The Consumer’s Micro-Micro Gasoline Buying Decision

A “micro-micro” consumer problem of gasoline purchases is examined using daily price data. Comparing the optimizing consumer with one who buys gasoline at random, the paper finds optimizers save about 4% of their annual gasoline bill. The paper also provides some evidence about the costs of non-optimal gasoline buying strategies.      

Product Reliability,R&D,and Manufacturing Cost Shocks

Suppose a firm’s research and development (R&D) improves product reliability which in turn decreases the cost of product failure for both the firm and its customers. The primary research question of the paper is how a firm with market power optimally adjusts its R&D if it experiences a manufacturing cost shock. Our model suggests that a manufacturing cost shock prompts the firm to do less R&D in the cases where the replacement cost is low or the marginal manufacturing cost is high. Conversely, if the replacement cost is high and the marginal manufacturing cost is low, then the firm increases R&D, mitigating some of the increase in the manufacturing cost. The paper also compares the outcomes for reliability, profits, consumer surplus, and social surplus for the optimal R&D case as compared to the case of doing no R&D, paying particular attention to how exogenous changes in the marginal manufacturing cost affect this comparison.     

Firm Metrics with Continuous R&;D,Quality Improvement,and Cournot Quantities

The paper considers a dynamic two-firm model of intra-industry trade in which the firms compete for the same market on the basis of product reliability. By assumption, the home firm always has the reliability cost advantage but it may or may not have the manufacturing cost advantage. The results suggest that reliability improvement always helps customers in that they pay a lower full quality price. Comparing the home firm with the foreign firm, metrics such as price, sales, profit margins, and variable profits depend on the relative costs, with the low cost firm performing better. Finally, although this is not the common outcome, the paper suggests that it is possible for the reliability cost advantages gained by R&D expenditures to overcome manufacturing cost disadvantages.     

Landfilling Versus ``Backstop' Recycling When Income Is Growing

The paper considers a dynamic model in which an income stream,growing over time, is optimally divided into consumption andexpenditures on waste disposal, the latter being optimally dividedbetween ``recycling'and ``landfilling.' Recycling is thoughtof as a ``backstop' waste disposal technology – it does notrequire landfill space but is a relatively expensive method ofwaste disposal. Landfilling uses up scarce landfill capacity. While conserving landfill space is the major reason themunicipality recycles, another motive for recycling might be thatrecycling itself generates utility. Our analysis suggests thatthe optimal recycling program varies considerably with bothlandfill capacity and initial income. For example, richermunicipalities are likely to introduce recycling much earlier inthe planning period than poorer municipalities. Thus whenlegislating recycling, national or regional governments must besensitive to the differences between municipalities.     

Technology Choice:

ABSTRACT Suppose, unlike the endogenous growth literature, that technological innovation may actually create structural problems. If capital and labor inputs of specific skill levels are complementary, and new technology changes the skill mix needs, then this mismatch may create underemployment or unemployment. High-tech investment maximizes output but at the expense of unemployment of unskilled workers; lower-tech investment results in smaller unskilled labor unemployment, but a smaller increase in output (or underemployment of skilled labor). A policy solution for this tradeoff is to allocate investment between physical capital and human capital in the right proportions to ensure both maximum output and full employment.     

Welfare Measures in Dynamic Firm R&D Games

The present paper examines the welfare effects of a dynamic Research and Development (R&D) game at the firm level in a two-country, two-firm, intra-industry trade context. Economists do not use the trade balance as a measure of economic welfare, but it is often used in the public arena. The primary result of the paper is that the dynamic time path of social surplus and the trade balance do not track well together. This paper suggests that economists thinking about dynamic R&D games will have to defend imports as having a positive effect on social surplus regardless of trade balance effects.