A note on incentive incompatibility under franchising

This note provides a formal demonstration of the incentive incompatibility problem that exists in franchisor — franchisee relationships. It is shown that incentive incompatibility exists with respect to both price and quality. Several contractual mechanisms designed to mitigate the incompatibility problem are examined.     

Using an approximate kiefer-weiss solution for testing insect population densities

Summary A sequential testing procedure called 2-SPRT for the meanμ of the negative binomial distribution with known exponentk is presented. For any fixedμ ₀(μ ₁<μ ₀<μ ₂), the 2-SPRT provides an asymptotic solution to the modified Kiefer-Weiss problem. Determination ofμ ₀ such that the test provides an approximate solution to the Kiefer-Weiss problem is described. The behavior of the 2-SPRT and the Sequential Probability Ratio Test is investigated using Monte Carlo methods. The error probabilities and the average sample numbers are compared. All the computations were carried out on the Alabama Supercomputer.     

The effects of mergers on price and output: Two case studies from the airline industry

The literature on industrial organization contains very little direct evidence on the effects of actual mergers. This study estimates the effects of two recent airline mergers approved by the Department of Transportation over the objection of the Department of Justice. The merger of TWA and Ozark appears to have caused a slight increase in fares and a far greater reduction in service on city pairs out of St Louis. The merger of Northwest and Republic appears to have caused a significant increase in fares and a significant reduction in overall service on city pairs out of Minneapolis-St Paul.     

THE LOCATION OF NONMETROPOLITAN HIGH-TECH INDUSTRIES: A Comparison of Regional Determinants

A study of the location of three classifications of high-tech industries in rural areas was undertaken using ordinary least squares, Tobit, and a two-step estimation procedure suggested by Heckman (1976). The results indicate that the location decision for high tech firms is influenced primarily by the county population, adjacency to an SMSA, and the expenditures on public infrastructure (exclusive of education expenditures). However, location near interstate highways was generally not a significant factor. Results were similar between branch and unit (single ownership) plants. Some differences in signs of orders of magnitude occurred among the estimation procedures. Making a choice between Tobit and Heckman approaches depends upon the goal of the research.     

Optimal Collective Investment in Generic Advertising, Export Market Promotion and Cost-of-Production-Reducing Research

Optimal investment rules are developed for a producer agency investing in domestic-market generic advertising, export market promotion, and cost-of-production-reducing research. These rules are derived assuming either maximization of producers' surplus or social surplus. The form of the optimality rules differs according to which objective is pursued. Fixed producer agency budgets are also allowed by incorporating a constraint limiting total expenditure on the three activities. Addition of such a constraint substantially alters the structure of the optimal investment rules. Differences in these rules highlight the importance of accounting for the financing mechanism when modeling optimal checkoff fund investment decisions. Optimality rules are simulated using data for the Canadian beef sector. Results suggest historic underinvestment in domestic-market generic advertising but overinvestment in export market promotion. Sensitivity of simulation results underscores the difficulty in assessing optimality of historic producer investment in cost-of-production-reducing research.     

Book Review

Books reviewed:
Ira A. Jackson and Jane Nelson, Profits with Principles: Seven Strategies for Delivering Values with Values .