Efficient budget balancing cartel equilibria with imperfect monitoring

Summary We modify the infinitely repeated Cournot game with imperfect monitoring of Green and Porter (1984) and Abreu, Pearce and Stacchetti (1986) to include heterogenous products and the possibility of balanced budget side payments (Holmström 1982). It is shown that a transfer mechanism which induces the efficient outcome exists under a reasonable technical assumption in contrast to the preceding authors. Intuitively, the existence of an observable random price vector rather than a single price makes it possible to identify likely defectors, eliminating the need for collective punishments.This paper is based on the last chapter of Demougin's dissertation at the University of Western Ontario.     

ON MEASURING POVERTY

This paper investigates the properties of various measures of poverty and of the "difficulty of alleviation of poverty". It is found that the ranking properties of both kinds of indices can be quite counter-intuitive and that they could be misleading if used for policy evaluation. An alternative index is proposed; it is compared to the other indices and seems to fare rather well. To illustrate, a special reference is made to S. Anand's recent article on poverty in Malaysia.     

Effects of Securities Transaction Taxes on Depth and Bid-Ask Spread

This note investigates the effects of introducing a transaction tax on depth and bid-ask spread using a static model where a competitive market maker faces informed and liquidity traders. When the degree of information asymmetry is low, an increase in the transaction tax can result into a smaller rise in the selling price and the depth may even increase in some cases. When information asymmetry is high, the dealer could increase the selling price more than the tax and sometimes lowers the depth. This can result in a market shutdown if the liquidity trader is driven out of the market. We thank Vincent Reinhart and Walter Fisher for helpful discussions. Special thanks are also due to an anonymous referee and the editor C.D. Aliprantis for insightful comments and suggestions which have helped us to improve the paper substantially. The usual disclaimer applies.     

The long-term volume of East Europe's foreign trade: An estimate

The transformation process of East European (EE) countries led to the disappearance of the Council for Mutual Economic Assistance, the former Soviet-bloc economic integration scheme, as well as to other changes in the foreign trade sector of those economies. This study seeks to identify the potential long run modifications in the volume of trade of EE countries by using a well-established model employed in the foreign trade literature, the gravity equation. Quantitative results suggest that in the next decades trade between East and West European countries could double from its present level.     

A RE‐EXAMINATION OF REAL INTEREST PARITY IN CEECs USING ‘OLD’ AND ‘NEW’ SECOND‐GENERATION PANEL UNIT ROOT TESTS

This study applies ‘old’ and ‘new’ second‐generation panel unit root tests to check the validity of the long‐run real interest rate parity (RIP) hypothesis for ten Central and Eastern European Countries (CEECs) with respect to the Euro area and an average of the CEECs’ real interest rates. When the ‘new’ panel unit root tests are carried out relative to the Euro area rate as reference, we confirm the results of previous studies that support the RIP hypothesis, and the results of the ‘old’ tests used as a benchmark. Nevertheless, when the ‘new’ tests are performed using the average of the CEECs’ rate as reference, our results are mitigated, revealing that the hypothesis of CEECs’ interest rates convergence cannot be taken for granted. From a robustness analysis perspective, our findings indicate that the RIP hypothesis for CEECs should be considered with caution, because the RIP hypothesis is sensitive to the retained reference rate for computing the real interest rate differential, and also to the retained countries in the sample.     

What Are the Characteristics That Explain Hospital Quality? A Longitudinal Pridit Approach

Health outcomes vary substantially between high‐ and low‐quality institutions, meaning the difference between life and death in some cases. The prior literature has identified a number of variables that can be used to determine hospital quality, but methodologies for combining variables into an overall measure of hospital quality are not well developed. This analysis builds on the prior investigation of hospital quality by evaluating a method originally developed for the detection of health‐care fraud, Pridit, in the context of determining hospital quality. We developed a theoretical model to justify the application of Pridit to the hospital quality setting and then applied the Pridit method to a national, multiyear data set on U.S. hospital quality variables and outcomes. The results demonstrate how the Pridit method can be used predictively, in order to predict future health outcomes based on currently available quality measures. These results inform the use of Pridit, and other unsupervised learning methods, in fraud detection and other settings where valid and reliable outcomes variables are difficult to obtain. The empirical results obtained in this study may also be of use to health insurers and policymakers who aim to improve quality in the hospital setting.     

Akaike's Information Criterion,Cp and Estimators of Loss for Elliptically Symmetric Distributions

In this article, we develop a modern perspective on Akaike's information criterion and Mallows's C_p for model selection, and propose generalisations to spherically and elliptically symmetric distributions. Despite the differences in their respective motivation, C_p and Akaike's information criterion are equivalent in the special case of Gaussian linear regression. In this case, they are also equivalent to a third criterion, an unbiased estimator of the quadratic prediction loss, derived from loss estimation theory. We then show that the form of the unbiased estimator of the quadratic prediction loss under a Gaussian assumption still holds under a more general distributional assumption, the family of spherically symmetric distributions. One of the features of our results is that our criterion does not rely on the specificity of the distribution, but only on its spherical symmetry. The same kind of criterion can be derived for a family of elliptically contoured distribution, which allows correlations, when considering the invariant loss. More specifically, the unbiasedness property is relative to a distribution associated to the original density.     

Rules of proof,courts, and incentives

We analyze the design of legal principles and procedures for court decision making in civil litigation. The objective is the provision of incentives for potential tort‐feasors to exert care when evidence is imperfect and may be distorted by the parties. Efficiency is consistent with courts adjudicating on the basis of the preponderance of evidence standard together with common law exclusionary rules. Inefficient equilibria may nevertheless also arise under these rules. Burden of proof guidelines are then useful as a coordination device. Alternatively, guidelines are unnecessary if courts are allowed a more active or inquisitorial role in contrast to that of passive adjudicator.     

On the economics of R&D and technological collaborations: Insights and results from the project colline

Research collaborations involve co-production and exchange of knowledge across organisational boundaries. They involve governance of intellectual property rights and partners' use of collectively produced knowledge. The principal findings arise from case studies of consortia governance in biotechnology and software and substantial variety in arrangements is identified. This variety may be explained by the appropriability of knowledge in particular research domains as well as by the nature of the knowledge generated. Consequences of governance rules are explored for European research consortia and for collective standards making activities. The analysis indicates several policy conclusions: government policy has an important role in overcoming market failures in consortia formation; adoption of any uniform intellectual property rights model for consortia would be likely to reduce research productivity; policies aimed at stimulating consortia formation must take account of the nature of knowledge that is to be exchanged.