Nonparametric Efficiency Analysis under Price Uncertainty: A First-Order Stochastic Dominance Approach

This paper extends the nonparametric approach to efficiency analysis to deal with uncertainty of input-output prices. We generalize the notion of economic efficiency to derive necessary and sufficient first-order stochastic dominance (FSD) efficiency conditions. Interestingly, the FSD conditions include as limiting cases the traditional conditions for economic efficiency and technical efficiency. Furthermore, we propose empirical tests for these FSD conditions, which require minimal assumptions concerning the preferences of the decision-maker and the statistical distribution of the prices. From operational point of view, the FSD conditions can be tested empirically using standard mathematical programming techniques. An empirical application to the Dutch electricity distribution sector illustrates the approach.     

Intersubjective economics, theory of production, and the transformation problem

The intersubjectivist theory of value (surveyed in Levy [1990, 1994a] and Fullbrook [1994c, Section 4]) is founded on Simone de Beauvoir's conception of reciprocal desire and emphasizes the role of conventions and intersubjectivity in market relations. It treats money and markets as social institutions and argues that a money economy is fundamentally different from a real one. The tool of intersubjective economics is to offer a system for analyzing standard economic phenomena from a vantage point outside the equilibrium paradigm. But paradoxically, while the intersubjectivists developed intersubjective analysis of the firm [Eymard-Duvernay, 1989; Levy, 1994b, 1995c; Biencourt et al., 1994], the original intersubjectivist theory of value to which they refer is conceived in an exchange economy. This paper's aim, then, is to explore and discuss points for reducing the lack of a theory of production in intersubjective and measurement economics. The author benefited from the useful thoughts of Richard Arena [1990] as well as from useful discussions and strong encouragements from Edward Fullbrook and Charles M. A. Clark. Finally, the author benefited from the useful discussions of conference participants, especially Manuel Garcia.     

Revisiting Oligopolistic Reaction: Are Decisions on Foreign Direct Investment Strategic Complements?

Knickerbocker (1973) introduced the notion of oligopolistic reaction to explain why firms follow rivals into foreign markets. We develop a model that incorporates central features of Knickerbocker's story—oligopoly, uncertainty, and risk aversion—to establish the conditions required to generate follow-the-leader behavior. We find that rival foreign investment will make risk-neutral firms less inclined to move abroad once its rivals have done so. We show that Knickerbocker's prediction relies on risk aversion and derive an expression for the minimum amount of risk aversion needed to generate oligopolistic reaction.     

Globalization and the empowerment of talent

Many experts have identified globalization as the new way in which firms organize their activities and the emergence of talent as the new stakeholder in the firm. This paper examines the role of trade integration in the changing nature of the corporation. International trade leads to a ‘war for talent’ which makes it more likely that an organizational equilibrium emerges in the integrated world economy in which control is delegated to lower levels of the firm's hierarchy empowering human capital. Furthermore, trade integration is shown to lead to waves of decentralization and to convergence in corporate cultures across countries.     

MIGRATION AND INSTITUTIONS: EXIT AND VOICE (FROM ABROAD)?

A rapidly growing body of research examines the relationship between migration and institutions. Three strands of studies can be distinguished. Some studies focused on the role of domestic and foreign institutions in the decision to migrate. Others were interested by the impact of migration on institutional reforms in migrants' countries of origin. Recent studies focus on how migrants affect social and informal institutions in the destination countries. This survey puts together these three strands of literature with three purposes. First, we offer a short definition and synthetic typology of institutions, which provide a guide to understand several studies we have critically reviewed. Second, our analysis is presented following the analytic framework exit, voice, and loyalty of Hirschman in order to highlight the brain gain phenomenon for developing countries, from an institutional point of view. Third, we review the limited existing work on the very timely topic, whether migrants are harmful or not to institutions in the host countries.     

New patterns of consumer protection under warranty law: Lessons from the U.S. magnuson-moss warranty act

Warranty law appears to be a relevant instrument for granting protection to consumers against product disappointment. However, empirical studies concerning some warranty markets both in the United States and in West-European countries show that there continues to be no bargaining on warranties between sellers and buyers, that the most serious risks are all allocated to the user of the product, and that consumers are generally not granted an actual opportunity of challenging a breach of warranty and getting adequate compensation for losses sustained. The Magnuson-Moss Warranty-Federal Trade Commission Improvement Act which was enacted in the United States in 1975 constitutes a first comprehensive and consumer-oriented reform of traditional warranty law. It foresees new patterns of consumer protection under warranty statutes, combining warranty substance regulation with warranty information, administration, and litigation procedures. This paper first describes the Act's major provisions; it also points out some of its deficiencies. Although criticisms are formulated against the Act's ideology or basic assumptions, it is the author's opinion that it represents a decisive step towards legislative and administrative participation in the formulation of warranties. The Act undoubtedly suggests some, though not identical, avenues of reform that legislators and authorities of European countries and confederations should now propose in order to increase consumer protection against defective or unsatisfying products.     

