Price Premiums for Eco-friendly Commodities: Are ‘Green’ Markets the Best Way to Protect Endangered Ecosystems?

‘Green’ markets represent a means through which public goods can be privately provided. A green product is an impure public good consisting of a private good (e.g., rain forest honey) bundled with a jointly produced public good (e.g., biodiversity protection). In the context of ecosystem protection, popular green commodities include eco-tourism excursions, coffee grown under forest canopies (‘shade-grown’), tagua nuts for buttons and ornaments, rainforest nuts and oils for cosmetic products, and rain forest honey. We examine the dynamic efficiency of eco-friendly price premiums in achieving ecosystem protection and rural welfare goals by contrasting the use of price premiums to the use of payments that are tied directly to ecosystem protection. We demonstrate analytically and empirically that direct payments are likely to be more efficient as a conservation policy instrument. Depending on the available funds, the direct payments may be better or worse than green price premiums in achieving rural welfare objectives. If direct payments are not feasible for social or political reasons, we demonstrate analytically and empirically that the price premium approach is likely to be more effective at achieving conservation and development objectives than the currently more popular policy of subsidizing capital acquisition in eco-friendly commercial activities.     

Mixed Oligopoly at Free Entry Markets

We investigate the optimal behavior of a public firm in a mixed market involving private firms and one public firm. Existing works show that welfare-maximizing behavior by the public firm is suboptimal when the number of firms is given exogenously. We allow free entry of private firms and find that, in contrast to the case with the fixed number of firms, welfare-maximizing behavior by the public firm is always optimal in mixed markets. Furthermore, we find that mixed markets are better than pure markets involving no public firm if and only if the public firm earns nonnegative profits.     

Mixed oligopoly and spatial agglomeration

Abstract We investigate a mixed market where a state‐owned welfare‐maximizing public firm competes against profit‐maximizing private firms. We use a circular city model with quantity‐setting competition. In contrast to a pure market case discussed by Pal (1998a) , spatial agglomeration of private firms always appears in equilibrium. All private firms locate at the same point, and the public firm locates at the opposite side. We also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner. JEL Classification: H42, L13
Oligopole mixte et agglomération spatiale Les auteurs examinent un marché mixte où une entreprise publique possédée par l'État et cherchant à maximiser le niveau de bien‐être est en concurrence avec des entreprises privées qui cherchent à maximiser leurs profits. On utilise un modèle de cité circulaire où la concurrence se fait en choisissant la quantité produite. En contraste avec le cas du marché parfait discuté par Pal (1998a), l'agglomération spatiale des entreprises privées paraît être en équilibre. Toutes les entreprises privées se localisent au même point, et l'entreprise publique se localise du côté opposé. Il appert que ce pattern d'équilibre de localisation est un équilibre de second ordre compte tenu du fait que la production de chaque entreprise privée ne peut être contrôlée par le planificateur social.     

A Two-stage Price-setting Duopoly: Bertrand or Stackelberg

This paper investigates a two-stage price-setting duopoly with differentiated goods. First, each firm announces its price; second, it chooses its actual price; and finally the market opens. Once a firm announces a price, it is able to discount it but not raise it. The model includes Stackelberg-type and Bertrand-type equilibria as possible outcomes. Whether Bertrand or Stackelberg appears in equilibrium depends on the properties of demand functions crucially. We find three patterns of equilibrium outcomes; one case has Bertrand equilibrium only, another has Stackelberg only, and the other has both equilibria     

Tax Reform,Delocation, and Heterogeneous Firms*

The standard international tax model is extended to allow for heterogeneous firms when agglomeration forces are important, enabling us to study the relocation effects of taxes that vary according to firm size. We show that allowing for heterogeneity permits a given tax scheme to have an endogenously different effect on the location decision of small and big firms, with the biggest firms being endogenously more likely to relocate in reaction to high taxes. We show that a reform that flattens the tax–firm–size profile can raise tax revenue without inducing any relocation.     

Price leadership in a homogeneous product market

The present paper reexamines the price-setting Stackelberg duopoly with asymmetric and strictly convex cost functions in a homogeneous product market. It demonstrates that in a generic environment, the higher-cost firm is likely to be the price leader. That is, leadership by such a firm is either (a) a unique equilibrium or (b) a payoff- and risk-dominant equilibrium in the observable delay game. Thus, while this paper complements and generalizes the findings of recent studies that indicate the possibility of the higher-cost firm’s leadership in homogeneous product markets, it also contrasts with the traditional literature that predicts the dominant-firm price leadership in various environments.     

National self-insurance and self-protection against adversity: bureaucratic management of security and moral hazard

This paper extends existing analyses of self-insurance and self-protection—distinctions first made by Ehrlich and Becker (J Polit Econ 80:623–648, 1972)—that countries may implement at a national level in pursuit of their security. We show that, when no market insurance is available, self-insurance alone raises important new issues as to the definition of “fair pricing” and as to the relations between pricing, optimization, risk aversion, and inferiority that are significantly different from standard, conventional market analysis. We also discover a hitherto unrecognized tendency for misallocation between self-protection and self-insurance when both are available and considered together. Because of external effects running from self-protection to self-insurance, governments ruled by myopic bureaucracies and trying to find the right balance face incentives that encourage extreme, self-inflicted moral hazard, to the detriment of self-protection.     

Presence of foreign investors in privatized firms and privatization policy

This paper investigates how the presence of foreign investors in privatized firms affects privatization policy in a mixed oligopoly. We find that an increase in the stockholding ratio of foreign investors in a privatized firm increases the optimal degree of privatization, whereas an increase in the penetration of foreign firms in product markets reduces it. These results imply that the degree of openness of financial markets and that of product markets have contrasting implications for the optimal privatization policy.     

Ricardian Comparative Advantage and Geographical Concentration

This paper analyses geographical concentration using the continuum‐of‐goods trade model in the presence of labor migration, Ricardian comparative advantage and Marshallian‐type external increasing returns to scale. The findings show that higher transportation costs lead to concentration in one region, and lower transportation costs lead to diversification between the regions. For intermediate transportation costs, asymmetric diversification becomes a stable equilibrium in which the smaller population region has higher wage rates and a smaller externality, and vice versa. However, because the asymmetric equilibrium is an inefficient outcome, it leaves room for government intervention.