Monopoly and optimal nonlinear pricing: the case of route monopolies and heteregeneous demand in the air transport market

This paper explores the robustness of the one-dimensional screening model with respect to increasing the number of instruments and the number of characteristics. We study a case of nonlinear pricing (2 instruments (2 routes on which the airline provides customers with services), 2 characteristics (demand of services on these routes) and two values per characteristic (a low or a high demand of services on these routes)) and we show that none of the conclusions of the one-dimensional analysis remain valid. In particular, upward incentive compatibility constraint may be binding at the optimum. As a consequence, they may be distortion at the top of the distribution. In addition to this, we show that the optimal solution often requires bundling, while it is sometimes optimal for the monopolist to produce only one good or to exclude some buyers from the market. This means that the monopolist cannot fully apply his monopoly power and is better off selling two goods independently. We define all possible solutions in the case of a quadratic cost function for a uniform distribution of agent types and demonstrate that the range of services proposed by an airline is often larger than the corresponding range in demand.     

The Bases of Compromise in the Workplace: A Theoretical Framework

Schemes for workplace participation have long been promoted and vilified. Such conflicting views have been brought into sharp focus by the highly variable results of such practices as teamwork. Yet a theoretical framework to grasp workplace co‐operation is lacking. This paper develops a framework on the basis of theory and a review of a wide range of empirical studies. Capital and labour each have two sets of ‘concerns’: over ‘control’ of the workplace and the longer term ‘development’ of the productive forces. Cross‐classifying these concerns produces a matrix of patterns of workplace relations. Each cell of the matrix represents a different combination of the interests of capital and labour. The matrix can be used to map participation schemes so as to capture their varying features. The next task, pursued elsewhere, is to identify the conditions leading to locations in different cells of the matrix.     

Rules of Origin in North–South Preferential Trading Arrangements with an Application to NAFTA

All preferential trading agreements (PTAs) short of a customs union use rules of origin (ROO) to prevent trade deflection. ROO raise production costs and create administrative costs. This paper argues that in the case of the recent wave of North–South PTAs, the presence of ROO virtually limits the market access that these PTAs confer to the Southern partners. In the case of NAFTA, we find average compliance costs around 6% in ad valorem equivalent, undoing the tariff preference (4% on average) for a large number of tariff lines. Administrative costs amount to 47% of the preference margin. These findings are coherent with the view that North–South PTAs could well be viewed like a principal–agent problem in which the Southern partners are just about left on their participation constraint.     

DO WEALTH DIFFERENCES AFFECT FAIRNESS CONSIDERATIONS?*

The influence of relative wealth on fairness considerations is analyzed in an ultimatum game experiment in which participants receive large and widely unequal initial endowments. Subjects initially demonstrate a concern for fairness. With time however, behavior becomes at odds with both subgame perfection and fairness. Evidence of learning is detected for both proposers and receivers in the estimation of a structural reinforcement learning model. The estimation results suggest that, guided by foregone best responses and an acquired sense of deservingness, rich subjects become more selfish, whereas poor subjects, influenced only by their own experience, learn to tolerate this behavior.     

In-work policies in Europe: Killing two birds with one stone?

Generous social assistance has been held responsible for inactivity traps and social exclusion in several European countries, hence the recent trend of promoting employment through in-work transfers. Yet, the relative consensus on the need for ‘making work pay’ policies is muddied by a number of concerns relative to the design of the reforms and the treatment of the family dimension. Relying on EUROMOD, a EU-15 integrated tax-benefit microsimulation software, we simulate two types of in-work benefits. The first one is means-tested on family income, in the fashion of the British Working Family Tax Credit, while the second is a purely individualized policy. Both reforms are built on the same cost basis (after behavioral responses) and simulated in three European countries suspected to experience large poverty traps, namely Finland, France and Germany. The potential labor supply responses to the reforms and the subsequent redistributive impacts are assessed for each country using a structural discrete-choice model. We compare how both reforms achieve poverty reduction and social inclusion (measured as the number of transitions into activity). All three countries present different initial conditions, including existing tax-benefit systems and distribution of incomes and wages. These sources of heterogeneity are exploited together with different labor supply elasticities to explain the cross-country differences in the impact of the reforms.     

Bayesian regression analysis using poly-t densities

Poly-t densities are defined by the property that their kernel is a product, or ratio of products, of Student-t kernels. These multivariate densities arise as Bayesian posterior densities for regression coefficients, under a surprising variety of specifications for the prior density and the data generating process. Although no analytical expression exists for the integrating constant and moments of these densities, these parameters are obtained through numerical integration in a number of dimensions given by the number of Student-t kernels in the numerator, minus one. The paper reviews how poly-t densities arise in regression analysis, and summarizes the results obtained for a number of models.     

The firm's investment and employment policy through a business cycle

The paper studies with the help of a model the investment and employment policy through a business cycle for a firm which maximizes its discounted income and assumes that the forecasts are perfectly correct. In addition to investment and wages costs, the firm has to bear recruitment and firing costs; it has at its disposal four control variables: the selling price, the recruitment rate, the firing rate and the investment rate. The firm's strategy appears to be generally a sequence of elementary policies. This sequence highly depends on the relative values of parameters like the rate of depreciation of equipment, the natural rate of decrease of employment, the ratio of the unit recruitment and firing cost with respect to the wage rate, the rate of decrease of demand during recession. The results obtained are, on the whole, quite consistent with the behaviours which have been observed in the last years, and explain some of the features of recessions.     

On supply-constrained equilibria

The paper gives sufficient conditions for the existence of an equilibrium with price rigidities and quantity rationing where: (i) demand is never rationed; (ii) net trades of an a priori chosen numeraire are never rationed; and (iii) supply is rationed only when relative prices are downward rigid.