PRICING OF AMERICAN PATH-DEPENDENT CONTINGENT CLAIMS

We consider the problem of pricing path-dependent contingent claims. Classically, this problem can be cast into the Black-Scholes valuation framework through inclusion of the path-dependent variables into the state space. This leads to solving a degenerate advection-diffusion partial differential equation (PDE). We first estabilish necessary and sufficient conditions under which degenerate diffusions can be reduced to lower-dimensional nondegenerate diffusions. We apply these results to path-dependent options. Then, we describe a new numerical technique, called forward shooting grid (FSG) method, that efficiently copes with degenerate diffusion PDEs. Finally, we show that the FSG method is unconditionally stable and convergent. the FSG method is the first capable of dealing with the early exercise condition of American options. Several numerical examples are presented and discussed. ²     

Reputation-based pricing and price improvements

Dealers often offer price improvements, relative to posted quotes, to their clients. In this paper, we propose an explanation to this practice. We also analyze its effects on market liquidity and traders’ welfare. Enduring relationships allow dealers to avoid informed trades by offering price improvements to clients who do not trade with the dealer when they are informed. A dealer never observes whether a specific client is informed or not but he can avoid informed orders by conditioning his offers on past trading profits. Cream-skimming of uninformed order-flow increases the risk of informed trading for dealers without a relationship. Thus, authorizing price improvements increases bid-ask spreads and impairs the welfare of investors without a relationship. It may even decrease the welfare of investors who develop a relationship as they sometimes need to trade at posted quotes. The model predicts a positive relationship between (a) the price improvements granted to a specific investor and past trading profits with this investor or (b) the frequency of price improvements and bid-ask spreads.     

The need to reformulate consumer protection policy

The author in these concluding remarks seeks to locate the role of soft law as an instrument for implementing active consumer protection policy in the present regulatory crisis debate. By drawing on the national and EEC structures outlined in the workshop debate, he shows that the imbalance of modern industrial societies has led to a greater need for consumer protection. State intervention becomes necessary to counter-balance the failure of the present market structures and appears to be the only means of consumers gaining market power. Almost all speakers at the workshop reacted favourably to a flexible form of regulation, but opinion seemed to be against replacing consumer policy by soft law alone.The author goes on to show how the present EEC consumer policy is merely a reflection of modern consumer law and that there are limits to Community action in this sphere, which should not be meekly accepted. The inability of the Community to reach consensus is visible in spheres other than that of consumer policy. The core issue remains one of a political approach to an economic crisis which demands more and not less regulation.The question of whether soft or hard law is the most appropriate can only be settled by the use of an appropriate instrument: soft law can only function within an environment of a minimum level of law. The pre-requisites to a system of soft law being fully effective within the Community have not yet been reached. There is a need for a revival of the consumer movement within the Community and increasing sensitivity on the part of policy makers towards consumer demands.

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Zur Notwendigkeit des Verbraucherschutzes — Schlußbemerkungen zum Tagungsthema

Zusammenfassung In seinen Schlußbemerkungen geht der Autor von der Notwendigkeit aus, auf der Ebene der EG wie in den Mitgliedstaaten weitere verbraucherschützende Maßnahmen zu ergreifen. Die Referate hätten übereinstimmend ergeben, daß nicht ein Abbau von Regulierung, sondern flexible Instrumente das Gebot der Stunde seien. Nach wie vor existierten Marktversagensformen, die staatliche Intervention notwendig machten. Der Schutzbedarf des Konsumenten sei eher größer als kleiner geworden. Die Angleichungspolitik der EG müsse schon deshalb fortgesetzt werden, um Regulierungslücken zu schließen. Wenngleich die Grenzen der Handlungsmöglichkeit der EG heute deutlich seien, müßten sie gerade im Interesse der Schaffung eines Gemeinsamen Marktes überwunden werden.Der Streit um den Vorrang von Maßnahmen des hard oder soft law reduziere sich auf eine Auseinandersetzung um geeignete Regulierungsinstrumente. Ohne ein Mindestmaß an zwingendem Recht, institutionellem Gefüge und Beteiligungsrechten von Verbraucherorganisationen könne eine soft law Regulierung, etwa durch freiwillige Verhaltenskodices und Selbstkontrolle nicht funktionieren. Hierfür bestünden auf EG-Ebene bislang noch nicht die Voraussetzungen, so daß der Prozeß der Rechtsangleichung nicht nur vorangetrieben, sondern um neue Instrumente angereichert werden muß. Geboten sei eine Reaktivierung der Verbraucherbewegung in der EG.

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Thierry Bourgoignie is Head of the Consumer Law Research Centre, Faculté de Droit, Place Montesquieu 2, B-1348 Louvain-la-Neuve, Belgium.