The critical discount factor as a measure for cartel stability?

This paper considers the stability of tacit collusion in price setting duopolies with repeated interaction. The minimum discount factor above which tacit collusion can be sustained in a subgame perfect equilibrium is called the critical discount factor δ*. In addition, δ* is often used as an intuitive measure for the stability of a tacit cartel, assuming that a collusive equilibrium is more difficult to sustain when δ* increases. However, according to standard theory the distance δ − δ* between the actual and the critical discount factor does not matter for stability as long as δ > δ*. This paper contributes experimental evidence that supports the intuitive idea that a larger critical discount factor makes collusion a less likely outcome.      

Escalating penalties for repeat offenders: a note on the role of information

The severity of the sanction for a given offense is often determined by the offense history of the offender. We establish that this policy can be welfare-maximizing if individuals are imperfectly informed about the magnitude of the sanction. Imperfect information distorts individuals’ perception of the expected sanction of the first offense. Once detected, individuals learn about the sanction applicable to their act, making this argument less relevant for consecutive offenses.      

Benefit Incidence of Public Recreation Areas—Have the Winners Taken Almost All?

This study presents a framework for investigating the benefit incidence of provision of public recreation opportunities. The proportion of individuals who use outdoor recreation services increases with income, and frequency of use differs by the users’ gender and life situation (e.g., depending on whether they are students or older citizens). The decomposition of distributive incidence shows that a bias in favor of high-income groups may be accentuated when the perceived value of these services is taken into account in monetary terms. We compare alternative strategies in terms of equity for improving recreation opportunities, e.g., reduced distance to or increased acreage of recreation sites. Our results indicate that although these strategies improve the welfare distribution among the income groups, a considerable proportion of benefits nevertheless accrue to high-income groups.      

Robust rational turnout

We show that equilibria of a class of participation games (Palfrey and Rosenthal in Public Choice 41(1):7–53, 1983; Journal of Public Economics 24(2):171–193, 1984) exhibit minimal heterogeneity of behavior so that players’ mixed strategies are summarized by at most two probabilities. We then establish that, except for a finite set of common costs of participation, these games are regular. Thus, equilibria of these voting games are robust to general payoff perturbations and survive in nearby games of incomplete information. Thanks to participants of the 2006 MPSA conference for comments on an early version.     

Free trade: what are the terms-of-trade effects?

Changes in trade policy affect a nation’s economic welfare through terms-of-trade and volume-of-trade effects. A move to global free trade would imply higher world economic welfare equal to the sum of all nations’ volume-of-trade, or efficiency, effects. Since the sum of the terms-of-trade effects across all nations is zero, terms-of-trade effects are contentious. Konishi, Kowalczyk and Sjöström (2003) have shown that if customs unions do not affect trade with non-member countries, immediate global free could be achieved if free trade were proposed together with international sidepayments equal to the terms of trade effects. How large would these terms of trade effects, and hence transfers, be? This paper presents estimates from a simple computable general equilibrium model of a world economy of perfect competition. We show that, in some cases, terms-of-trade effects are small compared to efficiency gains, and transfers are not necessary for free trade. In other cases, terms-of-trade gains may account for more than 50% of a country’s gains from free trade and transfers could be large.     

Competitive trade models and real world features

Competitive small-dimension international trade models perform well in comparing free (or restrictive) trade with autarky, especially in emphasizing that consumption patterns can differ from production patterns and that production becomes highly concentrated while consumption patterns are expanded. Variations on these small-dimensional models can usefully show how with trade production patterns may nonetheless be more diverse and a country’s labor force become more heterogeneous in its skills. The paper illustrates how the Middle Products framework can be reinterpreted to support variety in production and in labor skills.      

Energy Prices and Carbon Taxes under Uncertainty about Global Warming

This paper extends the strategic interactions between producers of fossil fuels concerned about their profits and a taxing government concerned about the consumers’ welfare for uncertainty: global warming follows an Itô -process. Stochasticity requires to differentiate between reversible and irreversible emissions in contrast to the deterministic version. The unconstrained (= reversible) case allows for a closed form solution but not the more realistic and constrained case. Nevertheless interesting analytical properties (e.g. about when to stop emissions, implicit conservation due to monopolistic supply) are derived and complemented by a numerical example.     

The Black Enterprise Magazine Ranking of Colleges for African Americans: A Structural Analysis

This paper assesses the Black Enterprise Magazine (BE) ranking of the “top 50 colleges for African Americans,” which it publishes biennially. Its principal objective is to evaluate the statistical consistency in the ranking over the distribution of institutions that compose it. The paper attempts to address two-related questions. Does the BE report provide an unbiased and consistent assessment of the educational value associated with the institutions included in their listing? Is the ranking method internally consistent? Two experiments were used to evaluate the consistency of the BE ranking. First, structural difference in the model used to rank the institutions in the upper and lower half of the distribution is tested. Second, structural difference in the model used to rank HBCU and non-HBCU institutions included in the BE listed ranking is tested. In both cases the null hypothesis of the same structure is rejected.     

The Wage Elasticity of Labour Supply: A Synthesis of Empirical Estimates

Summary This paper performs a meta-analysis of empirical estimates of uncompensated labour supply elasticities. For the Netherlands, we find that an elasticity of 0.5 for women and 0.1 for men is a good reflection of what the literature reveals. The elasticity for men hardly differs between countries, but for women some cross-country variation is found. The increasing participation rate of women may lead to a somewhat lower elasticity in the future. Both the specification of the hours function and the estimation method are found to affect elasticity estimates.