ALBERT

Notes: The most intractable and protracted transatlantic trade conflict of the last decade was over bananas, which grow neither on the European nor on the North American continent. Our explanation of the conflict emphasizes the determining role of the domestic politics of the EU and the United States. It was driven not only by the extreme divergence of preferences of Brussels' and Washington's domestic constituencies, rooted in the competitive position of competing banana industries, but also, and critically, by the institutional configuration of (agricultural) trade policymaking on either side of the Atlantic. The EU agricultural trade policy process is characterized by a division of labor that favors agricultural over wider trading interests, sectoral segmentation, and sector-specific issue-linkage. The U.S. trade policy process is characterized by the Congress's growing reassertion of its trade policy prerogatives, the growing institutionalization of firms' access to the trade policy bureaucracy, and the growing volume and role of corporate campaign donations. The combined effect of these different policy process traits has been to facilitate the capture of banana trade policy by highly organized, particularistic, and predominantly trading interests. Although neither the WTO nor the transatlantic trading relationship ultimately "slipped" over bananas, the conflict provides scant reason for optimism concerning the future of this relationship or indeed of the multilateral international trading system, at least in as far as the latter depends on good EU-U.S. relations.

Notes: Administrative agencies in the United States have developed highly formalized and complex processes for public participation in rulemaking, especially in areas of social regulation such as the environment and workplace safety and health. This case study considers the significance of participation in formal rulemaking processes by connecting the quality of participation to the strategic possibilities in litigation between private interests and regulatory agencies. Specifically, the strategic possibilities of the leading interest groups engaged in the Occupational Safety and Health Administration's major "Lockout/Tagout" rulemaking illustrate how legal resources are created through the development of evidence and claims in hearings. Written and oral presentations, apparently aimed directly at persuading the agency, indirectly affect agency deliberations by increasing the possibility that courts will constrain agency decisionmaking, thus creating opportunities for negotiated alternatives. The case ultimately serves as a paradigmatic example of how bargaining arises at the micro level of policy systems that are infused with broader legal structures.

Notes: eBay provides an online auction venue for remote and anonymous members of its online community to realize gains from trade. As a venue it never sees the items sold, verifies the item listings, handles settlements, or represents the buyer or seller. Despite the associated market imperfections and incentive problems, over five million auctions are active on an average day. Trading is based on trust among members of the eBay community, and trust is supported by a multilateral reputation mechanism based on member feedback. eBay supplements the reputation mechanism with rules and policies that mitigate incentive problems, reduce transactions costs, and support trust among members and between members and the company. Reputations and the rules and policies provide a private ordering of eBay's community. This paper examines this private ordering in the context of the company's strategy and in the shadow of the public order.

Notes: This paper uses newly available data from the 1995 Lobby Disclosure Act to assess the argument that PAC contributions are used to gain access to legislators. First, we find a much stronger connection between lobbying and campaign contributions than previous statistical research has revealed--groups that have both a lobbyist and a PAC account for 70 percent of all interest group expenditures and 86 percent of all PAC contributions. Second, we find that groups that engage in relatively large amounts of lobbying--and therefore presumably have a high demand for access--allocate their campaign contributions differently than groups that do not. Groups that emphasize lobbying pay more attention to members' positions of power inside Congress, and less attention to members' electoral circumstances, than other groups. Groups that emphasize lobbying also appear to be more bipartisan and less ideological than other groups, giving more equally to both parties and more broadly across the ideological spectrum.

Notes: This paper analyzes how the structure of the legislature affects interest groups' incentives to lobby. Lobbying is modelled as the strategic provision of information by an interest group to a multi-member legislature, and the effectiveness of lobbying lies in the ability of information to change the winning policy coalitions. We show that with a long enough time horizon for policymakers, the distinguishing feature between the U.S. Congress and European parliamentary systems--the vote of confidence procedure--reduces an agenda setter's willingness to change policy coalitions, and thus significantly lowers the incentives for interest group lobbying.

Notes: This paper examines the relationship between interest group membership, source of authorization, and meeting closure in federal advisory committees. Using observed correlations, it seeks to identify the ultimate source of "inappropriate influence" wielded in advisory committees. The worst offenders in recent years are those committees created jointly by Congress and agencies, and especially certain committees in USDA and DOC. However, these findings may be unique to the last six years, during which the number of closed meetings has tripled.

