Mixed Duopoly,Merger and Multiproduct Firms

The literature on mergers has extensively analyzed the decision to merge by private firms, but it has not considered the decision to merge by private and public firms. We assume that when a private firm and a public firm merge (or when one of them acquires the other), they set up a multiproduct firm in which the government owns an exogenous percentage stake. In this framework, we show that the decision to merge by firms depends on the degree to which goods are substitutes and on the percentage of the shares owned by the government in the multiproduct firm.     

Economic Growth and Transboundary Pollution in Europe: An Empirical Analysis

The existing empirical evidence suggests that environmental Kuznets curvesonly exist for pollutants with semi-local and medium term impacts.Ansuategi and Perrings (2000) have considered the behavioral basis for thecorrelation observed between different spatial incidence of environmentaldegradation and the relation between economic growth and environmentalquality. They show that self-interested planners following a Nash-typestrategy tend to address environmental effects sequentially: addressingthose with the most immediate costs first, and those whose costs aredisplaced in space later. This paper tests such behavioral basis in thecontext of sulphur dioxide emissions in Europe.     

Free Entry under Uncertainty

When focusing on firm’s risk-aversion in industry equilibrium, the number of firms may be either larger or smaller when comparing market equilibrium with and without price uncertainty. In this paper, we introduce risk-averse firms under cost uncertainty in a model of spatial differentiation and show that the impact of uncertainty will increase the number of firms in an industry. With increased uncertainty, the risk premium of the marginal buyer increases by more than the risk premium of the average buyer, so that the price increases by more than the risk premium. When turning to the free entry game, we find that the market generates too many firms.     

Enforcing Emissions Trading when Emissions Permits are Bankable

We propose enforcement strategies for emissions trading programs with bankable emissions permits that guarantee complete compliance with minimal enforcement costs. Our strategies emphasize imperfect monitoring supported by a high unit penalty for reporting violations, and tying this penalty directly to equilibrium permit prices. This approach is quite different from several existing enforcement strategies that emphasize high unit penalties for emissions in excess of permit holdings. Our analysis suggests that a high penalty for excess emissions cannot be used to conserve monitoring effort, and that it may actually increase the amount of monitoring necessary to maintain compliance.The authors are grateful to Anthony Heyes and three anonymous referees for their valuable comments. Partial support for this research was provided by the Cooperative State Research Extension, Education Service, U. S. Department of Agriculture, Massachusetts Agricultural Experiment Station under Project No. MAS00871.     

Rational expectations equilibria of economies with local interactions

We consider general economies in which rational agents interact locally. The local aspect of the interactions is designed to represent in a simple abstract way social interactions, that is, socioeconomic environments in which markets do not mediate all of agents’ choices, which might be in part determined, for instance, by family, peer group, or ethnic group effects. We study static as well as dynamic infinite horizon economies; we allow for economies with incomplete information, and we consider jointly global and local interactions, to integrate e.g., global externalities and markets with peer and group effects. We provide conditions under which such economies have rational expectations equilibria. We illustrate the effects of local interactions when agents are rational by studying in detail the equilibrium properties of a simple economy with quadratic preferences which captures, in turn, local preferences for conformity, habit persistence, and preferences for status or adherence to aggregate norms of behavior.     

Patents, Secrets, and the First-Inventor Defense

We analyze optimal patent design when innovators can rely on secrecy to protect their innovations. Secrecy has no fixed term but does not preclude accidental disclosure nor independent creation by other inventors. We derive the optimal scope of the rights conferred to such second inventors, showing that if the patent life is set optimally, second inventors should be allowed to patent and to exclude first inventors who have relied on secrecy. We then identify conditions under which it is socially desirable to increase patent life as much as is necessary to induce first inventors to patent. The circumstances in which it is preferable that they rely on secrecy seem rather limited .     

Recursive utility with unbounded aggregators

A new framework is presented for the study of the existence and uniqueness of solutions to the Koopmans’ equation in the unbounded case, that is based on the contraction mapping approach. In the bounded below case with bounded consumption streams, uniqueness of the solution in the whole class of weak-star continuous utility functions is obtained. When the aggregator is unbounded below and/or consumption streams are unbounded, existence of a weak-star continuous solution is shown, and a simple criterium to check the sufficient conditions for existence is provided. Juan Pablo Rincón-Zapatero and Carlos Rodríguez-Palmero gratefully acknowledge financial support by the Ministerio de Educación y Ciencia and FEDER funds under Research Projects MTM2005-06534 and SEJ2005-08709/ECON, respectively, and by Consejería de Educación de la Junta de Castilla y León under Research Projects VA99/04 and VA017B05, respectively. This paper has substantially benefited from the comments of an anonymous referee. Particular and special thanks are due to Robert Becker for his very helpful comments and valuable suggestions.     

Trees and decisions

Summary. The traditional model of sequential decision making, for instance, in extensive form games, is a tree. Most texts define a tree as a connected directed graph without loops and a distinguished node, called the root. But an abstract graph is not a domain for decision theory. Decision theory perceives of acts as functions from states to consequences. Sequential decisions, accordingly, get conceptualized by mappings from sets of states to sets of consequences. Thus, the question arises whether a natural definition of a tree can be given, where nodes are sets of states. We show that, indeed, trees can be defined as specific collections of sets. Without loss of generality the elements of these sets can be interpreted as representing plays. Therefore, the elements can serve as states and consequences at the same time.Received: 23 January 2003, Revised: 2 November 2003, JEL Classification Numbers: C72, D70. Correspondence to: Klaus RitzbergerWe are grateful to Larry Blume, Ariel Rubinstein, Jörgen Weibull, an anonymous referee, and seminar participants at the universities of Vienna, Salamanca, and Heidelberg for helpful comments. Financial support from the Austrian Science Fund (FWF) under project P15281 is also gratefully acknowledged.     

The establishment-size wage premium: evidence from European countries

This study examines the magnitude and determinants of the establishment-size wage premium in five European countries using a unique harmonised matched employer–employee data set (the 1995 European Structure of Earnings Survey). This data set enables to test the validity of various traditional explanations of the size wage gap (i.e. the labour quality hypothesis, the theory of compensating wage differentials, the role of monitoring and institutions) and of more recent hypotheses (i.e. size differences in job stability and in the concentration of skilled workers). We find some support for traditional explanations, but there remains a significant wage premium for workers employed in large establishments. Further results indicate that the magnitude of this premium fluctuates substantially across countries and appears to be negatively correlated with the degree of corporatism.