The Effects of Uncertain Divestiture as Regulatory Threat

It has been argued that the threat of regulatory intervention affects firm behavior. We investigate the pricing decision of the dominant firm under regulatory threat, considering the probability of intervention as a function of the price. Our focus is on the case where the potential divestiture of the firm serves as a threat of regulatory intervention. It is shown that under certain conditions associated with the marginal expected penalty, the mere threat of divesting a certain portion of the firm’s manufacturing plants leads to a lower price than the actual divestiture of that same portion. Numerical examples illustrate that with relatively small-scale divestiture, the firm’s price under the threat may be lower than that under the actual divestiture, within a relatively broad range of regulator’s attitudes toward intervention.     

A laboratory assessment of the choice of vessel size under individual transferable quota regimes

This paper examines the effect of individual transferable quota regimes on technology choice, such as choice of vessel size, by using the laboratory experiment method. We find that even if vessel sizes change over time, the quota price can converge to the fundamental value conditioned on the vessels chosen. We also find that subjects choose their vessel type to maximise their profits based on the quota trading prices in the previous period. This result implies that the efficiency of quota markets in the beginning period is important because any inefficiency in quota markets may affect vessel sizes in ensuing periods. Moreover, we find that the initial allocations may significantly influence vessel sizes through two channels: first, a higher initial allocation to a subject increases the likelihood that the subject invests in a large‐sized vessel; second, the quota price may be higher and more unstable under unequal allocation than under equal allocation; thus, whether the allocation is equal influences subjects' choice of vessel type.     

TFP growth slowdown and the Japanese labor market in the 1990s

Unemployment in Japan nearly tripled during the 1990s. Underlying this upsurge lie an increase in the probability of workers to lose their jobs and a decrease in the probability that the unemployed find jobs. This paper analyzes the sources responsible for these labor market changes in Japan in the decade of the 1990s. We build, calibrate, and simulate a neo-classical growth model with search frictions in the labor market. Using actual TFP data, the model is able to reproduce the path of unemployment and the job flows, as well as that of output. We find it to be the decrease in productivity, coupled with the reduction in hours worked, which curtails the profits of firms, inducing a drop in employment and an increase in unemployment.