Price leadership in a homogeneous product market

The present paper reexamines the price-setting Stackelberg duopoly with asymmetric and strictly convex cost functions in a homogeneous product market. It demonstrates that in a generic environment, the higher-cost firm is likely to be the price leader. That is, leadership by such a firm is either (a) a unique equilibrium or (b) a payoff- and risk-dominant equilibrium in the observable delay game. Thus, while this paper complements and generalizes the findings of recent studies that indicate the possibility of the higher-cost firm’s leadership in homogeneous product markets, it also contrasts with the traditional literature that predicts the dominant-firm price leadership in various environments.     

The Effect of Temporary Certified Emission Reductions on Forest Rotations and Carbon Supply

This paper examines the effect of the Clean Development Mechanism regulations that create temporary certified emission reductions on harvesting decisions, land use allocation, and the carbon supply in forest plantations. We develop a model that solves the landowner's harvesting decision when revenues from carbon uptake are included. Rotation intervals and carbon credit supply slightly increase. Fast growing tree species with shorter rotation intervals have relatively more inelastic carbon credit supply curves than slow growing tree species with longer rotations. With moderate carbon prices, most carbon sequestration gains originate from the extensive margin through the expansion of forest land, but approximately 22–35% of total carbon sequestered comes from the intensive margin through an increase in rotation intervals. The contribution to carbon sequestration from the intensive margin is more significant as the carbon price increases. Dans le présent article, nous avons examiné les répercussions que les règles du mécanisme pour un développement propre (MDP), qui délivre des unités de réduction certifiée des émissions temporaire (URCEt), ont sur les décisions de récolte, les changements d’utilisation des terres et l’offre de crédit de carbone dans les plantations forestières. Nous avons élaboré un modèle qui aide les propriétaires fonciers à prendre des décisions de récolte lorsque les revenus tirés de la séquestration du carbone sont pris en compte. Les intervalles de rotation et l’offre de crédit de carbone augmentent légèrement. Les essences à croissance rapide exigeant de courts intervalles de rotation ont des courbes d’offre de crédit de carbone relativement plus inélastiques que les essences à croissance lente exigeant de longs intervalles de rotation. Compte tenu des prix modérés du carbone, la plupart des gains tirés de la séquestration du carbone proviennent de la marge extensive associée à l’expansion des terres forestières, bien que près de 22 à 35 p. 100 de la quantité totale de carbone séquestré proviennent de la marge intensive associée à une augmentation des intervalles de rotation. La participation à la séquestration du carbone à partir de la marge intensive devient plus importante à mesure que le prix du carbone augmente.     

A Markov model for valuing asset prices in a dynamic bargaining market

This paper proposes a Markov chain model for studying the impact on asset prices of illiquidity associated with search and bargaining in an economy. The economy consists of finitely many agents who can trade only when they find each other, and any trade between agents changes the population of the agent types which affects the asset price in the future. Assuming that the equilibrium utility as well as the trade price is proportional to the asset dividend, we obtain the asset prices in steady state. Through extensive numerical experiments, we observe that the equilibrium prices exhibit the cutoff phenomenon (i.e. crash) as the fraction of pessimistic agents becomes large. Models with a market maker as well as irrational agents are also considered.     

On the strategic impact of an event under non-common priors

This paper studies the impact of a small probability event on strategic behavior in incomplete information games with non-common priors. It is shown that the global impact of a small probability event (i.e., its propensity to affect strategic behavior at all states in the state space) has an upper bound that is an increasing function of a measure of discrepancy from the common prior assumption. In particular, its global impact can be arbitrarily large under non-common priors, but is bounded from above under common priors. These results quantify the different implications common prior and non-common prior models have on the (infinite) hierarchies of beliefs.     

Market discipline and bank efficiency

This paper investigates whether depositors and market investors exert disciplinary pressure on bank management in terms of efficiency improvement. We find that banks with more outstanding deposits are more cost-efficient, although little effect is found with respect to profit efficiency. This implies that depositors, the primary providers of funds to banks, likely play an important role in disciplining bank management, at least in terms of enforcing efficient use of inputs. Market discipline has garnered increasing attention as a mechanism to ensure bank soundness. Our results imply that depositors, the largest creditors to banks, may be of primary importance in this mechanism.     

Agricultural policy reforms and WTO commitments on domestic support in Japan

The purpose of this paper is to provide a comprehensive review of Japan＇s agricultural domestic policy since 1995 in the context of the current international negotiations in the WTO Doha Round, which has as one aim further reductions of trade-distorting support among member countries. Apparently, Japan＇s attitude towards agricultural domestic policy reform is one of compliance with the WTO, which requests member countries to reduce their Aggregate Measure of Support （AMS） through trimming trade-distorting （amber box） support and/or transforming traditional-type agricultural subsidies to decoupled-type ones. Japan reduced its amber box support by nearly 80 percent between 1995 and 2000. This drastic reduction is mainly attributable to Japan＇s removal of rice from the amber box in 1998. In addition, following the WTO＇s principle of decoupling, Japan launched an extensive agricultural subsidy reform in 2007. This paper, however, shows the ironical realities of Japanese agricultural policy. Neither a sharp reduction of amber box support nor Japan＇s 2007 reform necessarily means there will be a reduction of trade-distorting effects. On the contrary, the 2007 reform may in fact stimulate domestic rice production.     

What Do Banks Evaluate When They Screen Borrowers? Soft Information, Hard Information and Collateral

By applying factor analysis to unique data on loan screening for small and medium-sized enterprises (SMEs) in Japan, we investigate the factors that banks actually evaluate when underwriting commercial loans. We find that banks emphasize three factors when they decide whether to grant loans: the relationship factor, the financial statement factor, and the collateral/guarantee factor. We also find that smaller banks place greater emphasis on the relationship and the collateral/guarantee factors, and that banks under competitive pressure emphasize the relationship factor to a greater extent. We interpret these findings based on the theory of relationship lending and lending technologies.     

Long‐term versus temporary certified emission reductions in forest carbon sequestration programs*

Under the Clean Development Mechanism (CDM) of the Kyoto Protocol, forest projects can receive returns for carbon sequestration via two crediting instruments: temporary or long‐term certified emission reductions (tCERs or lCERs). This study shows the effect of lCERs on the private owner’s forest rotation intervals decision and carbon credit generation in afforestation and reforestation projects. A credit verification mechanism with a harvest penalty implemented under the lCERs policy distorts the timber harvesting decision and the corresponding carbon credit supply. Two opposing incentives are created by the lCERs mechanism which leads to either longer or shorter rotations compared to the Faustmann rotation, depending on which incentive prevails. Our numerical results show that both lCERs and tCERs seem to have similar impacts on harvesting incentives, but the resulting carbon supply differs among the instruments owing to the credit verification mechanism. The tCERs carbon supply curve is monotonically increasing in the carbon price, while a lCERs carbon supply is non‐monotonic and may have a backward bending region over a range of carbon prices.     

Collusive behavior under a leniency program

We investigate how a leniency program, which is a policy that gives reduced penalties to colluding firms that cooperate with investigations of the Antitrust Authority, affects firms’ collusive behavior. Using a model of quantity competition, we show that an amnesty to the second or later candidates of a leniency program is of no use if colluding firms can choose the most profitable collusion. Because a leniency program is a general rule that is applied to various markets in a country, our result implies that the design of a leniency program depends on which kinds of market structure are prevalent in the country.