Notes: MNCs are increasingly facing global environmental issues demanding coordinated market and non-market strategic responses. The home country institutional context and individual company histories can create divergent pressures on strategy for MNCs based in different countries; however, the location of MNCs in global industries and their participation in 'global issues arenas' create issue-level fields within which strategic convergence might also be expected. This paper analyzes the responses of oil MNCs to climate change and finds that local context influenced initial corporate reactions, but that convergent pressures predominate as the issue matures.

Notes: This article tests two hypotheses about post-communist business associations. The first predicts weak business associations which are presented with insurmountable collective action problems by the flattened civil society inherited from totalitarianism. According to this hypothesis, no business associations are inherited from the previous regime, and associations are confronted with difficult-to-organize latent groups of large numbers of new small enterprises. The second hypothesis, as proposed by Mancur Olson, predicts strong business associations benefiting from the collective action advantages of the communist economic structure which was composed of small numbers of large enterprises. The hypotheses are tested with case studies of Poland's five most influential business associations. The conclusion is that the flattened civil society hypothesis is best borne out by the evidence. This suggests that, in other countries, political factors, rather than the standard communist economic structure, are more likely to explain the persistence of industrial super lobbies.

Notes: Let H be an infinite-dimensional real separable Hilbert space. Given an unknown mapping M:H (r)H that can only be observed with noise, we consider two modified Robbins-Monro procedures to estimate the zero point ?o ( H of M. These procedures work in appropriate finite dimensional sub-spaces of growing dimension. Almost-sure convergence, functional central limit theorem (hence asymptotic normality), law of iterated logarithm (hence almost-sure loglog rate of convergence), and mean rate of convergence are obtained for Hilbert space-valued mixingale, (-dependent error processes.

Notes: We propose information theoretic tests for serial independence and linearity in time series against nonlinear dependence on lagged variables, based on the conditional mutual information. The conditional mutual information, which is a general measure for dependence, is estimated using the correlation integral from chaos theory. The significance of the test statistics is determined by means of bootstrap methods. The size and power properties of the tests are examined by simulation and illustrated with applications to real US GNP data.

Notes: We report evidence that the relation between the financial-sector share, private saving, and growth in the United States in 1948-96 is characterized by several regime shifts. The finding is based on vector autoregressions on quarterly data that allow for Markov switching regimes. The evidence may be interpreted as support for a hypothesis that the relation between financial development and growth evolves in a stepwise fashion. Theoretical models in which structural financial developments entail fixed costs imply such stepwise patterns. The estimated variable relations are roughly consistent with the patterns to be expected from such models, although our data do not admit definite conclusions. The timing of the shifts coincides with changes in regulation and in the financial-market structure.

Notes: This paper investigates topologically semiconjugate dynamics as a macrorepresentation of microeconomic dynamics. The condition for its existence, its summarizing property, and its inferability property are discussed. As an example, we present a model of a temporary equilibrium price dynamic that has a topologically semiconjugate one-dimensional income dynamic, from which the nature of the original price dynamic will be inferred.

Notes: In this paper I review what insights we have gained about economic and financial relationships from the use of wavelets and speculate on what further insights we may gain in the future. Wavelets are treated as a 'lens' that enables the researcher to explore relationships that previously were unobservable.

Notes: This paper studies the dynamics of lending and deposit rates in two emerging markets in Latin America: Colombia and Mexico. The dynamics of lending (deposit) interest rates are driven by the exogenous interbank interest rate and deviations from the long-run lending-interbank (deposit-interbank) interest rate relationship. Allowing for different interest rate behavior during periods characterized by large and small values of the spread, the non-linear specification proves superior to the linear one.

Notes: This paper examines the relative performance of some popular nonlinearity tests when applied to time series generated by Markov switching autoregressive models. The nonlinearity tests considered include RESET-type tests, the Keenan test, the Tsay test, the McLeod--Li test, the BDS test, the White dynamic information matrix test, and the neural network test. Applications to economic time series are also considered.

Notes: A family of ascending package auction models is introduced in which bidders may determine their own packages on which to bid. In the proxy auction (revelation game) versions, the outcome is a point in the core of the exchange economy for the reported preferences. When payoffs are linear in money and goods are substitutes, sincere reporting constitutes a Nash equilibrium and the outcome coincides with the Vickrey auction outcome. Even when goods are not substitutes, ascending proxy auction equilibria lie in the core with respect to the true preferences. Compared to the Vickrey auction, the proxy auctions generate higher equilibrium revenues, are less vulnerable to shill bidding and collusion, can handle budget constraints much more robustly, and may provide better ex ante investment incentives.

