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.     

Institutions,quality competition and public service provision: The case of public education

This paper contributes to the literature on integovernmental competition in two ways. First, the institutional setting within which public services are delivered is analyzed with respect to the impact on the quality of services provided. Previous studies have measured competition only in terms of governmental structure, ignoring the issue of service quality and the potential for differentiating local governmental jurisdictions along quality dimensions. Second, the outcome of competition is defined in terms of service quality. Previous studies generally have measured the outcome of competition by examining the fiscal effects of fragmentation and accountability through service costs or tax revenue impacts. School districts were used to empirically test quality competition. Student academic performance was modeled as a function of control variables and the degree of competition from neighboring school districts. Academic performance in public schools was positively associated with the performance of neighboring districts, although the effect was small. These findings, however, suggest that strategies to strengthen interjurisdictional competition may be useful in enhancing public service quality.     

The effects of product knowledge on the evaluation of warranteed brands

This study explores the effects of consumer knowledge on respondents' evaluations of both known and unknown brands that include either a 2-year or a 20-year warranty. Both experts and nonexperts evaluated warranty as more important than brand name in their product quality decision. Warranty length was positively correlated with product quality perceptions for both known and unknown brands. With the unknown brand, nonexperts perceived significant improvement in product quality when the warranty length was increased from 2 to 20 years. For the known brand, nonexperts perceived little difference in quality for the two warranty lengths. Experts indicated no significant differences in perceived quality, given the four brand/warranty-length conditions. The results indicate that warranty length is most heavily weighted as a cue to product quality when consumers are not highly knowledgeable, and the brand name is not well known. © 1996 John Wiley & Sons, Inc.     

Predicting workload requirements for scheduled health care services, with an application to radiology departments.

A model is developed for predicting workload requirements for scheduled health care services. The model is then applied to an actual planning problem for a radiology department. The probability distribution of future workload is represented by the convolution of two families of random variables such that a compound Poisson process adequately describes workload requirements. The model developed herein can be applied to a wide assortment of capacity-expansion problems that are characterized by discrete demands (e.g. number of jobs) occurring in a given period of time, where the amount of time needed to complete each job is a continuous random variable.     

Proof of nonparticipation in a price fixing conspiracy

When a group of firms colludes on price, the industry price will rise even when there are some firms that do not participate in the conspiracy. If the government or private parties file antitrust suits, the noncolluders face the problem of establishing their innocence since their prices rise along with those of the colluders. We propose a simple output test. Under various models of oligopoly pricing—Bertrand, Cournot, and Stackelberg—we show that the colluders restrict their output while the noncolluders take advantage of the higher price by expanding their outputs. Thus, distinguishing between colluders and noncolluders involves simply observing the output behavior of the industry members.The authors appreciate the support of the Public Policy Research Center at the University of Florida. We regret that B&R Associates is purely imaginary as is the industry.     

Subjective evaluations of n-person games

Using an axiomatization of subjective expected utility due to Fishburn, we characterize a class of utility functions over a set of n-person games in characteristic-function form. A probabilistic value is defined as the expectation of some player's marginal contribution with respect to some probability measure on the set of coalitions of other players. We decribe conditions under which a utility function on the set of n-person games is a probabilistic value; we prove as well an analogous result for simple games. We present additional axioms that characterize the semivalues and, in turn, the Shapley and Banzhaf values.