Efficient contract enforcement

We study how the efficient choice of contract enforcement interacts with the efficient allocation of capital in a simple production economy. Contract enforcement makes trade possible but requires an aggregate investment of capital that is no longer available for production. In such an economy, more dispersion in ex-ante marginal products makes it optimal to invest more resources in enforcement. Furthermore, implementing the optimal allocation requires a specific distribution of the cost for enforcement across agents that is not monotonic and results in a redistribution of endowments. At the efficient solution, agents at the bottom of the endowment distribution benefit the most from investment in enforcement and these investments lead to a reduction in consumption and income inequality.     

Limited disclosure and hidden orders in asset markets

Opacity assumes at least two prominent forms in asset markets. Dark exchanges and over-the-counter markets enable expert investors to hide their orders while originators carefully control the disclosure of fundamental information about the assets they source. We describe a simple model in which both forms of opacity – hidden orders and limited disclosure – complement one another. Costly investor expertise gives originators incentives to deliver assets of good quality. Keeping expert orders hidden generates the rents investors need to justify investing in expertise in the first place. Limiting disclosure mitigates the resulting adverse selection issues. Originators prefer to restrict the information they can convey to experts because it encourages the participation of non experts. This optimal organization of asset markets can be decentralized using standard financial arrangements.     

A note on the marginal benefits and efficiency of goods provided by local government

This paper focuses on the specification error found in many of the empirical studies dealing with the economic efficiency of local government in providing goods such as education. The paper argues that the compensated demand function—rather than the ordinary demand function—should be used in order to derive the marginal benefits of a given good. The ordinary demand functions used in previous studies would lead to inflated estimates of the marginal benefits and, therefore, to inaccurate empirical results. The paper presents a compensated demand function derived from a linear expenditure demand system. Using public education as an example, it demonstrates how such a statistically unobservable compensated demand function can be used to produce correct measurements of marginal benefits of a public service provided by local government. The results of the investigation into the efficiency aspects of public education will also be discussed.     

The everyday accountant and researching his reality

It is the contention of this paper that accounting researchers have been dominated in thier research methodology by methods supposedly adopted from the natural sciences. It is argued that it is time that attention was paid to the possible use of radically different “naturalistic” (or “interpretive humanistic”) research approaches in order both to focus research more closely on the concerns of practitioners and to give greater insight into everyday effects of accounting and the practices of accountants themselves.     

Tourism and transformation: negotiating metaphors,experiencing change

The article introduces this special issue on tourism and transformation. After offering a brief review of the place and significance of ‘transformation’ in social sciences studies of tourism – from ‘impact studies’ to ethnographies of tourists and, more recently, ‘tourist media studies’ – we propose to take one step further and focus our attention on the performativity and reflexivity of ‘transformation’. Our main argument is that much may be gained analytically by considering how notions and experiences of transformation are addressed, negotiated and purposefully deployed in tourism contexts. We conclude with an outline of each of the contributions to this special issue, stressing that the collection re-opens the issue of transformation in tourism and provides new insights into how experiences-turned-metaphors and metaphors-turned-experiences influence both the travel experience and the development of theory.     

Recent Developments at DG Competition: 2017/2018

The Directorate General for Competition at the European Commission enforces competition law in the areas of antitrust, merger control, and state aids. This year’s article provides first a general presentation of the role of the Chief Competition Economist’s team and surveys some of the main achievements of the Directorate General for Competition over 2017/2018. The article then reviews: the Google Search (Shopping) case, the role of price discrimination in state aid cases; and the use of counterfactuals in merger cases where alternative transactions might have occurred absent the merger.     

Rent Extraction by an Unregulated Essential Facility

This paper shows that consumers may benefit when a regulator chooses not to regulate a final product in an industry characterized by an unregulated essential facility sold through non-linear tariffs. Two main reasons drive this result. First, the regulator maximizes social welfare and values the final good production more than the producer itself. Second, the regulator has access to an extra source of financing with the public funds. Therefore, the essential facility seller can ask more of the regulator than of the final good producer.