TARIFF POLICY AND WELFARE IN AN INTERNATIONAL DUOPOLY WITH CONSUMER‐FRIENDLY INITIATIVE

The purpose of this paper is to explore how strategic tariff policy and welfare are affected by the consumer‐friendly initiative of foreign exporting firms. We define a firm that is consumer‐friendly or non‐profit‐based if it considers both its own profit and consumer surplus. This paper extends Brander and Spencer by taking the consideration of consumer‐friendly firms into an international duopoly, and within such context examining the tariff policy and welfare. The consumer‐friendly initiative that leads to trade liberalization is a ‘Win‐Win‐Win’ solution in the sense that it is not only beneficial for foreign exporting firms, but also for the government and consumers of the importing country.     

CAPITAL–LABOUR SUBSTITUTION AND ENDOGENOUS FLUCTUATIONS: A MONOPOLISTIC COMPETITION APPROACH WITH VARIABLE MARKUP*

This paper analyses an overlapping generations model with endogenous product diversity where strategic interactions between producers are introduced; it examines how they affect the stability properties of the steady state. Because of free entry, strategic interactions between producers imply a new dynamic feature, markup variability, promoting indeterminacy and endogenous cycles. Indeed, in contrast to the model without strategic interaction, endogenous fluctuations can occur when the substitution between the production factors, capital and labour, is not too weak, but in accordance with empirical estimates.     

A public firm in a model of spatial duopoly with price discrimination

We visit the role of privatization in the location decision of firms in an industry where no firm can produce all varieties demanded. We demonstrate that the Nash equilibrium locations are socially optimal, in the presence of a publicly owned firm, notwithstanding the degree of privatization.     

COURNOT AND BERTRAND EQUILIBRIA COMPARED: A CRITICAL REVIEW AND AN EXTENSION FROM THE OUTPUT‐STRUCTURE VIEWPOINT*

This paper compares Bertrand competition with Cournot competition. In previous studies, the welfare ranking has not been examined in any general setting. One purpose of this work is to fill this gap. In the Zanchettin model, the ranking regarding the less efficient firm's output is sensitive to the degree of asymmetry between firms, whereas the welfare ranking is not. Another goal of this study aims at dealing with this paradox. We demonstrate that the rankings regarding average price, average output and the Herfindahl index are not sensitive to the degree of asymmetry, and hence can explain the welfare ranking.     

STRATEGIC INVESTMENT IN A LABOUR‐MANAGED DUOPOLY

Developing a Cournot two‐stage game model with strategic capital interaction, we compare two different kinds of equilibrium in a labour‐managed (LM) duopoly. An LM firm's reaction function is negatively sloped when capital and output are simultaneously determined, while the slope of its reaction function in the second stage changes in sign depending on the magnitude of its labour‐expansion elasticity. Hence, whether the LM firms employ more capital and produce greater output at the equilibria in the two‐stage game model than at the equilibria resulting from the simultaneous selection of capital and output depends on the magnitude of their labour‐expansion elasticity.     

ON DETAIL‐FREE MECHANISM DESIGN AND RATIONALITY*

Mechanism design theory has been criticized, because mechanisms depend on the detail of specification and agents’ behaviour relies on strong rationality assumptions. Hence the study of “detail‐free” mechanism design with weak rationality is important as a practical theory. This paper emphasizes that, even if we confine our attention to detail‐free mechanisms with weak rationality, there exists plenty of scope for the development of new and significant ideas. I describe my recent work along these lines, and argue that stochastic decisions work in large double auction environments, and that moral preferences improve the implementability of social choice functions.     

Terms‐of‐Trade Shocks and Exchange Rate Regimes in a Small Open Economy*

We examine the impact of terms‐of‐trade shocks on key macroeconomic variables by numerically solving a dynamic stochastic general equilibrium model of a small open economy. The model considers nominal price rigidity under different exchange rate regimes. The numerical solutions obtained are consistent with the empirical regularities documented by Broda (2004), in which output responses to shocks are smoother in floats than in pegs; in moving from pegs to floats, the rise in nominal exchange rate volatility is coupled by the rise in real exchange rate volatility; and in both exchange rate regimes, net foreign assets is the most volatile variable.     