Notes: This paper studies an incentive rationale for the use of group lending as a method of financing liquidity-constrained entrepreneurs. The joint liability feature associated with group lending lowers the liquidity risk of default but creates a free-riding problem. In the static setting, the free-riding problem dominates the liquidity risk effect under a plausible condition, thus making group lending unattractive. When the projects are repeated infinitely many times, however, the joint liability feature provides the group members with a credible means of exercising peer sanction, which can make the group lending attractive, relative to individual lending.

Notes: We analyze the subgame-perfect equilibria of a game where two agents bargain in order to share the risk in their assets that will pay dividends once at some fixed date. The uncertainty about the size of the dividends is resolved gradually by the payment date and each agent has his own view about how the uncertainty will be resolved. As agents become less uncertain about the dividends, some contracts become unacceptable to some party to such an extent that at the payment date no trade is possible. The set of contracts is assumed to be rich enough to generate all the Pareto-optimal allocations. We show that there exists a unique equilibrium allocation, and it is Pareto-optimal. Immediate agreement is always an equilibrium outcome; under certain conditions, we further show that in equilibrium there cannot be a delay. In this model, the equilibrium shares depend on how the uncertainty is resolved, and an agent can lose when his opponent becomes more risk-averse. Finally, we characterize the conditions under which every Pareto-optimal and individually rational allocation is obtainable via some bargaining procedure as the unique equilibrium outcome.

Notes: This paper provides an explanation for noisy pricing based on the strategic interaction of two firms competing in prices. When a firm adds noise to its prices, undercutting it becomes harder. Therefore, noisy pricing allows a firm to either exclude a competitor while charging supracompetitive prices, or to soften competition and have both firms earn supracompetitive profits. Such behavior leads to prices lying between competitive and monopolistic levels, and harms consumers and social welfare. It occurs in equilibrium if firms set prices sequentially, and in some equilibria of a repeated game of simultaneous price-setting if one firm is patient.

Notes: This study builds on the literature on the economics of output quotas in the presence of cheating. We extend previous work by Giannakas and Fulton (2000a) by examining the decisions of the agency responsible for the enforcement of output quotas in a decentralized policy-making structure. Enforcement policy design is modeled as a sequential game between the agency that determines the enforcement of the quota program (designed by a regulator), and farmers who make production decisions. Analytical results show that the level of enforcement depends on the size of the enforcement costs and the political preferences of the enforcement agency - the greater is the weight placed by the enforcement agency on producer welfare, the greater is the level of program enforcement.

Notes: This article computes the welfare changes from increases in industrial concentration in a sample of 35 U.S. food manufacturing industries, taking into account oligopoly power and efficiency effects. It is estimated that a 1% across-the-board increase in the Herfindahl index would lead to an increase in aggregate social welfare (with increases in 74% of the industries), nearly neutral consumer welfare effects, and increases in producer welfare due to efficiency gains that are not passed on. The results call into question the conventional wisdom that considers welfare losses from market power without considering potential gains in production efficiency.

Notes: The Internet has dramatically reduced search costs for customers through tools such as shopbots. The conventional wisdom is that this reduction in search costs will increase price competition leading to a decline in prices and profits for online firms. In this paper, we provide an argument for why in contrast to conventional wisdom, competition may be reduced and prices may rise as consumer search costs for prices fall. Our argument has particular appeal in the context of the Internet, where email targeting and the ability to track and record customer behavior are institutional features that facilitate cost effective targeted pricing by firms. We show that such targeted pricing can serve as an effective counterweight to keep average prices high despite the downward pressure on prices due to low search costs. Surprisingly, we find that the effectiveness of targeting itself improves as search costs fall; therefore prices and profits can increase as search costs fall. The intuition for our argument is as follows: Consider a market where consumers are heterogeneous in their loyalty as well as their cost per unit time to search. In the brick and mortar world, it takes consumers a very large amount of time to search across multiple firms. Therefore few customers will search in equilibrium because the gains from search will be relatively small compared to the cost of search. In such a market, a firm will not be able to distinguish whether its customers bought from it due to their high loyalty or due to their unwillingness to search for low prices because of the high search cost. On the Internet, the amount of time to search across multiple stores is minimal (say zero). Now irrespective of their opportunity cost of time, all consumers can search because the time to search is negligible. If in spite of this, a consumer does not search in this environment, she is revealing that her loyalty to the firm that she buys from is very high. The key insight is that as search becomes easy for everyone, then lack of search indicates strong customer loyalty and thus can be used as a proxy to segment the market into loyal and price sensitive segments. Thanks to email technology, firms can selectively set differential prices to different customers, i.e. a high price to the loyal segment and a low price to the price sensitive segment, at relatively low cost. The increased competition due to price transparency caused by low search costs can thus be offset by the ability of firms to price discriminate between their loyal (price insensitive) customers and their price sensitive customers. In fact, we find that it can reduce the extent of competition among the firms and raise their profits. Most surprisingly, the positive effect of targeting on prices improves when search costs fall, because firms can learn more about the differences in customer loyalty, thus improving the effectiveness of targeted pricing. The effectiveness of targeted pricing however is moderated by the extent of opt-in by customers who give their permission for firms to contact them directly by email. Our analysis offers interesting strategic insights for managers about how to address the competitive problems associated with low search costs on the Internet: (1) It suggests that firms should invest in better technologies for personalization and targeted pricing so as to prevent the Internet from becoming a competitive minefield that destroys firm profitability. In fact we show that low search costs can facilitate better price personalization and can thus aid in improving the effectiveness of targeted pricing efforts. (2) The analysis also offers guidelines for online customer acquisition efforts. The critical issue for competitive advantage is not in increasing market share per se, but in increasing the loyalty of customers. While a larger share of very loyal customers reduces competitive intensity, surprisingly a larger share of customers who are not very loyal can be a competitive disadvantage. In order for customer acquisition to be profitable, it should be accompanied by a superior product or service that can ensure high loyalty. (3) Investing in online privacy initiatives that assures consumers that their private information will not be abused other than to offer them "deals" is worthwhile. Such assurances will encourage consumers to opt into firm mailing lists. This facilitates successful targeting which in turn ameliorates the competitive threats due to low search costs on the Internet. (4) When the overwhelming majority of customers are satisfied with online privacy, the remaining privacy conscious customers who are not willing to pay a higher price to maintain their privacy will be left out of the market. While this may be of some concern to privacy advocates, it is interesting that total consumer welfare can be higher even if some consumers are left out of the market. Our analysis captures the competitive implications of the interaction between two institutions facilitated by the Internet: Shopbots and Emails. But the research question addressed is more fundamental: What is the nature of competition in an environment with low costs for both consumer search and firm-to-consumer personalized communications? The strategic insights obtained in the paper may be beneficially applied even to offline businesses that can replicate such an environment. For example, offline firms could have websites on which they post prices allowing for easy price comparisons. They could also use tools such as frequency programs to create addressable databases that enable them to communicate with customers by direct mail and email (as many airlines and stores do).

Notes: One of the central concerns about American policy making institutions is the degree to which political outcomes can be influenced by interested parties. While the literature on interest group strategies in particular institutions - legislative, administrative, and legal - is extensive, there is very little scholarship which examines how the interdependencies between institutions affects the strategies of groups. In this paper we examine in a formal theoretical model how the opportunity to litigate administrative rulemaking in the courts affects the lobbying strategies of competing interest groups at the rulemaking stage. Using a resource-based view of group activity, we develop a number of important insights about each stage that cannot be observed by examining each one in isolation. We demonstrate that lobbying effort responds to the ideology of the court, and the responsiveness of the court to resources. In particular, (1) as courts become more biased toward the status quo, interest group lobbying investments become smaller, and may be eliminated all together, (2) as interest groups become wealthier, they spend more on lobbying, and (3) as the responsiveness of courts to resources decreases, the effect it has on lobbying investments depends on the underlying ideology of the court.

Notes: The purpose of this paper is to show how the stability propertiesof non-linear dynamic models may be characterized and studied, where thedegree of stability is defined by the effects of exogenous shocks on theevolution of the observed stochastic system. This type of stability conceptis frequently of interest in economics, e.g., in real business cycle theory.We argue that smooth Lyapunov exponents can be used to measure the degree ofstability of a stochastic dynamic model. It is emphasized that the stabilityproperties of the model should be considered when the volatility of thevariable modelled is of interest. When a parametric model is fitted toobserved data, an estimator of the largest smooth Lyapunov exponent ispresented which is consistent and asymptotically normal. The small sampleproperties of this estimator are examined in a Monte Carlo study. Finally,we illustrate how the presented framework can be used to study the degree ofstability and the volatility of an exchange rate.

Notes: Several authors have suggested that, instead of being unit root processes, some macro variables may actually be stationary around nonlinear deterministic trends (Perron, 1989, 1990, Bierens, 1997). This paper investigates this for four variables in a standard money demand specification, using Canadian data. Evidence is first presented that the null of unit root with drift (constant, linear, or nonlinear) can be rejected in favor of nonlinear trend stationarity for the variables. Then, Bierens' (2000) nonlinear co-trending test finds two common nonlinear trends among the variables. The trends are consistent with a standard money demand relationship. All unit root and co-trending test conclusions are based on size and power results from Monte Carlo simulations as well as on asymptotic critical values. The paper concludes with a discussion of how the observed nonlinear trending and co-trending might arise in a theoretical model, and with implications for further empirical tests.

Notes: We show that a class of microeconomic behavioral models with interacting agents, derived from Kirman (1991) and Kirman (1993), can replicate the empirical long-memory properties of the two first-conditional moments of financial time series. The essence of these models is that the forecasts and thus the desired trades of the individuals in the markets are influenced, directly or indirectly, by those of the other participants. These "field effects" generate "herding" behavior that affects the structure of the asset price dynamics. The series of returns generated by these models display the same empirical properties as financial returns: returns are I (0), the series of absolute and squared returns display strong dependence, and the series of absolute returns do not display a trend. Furthermore, this class of models is able to replicate the common long-memory properties in the volatility and covolatility of financial time series revealed by Teyssire (1997, 1998a). These properties are investigated by using various model-independent tests and estimators, that is, semiparametric and nonparametric, introduced by Lo (1991), Kwiatkowski et al. (1992), Robinson (1995), Lobato and Robinson (1998), and Giraitis et al. (2000, forthcoming). The relative performance of these tests and estimators for long memory in a nonstandard data-generating process is then assessed.

Notes: In this paper we introduce a new common long memory factor model. The model allows to estimate the common persistent component in fractionally cointegrated processes. We find evidence of cobreaking and fractional cointegration in excess nominal money growth and inflation in the euro area, and propose a new core inflation measure which takes into account both features. A comparison with other core inflation measures reveals that the proposed core inflation process is superior in terms of forecasting properties and economic interpretability.

Notes: The theoretical analysis of investment under uncertainty has been revolutionized over the lastdecade by the importation of ideas from finance. If investment is irreversible, there is a return to waiting. Soalthough circumstances may suggest that it is profitable to invest, there may also be an incentive to postpone thedecision until better opportunities arise. Identifying and valuing the option to invest has become the standardway to solve the firm's irreversible-investment problem. Empirical studies of investment that incorporate theinsights of the real-options approach are now beginning to appear. These show that investment can have anonlinear relationship to q and may show insensitivity for some threshold level to the shadow value ofinvestment (Barnett and Sakellaris 1998). Abel and Eberly (1997) and Böhm and Funke (1999) have alsoshown how the real-options approach to investment can be combined with the traditional q approach. In thiscase the relationship between q and the rate of investment is discontinuous. Over a range of inaction there willbe no investment, although q is in excess of one.This paper builds a theoretical model that explains the determinants of this investment discontinuity. Incontrast to much of the literature, we use a mean-reverting stochastic process, of which the geometric Brownianmotion process is a special case. Under the assumption of a production function with constant returns to scaleand a specific functional form for the investment adjustment function, it is possible to derive a tractableanalytical form for the shadow value of the investment project. We then analyze the comparative properties ofthe value of q under different assumptions about the stochastic process governing output. The advantage ofusing a mean-reverting process is that it better captures the undoubted persistence in the shocks that face firms,especially at the macroeconomic level.We then consider what the implications would be for the aggregate relationship between investment, q, andthe business cycle. We first carry out Monte Carlo simulations of a discrete version of the theoretical model. We find that for many parameter values, aggregating suppresses any nonlinearities in the micro adjustmentprocesses. Moreover, where we do detect nonlinearity at the aggregate level, it varies with the type of stochasticprocess. It is greatest when this is a random walk--corresponding to the Brownian motion in continuoustime--and least when the stochastic process follows an i.i.d. process. Mean reversion lies in between. We turnfinally to an empirical examination using aggregate data and explore how sensitive investment is to q indifferent regimes. To do this, we apply a generalization of the Granger-Lee method (Arden et al. 2000) that usesa linear spline function to approximate different regions for investment.

Notes: ARTICLES Factors Influencing Bank Failures: An Asian Perspective Mahendra Raj, Elisa Rinastiti . . . . . . . . . . . . . . . . . 1 Private Capital Formation Determinants: Some Evidence from Developing Countries, 1971-97 Anthony Bende-Nabende, Jim Slater. . . . . . . . . . . . . . . . .25 Can the Role of Government in Growth Regressions be Broader, