ALBERT

Description: This paper formulates a mathematical model that combines the dynamics of interest group formation with electoral politics, involving office-seeking and corrupt political candidates and voting population with well-defined policy as well as ideological preferences. The analysis provides several interesting insights into the factors affecting lobby membership, free-riding incentives of citizen-voters and aggregate monetary donations garnered by lobby groups. Besides this, the paper also explores the impact of the formation of distinct lobby groups, the presence of swing voters and the corrupt practices or financial embezzlement on the equilibrium policy choice of electoral contenders. The findings reveal that more honest spending of campaign donations by electoral contenders reduces both the size of the lobby (or membership) as well as aggregate campaign contributions in equilibrium. In contrast, a rise in the fixed cost of organization is found to augment lobby membership along with the total amount of campaign contributions. In addition, a reduction in the level of electoral uncertainty as well as a rise in the ideological or swing voter density is found to increase the effectiveness of campaign contributions in raising an electoral candidate’s perceived popularity and, therefore, a smaller lobby group with lower aggregate donations is deemed as sufficient in influencing electoral outcomes. Moreover, the results indicate that a lower utility difference derived by the citizen-voters when comparing the two electoral candidate’s policy choices translates into smaller dispersion of the voters’ ideological bias, and consequently results in an increase in the size of lobby groups and their corresponding aggregate donations. As regards the choice of equilibrium policy, evidence of full policy convergence is not found in the case when citizen-voters of the two groups have separable preferences. In addition, policy equilibrium for a more realistic case in which the two policy platforms exhibit strategic interaction by reacting to each other has also been estimated with the help of simulations. Finally, this paper helps in categorically deciphering the influence of the median voter effect (or the centripetal force) and the distinct centrifugal forces in the form of lobbying effect, swing voter effect and the financial embezzlement effect on the equilibrium policy choice by employing different parametric specifications of the model.

Description: This paper analyzes how search costs affect skilled-unskilled wage inequality. In the basic model, we find that an increase in skilled labor’s search costs will decrease wage inequality if the skilled labor market and the unskilled labor market are separated. In the extended model, our findings are as follows: (i) Even if there exists free entry into the unskilled labor market or the endogenous provision of public goods, an increase of search costs in the skilled labor market will decrease wage inequality; and (ii) if skilled search costs are negatively related to the skilled wage, wage inequality will be increased.

Description: This paper extends the work of Pindyck, R. S. 2012. “Uncertain Outcomes and Climate Change Policy.” Journal of Environmental Economics and Management 63 (3): 289–303. by taking into consideration a large class of different utility functions of economic agents. As in Pindyck, R. S. 2012. “Uncertain Outcomes and Climate Change Policy.” Journal of Environmental Economics and Management 63 (3): 289–303, instead of considering a social utility function that is characterized by constant relative risk aversion (C.R.R.A), we use the expo-power utility function of Saha, A. 1993. “Expo-power Utility: A ‘Flexible’ Form for Absolute and Relative Risk Aversion.” American Journal of Agricultural Economics 75 (4): 905–13. In fact, depending on the choice of the expo-power utility function parameters, we cover a diverse range of utility functions. Apart from covering the other utility functions that a C.R.R.A omits, the Expo-power utility function permits us to discern if under the other utility-regimes of economic agents, the willingness to pay remains more affected by uncertain outcomes than certain outcomes when we vary the expectation and standard deviation of the temperature’s probability distribution. Our paper has maintained the small-tailed gamma distributions of temperature and economic impact of Pindyck, R. S. 2012. “Uncertain Outcomes and Climate Change Policy.” Journal of Environmental Economics and Management 63 (3): 289–303. not only because they hinder infinite future welfare losses (for an exponential utility function), but because it is easy to change some moments of the distribution (jointly or holding the others fixed) while studying how uncertainty influences the willingness to pay as explained in Pindyck, R. S. 2012. “Uncertain Outcomes and Climate Change Policy.” Journal of Environmental Economics and Management 63 (3): 289–303.

