The optimal supply of congested public goods for homogeneous and heterogeneous customers

Impure public goods resulting from the congestion effect are discussed in the literature solely for the case of homogenous populations where consumers have identical demands. We extend this to include heterogeneous populations, where demands are rectangularly distributed. We compare the optimal values of the control variables (quantity of the public good and the number of users) for both homogeneous and heterogeneous populations, as well as the social optimum values for both cases. We distinguish between two kinds of congestion effects: (1) increased usage which negatively affects the individual consumer's utility, and (2) the affect is located on the supply side, i.e. higher production costs due to an increased number of users.     

Bonding and Bridging Associational Social Capital and the Financial Performance of Local Authorities in Israel

Abstract

This study explores whether bridging and bonding social capital differ in their impacts on government performance at the local level and the extent to which these impacts vary between localities exhibiting differing socioeconomic resources. The study is based on an analysis of 256 local authorities in Israel. The findings show that bridging and bonding social capital do differ in their respective effects on government performance and that the nature of the relationship of each type of capital with government performance varies by the community's socioeconomic profile. Poor communities with high densities of bridging social capital were characterized by lower deficits as a percentage of total municipal budgets, more accurate expenditure forecasts and greater spending on services per capita.     

Auctions with costly information acquisition

We characterize optimal selling mechanisms in auction environments where bidders must incur a cost to learn their valuations. These mechanisms specify for each period, as a function of the bids in previous periods, which new potential buyers should be asked to bid. In addition, these mechanisms must induce the bidders to acquire information about their valuations and to reveal this information truthfully. Using a generalized Groves principle, we prove a very general “full extraction of the surplus” result: the seller can obtain the same profit as if he had full control over the bidders’ acquisition of information and could have observed directly their valuations once they are informed. We also present appealing implementations of the optimal mechanism in special cases. For helpful comments we thank George Deltas, David Martimort, an anonymous referee, and seminar participants in Mannheim, Rutgers, Tel Aviv, Toulouse, the Society for Economic Design 2002 conference in New York, and the 2003 North American Summer Meetings of the Econometric Society in Evanston, IL. Yossi Spiegel thanks the IIBR for financial assistance and Charles Zheng thanks the NSF for grant SES-0214471.     

Optimal state‐contingent regulation under limited liability

We consider an optimal regulation model in which the regulated firm's production cost is subject to random, publicly observable shocks. The distribution of these shocks is correlated with the firm's cost type, which is private information. The regulator designs an incentive‐compatible regulatory scheme, which adjusts itself automatically ex post given the realization of the cost shock. We derive the optimal scheme, assuming that there is an upper bound on the financial losses that the firm can sustain in any given state. We first consider a two‐type, two‐state case, and then extend the results to the case of a continuum of firm types and an arbitrary finite number of states. We show that the first‐best allocation can be implemented if the state of nature conveys enough information about the firm's type and/or the maximal loss that the firm can sustain is sufficiently large. Otherwise, the solution is characterized by classical second‐best features.     

The Welfare of Nations in a Globalized Economy

Is free trade always good for advanced industrialized countries? Are fears of globalization and outsourcing imaginary, totally unfounded, and misguided? Is the West always going to benefit from technological improvements in the East? This article constructs a few thought experiments to analyze such issues. The article provides some rational insight into the puzzle of why global trade is so controversial. The effects of technological improvements in the East on the welfare of both the East and the West are analyzed. The conclusion highlights some of the less desirable effects of outsourcing in a more globalized world.     

Price Discrimination with One-way Separated Markets

This paper extends the traditional model of third degree price discrimination which assumes complete separation between markets to the case where markets are only one-way separated. In two periods of time one can carry over quantities of the product from the present to the future but not vice versa. We show that this model provides a wide framework for analysis of several promotional marketing strategies.     

How Do Risk Attitudes Differ within the Group of Entrepreneurs? The Role of Motivation and Procedural Utility

Starting a business involves risk and, thus, requires a risk‐taking attitude. The concept of risk and entrepreneurship has been widely discussed in the entrepreneurship literature; most studies compare entrepreneurs with nonentrepreneurs such as managers or bankers. So far, little research exists on the risk attitudes of the different types of entrepreneurs—those who pursue a new business because of opportunity and those who do so through necessity. This study aims to fill this gap. Our particular focus is on individuals' motivations to start their businesses and the nonmonetary returns from entrepreneurship. The results show that opportunity entrepreneurs are more willing to take risks than necessity entrepreneurs. In addition, those who are motivated by creativity are more risk tolerant than other entrepreneurs. The study contributes to the literature about both risk attitudes of entrepreneurs and necessity and opportunity entrepreneurship.     

Commercial software,adware, and consumer privacy

I study the choice between selling new software commercially and bundling it with ads and distributing it for free as adware. Adware allows advertisers to send targeted information to consumers which improves their purchasing decisions, but also entails a loss of privacy. I show that adware is more profitable when the perceived quality of the software is relatively low, when tracking technology improves, when consumers benefit more from information on consumer products and are less likely to receive it from external sources. I also show that improvements in the technology of display ads will lead to less violation of privacy and will benefit consumers, that depending on the software's quality, there are either too many or too few display ads in equilibrium, and that from a social perspective, adware dominates commercial software.     

Quantitative easing and Japanese bank equity values

One of the primary motivations offered by the Bank of Japan (BOJ) for its quantitative easing program—whereby it maintained a current account balance target in excess of required reserves, effectively pegging short-term interest rates at zero—was to maintain credit extension by the troubled Japanese financial sector. We conduct an event study concerning the anticipated impact of quantitative easing on the Japanese banking sector by examining the impact of the introduction and expansion of the policy on Japanese bank equity values. We find that excess returns of Japanese banks were greater when increases in the BOJ current account balance target were accompanied by “non-standard” expansionary policies, such as raising the ceiling on BOJ purchases of long-term Japanese government bonds. We also provide cross-sectional evidence that suggests that the market perceived that the quantitative easing program would disproportionately benefit financially weaker Japanese banks. J. Japanese Int. Economies 20 (4) (2006) 699–721.