PRICING,CAPACITY, AND CONSTRUCTION BOUNDARY OF A CONGESTIBLE HIGHWAY WITH AN ELASTIC DEMAND: SOCIAL OPTIMUM,SECOND BEST,PRIVATIZATION, AND VERTICAL DISINTEGRATION*

This paper uses a spatial model to analyse first‐ and second‐best policies, impacts of privatization and vertical disintegration of a congestible highway with elastic demand. The paper also uses simulation methods to analyse the welfare cost of a uniform‐toll constraint. Results show, inter alia, that the social optimum requires the marginal cost of highway extension to be equal to the net consumer benefit at the boundary, while in the second‐best case the aggregate user cost must be measured in terms of the shadow price. In turn, a profit‐maximizing firm equates the marginal extension cost to the markup revenue at the boundary.     

MARKET‐DEMAND BOOSTING AND PRIVATIZATION IN A MIXED DUOPOLY

This study incorporates demand‐boosting strategies into a mixed duopoly model in order to consider the endogenous determination of market demand. The results indicate equilibrium characteristics that differ from those found under an exogenous demand setting. As consumers become more sensitive to the demand‐boosting strategies of firms, the government must choose a lower level of privatization. This suggests that the responsiveness of consumer demand to the demand‐boosting strategies of firms constitutes a limiting factor for privatization.     

WAGE BARGAINING AND MERGER INCENTIVES WITH ASYMMETRIC COSTS

This paper examines how wage bargaining within each firm influences the relationship between an equilibrium ownership structure and the most preferred ownership structure from the viewpoint of social welfare, in a unionized oligopoly of asymmetric firms with respect to productivity of capital. We consider the merger incentive of each firm’s owner when the wage level is determined through bargaining between the firm’s owner and union. We derive a condition for both the degree of cost asymmetry among existing firms and the relative bargaining power of each firm’s owner to her/his union such that each ownership structure can be observed in equilibrium. We also show that although the two types of ownership structures with the merger involving the least efficient firm can be equilibria and socially optimal, these structures are observed only when both the degree of cost asymmetry and the relative bargaining power of each firm’s owner are moderate. Finally, we analyse the relationship among the cooperative game approach employed in this paper and two non‐cooperative merger formation approaches, and examine the robustness of the results obtained in this paper against the change in the assumption regarding each firm’s cost function.     

Dynamic Analysis of an Endogenous Growth Model with Investment‐specific Technological Change

This paper examines a dynamically optimal subsidy policy in a continuous‐time version of the endogenous growth model developed by Krusell (Krusell, P. (1998) “Investment‐Specific R&D and the Decline in the Relative Price of Capital”, Journal of Economic Growth, vol. 3, no. 2, pp. 131–141), in which investment‐specific technological progress occurs endogenously because of R&D performed by monopolistic firms. It is demonstrated that a combination of the time‐invariant subsidy for investment and the time‐variant subsidy for R&D enables the market equilibrium to replicate the socially optimal allocation.     

PRIZES VERSUS WAGES WITH ENVY AND PRIDE*

We show that if agents are risk‐neutral, prizes outperform wages if and only if there is sufficient pride and envy relative to the noisiness of performance. If agents are risk‐averse, prizes are a necessary supplement to wages (as bonuses).     

A CLASS OF PERFORMANCE‐BASED SUBSIDY RULES*

We consider a benchmark static incentive scheme, i.e. a per unit subsidy, that induces a monopoly to produce a target output level. We show that the same output level can be achieved by a continuum of dynamic subsidy rules based on a performance indicator. The rules require only local information. The present value of the subsidies paid is smaller than the amount paid under the static subsidy. Each of the dynamic subsidy rules results at each moment in a lower per unit subsidy than the static subsidy. The subsidy rate depends on a state variable that reflects the monopolist's performance history.     

INTERNATIONAL AND INTRA‐NATIONAL TRADE: A CONTINUUM APPROACH*

We build up a Ricardian trade model with multiple regions within a nation and examine how international trade determines interregional patterns of production and specialization. We show that the degree of interregional concentration of economic activities moves in different directions in two trading nations. The role of “absolute advantage” becomes crucial in dictating the course of income disparity across regions. We discuss cases with varying degrees of labour mobility and reconfirm the result on post‐trade interregional concentration and dispersion. Later we explore the impact of “scale factor” in this model and show how principle of comparative advantage and economies of scale interact to determine the pattern of specialization and volume of trade.     

STRATEGIC CANDIDACY AND SINGLE‐PEAKEDNESS*

In elections, the voting outcomes are affected by strategic entries of candidates. We study a class of voting rules immune to strategic candidacy. Dutta et al. (2001 ) show that such rules satisfying unanimity are dictatorial if all orderings of candidates are admissible for voters’ preferences. When voters’ preferences are single‐peaked over a political spectrum, there exist non‐dictatorial rules immune to strategic candidacy. An example is the rule selecting the m‐th peak from the left among the peaks of voters’ preferences, where m is any natural number no more than the number of voters. We show that immunity from strategic candidacy with basic axioms fully characterizes the family of the m‐th leftmost peak rules.     

A MARKET WITH A SOCIAL CONSUMPTION EXTERNALITY*

We model a spatial market in which the utility of each consumer is affected by the consumers who buy precisely the same product. The marginal contribution of consumers x's purchase on consumer y depends on |x–y|, which declines as |x–y| increases. Such modelling of preferences fits goods that signal a consumer's place in society—clothing styles, automobiles and jewellry are examples. For 2n + 1 firms we find the unique symmetric equilibrium and derive comparative statics on the optimal number of firms, the largest number of firms the market can support, and the behaviour of profits per firm as n increases.     

SECTOR‐SPECIFIC EXTERNALITIES AND STATUS PREFERENCES IN THE UZAWA‐LUCAS MODEL*

This paper shows that introducing preferences for social status based on human capital holdings modifies the finding of Gómez (2004 ) that sector‐specific externalities associated with human capital in the goods sector do not violate the optimality of the competitive economy in the Uzawa–Lucas model. The effect of an increase in the degree of sector‐specific externalities is qualitatively the same as that of an increase in the strength of the desire for status. Hence, paradoxically, a greater degree of sector‐specific externalities makes human capital accumulation more excessive from the social point of view.     

R&D INCENTIVES UNDER BERTRAND COMPETITION: A DIFFERENTIAL GAME*

We investigate dynamic R&D for process innovation in an oligopoly where firms invest in cost‐reducing activities. We focus on the correlation between R&D intensity and market structure, proving that the industry R&D investment at equilibrium monotonically increases in the number of firms. This result contradicts the established wisdom acquired from static games on the same topic. We also prove that, if competition is sufficiently tough, any increase in product substitutability reduces R&D efforts.     

SELF‐CONTROL PROBLEMS AND CONSUMPTION‐SAVING DECISIONS: THEORY AND EMPIRICAL EVIDENCE*

Time‐discounting is a fundamental preference which affects wealth accumulation. If people are impatient, they may spend their earnings instantaneously, and do not save enough for the future. People are often time‐inconsistent, i.e., they often put exceptionally high value on immediate consumption compared to any time in the future. Whether they are aware or not, these individuals are susceptible to self‐control problems. In this paper, we review theoretical and empirical research on time‐inconsistency and self‐control problems, particularly on consumption and saving, and discuss their policy implications.     

REALIZED COST‐BASED SUBSIDIES FOR STRATEGIC R&D INVESTMENTS WITH EX ANTE AND EX POST ASYMMETRIES*

We discuss stochastic cost‐reducing R&D investments and examine efficient subsidies. We discuss a two‐stage duopoly model in which each firm chooses R&D levels (innovation size and probability of success) in the first stage and competes à la Cournot in the second stage. We find that simple subsidies depending on the realized cost differences induce the efficient levels of R&D with respect to the innovation size and probability of success by two firms regardless of ex ante and ex post asymmetries between the two firms.