Description: We consider final goods producers’ preference for horizontal product differentiation in the presence of strategic input price determination. Final goods producers may not prefer maximal differentiation but may prefer moderate differentiation under both Cournot and Bertrand competition in the final goods market if product differentiation does not increase the market size significantly and there is either free entry in the input market or the input supplier has increasing returns to scale technology. Thus, we provide a new rationale for moderate product differentiation. Our reasons are different from the existing reasons of mixed pricing strategy, endogenous leadership, no-buy option for the consumers and the relative performance incentive schemes.

Description: The possibility to compare information partitions is investigated for economies with asymmetric information. First, we focus on two potentially suitable instruments, the Boylan distance and the entropy, and show that the former does not fit the purpose. Then, we use the entropy associated with the information partition of each trader to construct a partially endogenous rule which regulates the information sharing process among traders. Finally, we apply this rule to some examples and analyze its impact on two cooperative solutions: the core and the coalition structure value.

Description: Allowing downstream retailers to engage in demand-enhancing investment, this paper demonstrates that the classical conclusions regarding the comparison of Cournot and Bertrand competition in a vertically related market with decentralized bargaining are completely reversed. It shows that Bertrand competition is more efficient than Cournot competition, in the sense that both consumer surplus and social welfare are always higher in the former.

Description: We critically assess the representative consumer with quadratic aggregate utility function which forms the foundation of a well-known class of linear oligopoly demand structures. It is argued that this approach is problematic and redundant. Regarding the latter, we show how the same demand system can be derived directly from a population of heterogeneous buyers for any number of products. Welfare analyses based on aggregate demand is shown to be sensitive to the underlying microfoundation.

Description: We study hours worked by drivers in the peer-to-peer transportation sector with cross-side network effects. Medallion lease (regulated market), commission-based (Uber-like pay) and profit-sharing (“pure” taxi coop) compensation schemes are compared. Our static model shows that network externalities matter, depending on the number of active drivers. When the number of drivers is limited, in the presence of positive network effects, a regulated system always induces more hours worked, while the commission fee influences the comparative incentives towards working time of Uber-like pay versus profit-sharing. When the number of drivers is infinite (or close to it), the influence of network externalities on optimal working time vanishes. Our model helps identifying which is the pay scheme that best remunerates longer working times and offers insights to regulators seeking to improve the intensive margin of coverage by taxi services.

Description: We provide a tool to model and solve strategic situations where players’ perceptions are limited, as well as situations where players realize that other players’ perceptions may be limited and so on. We define normal, repeated, incomplete information, and extensive form games with unawareness using a unified methodology. A game with unawareness is defined as a collection of standard games (of the corresponding form). The collection specifies how each player views the game, how she views the other players’ perceptions of the game and so on. The modeler’s description of perceptions, the players’ description of other players’ perceptions, etc. are shown to have consistent representations. We extend solution concepts such as rationalizability and Nash equilibrium to these games and study their properties. It is shown that while unawareness in normal form games can be mapped to incomplete information games, the extended Nash equilibrium solution is not mapped to a known solution concept in the equivalent incomplete information games, implying that games with unawareness generate novel types of behavior.

Description: Legal assignment of liabilities for losses arising out of interactions involving negative externalities usually depend on which of the interacting parties are negligent and which are not. It has been established in the literature that, if negligence is defined as failure to take some cost-justified precaution then there is no liability rule which can always lead to an efficient outcome. The objective of this paper is to try and understand if it is still possible to make pairwise comparisons between rules on the basis of efficiency and to use such a method to explain/evaluate choices from a given set of rules. We focus on a set of five of the most widely analyzed rules (no liability, strict liability, negligence, negligence with the defense of contributory negligence and strict liability with the defense of contributory negligence), and use a binary relation according to which a rule in the set is considered to be at least as efficient as another if and only if the set of applications for which it is inefficient is a subset of the set of applications for which the other one is inefficient. We show that, with respect to the above mentioned relation, pairwise comparisons between rules in this set fail. The paper, thus, demonstrates that an efficiency based explanation for any choice from these five rules is not consistent with the notion of negligence defined as failure to take some cost-justified precaution.