysis shows that under both Bertrand and Cournot competitions the incentive to bundle does not necessarily increase with the degree of intra-brand differentiation, while it strictly decreases with the degree of inter-brand differentiation. Moreover, under Bertrand competition bundling always decreases consumer surplus, but may increase the competitor’s profit and social surplus. Under Cournot competition bundling always reduces the opponent’s profit and social welfare, but may increase consumer surplus.     

Regulating oligopolistic industries: A generalized incentive scheme

This paper deals with the design of regulatory mechanisms for oligopolistic industries. The proposed incentive scheme consists of two parts: a subsidy depending upon a firm's contribution to an equilibrium price reduction, and a tax equal to the profit of the previous period. This mechanism is as effective in regulating oligopolies as the well-known incremental surplus subsidy scheme in a monopoly framework. The proposed scheme provides appropriate incentives to enforce competitive behavior in a Cournot oligopoly. The scheme is welfare improving even if firms collude.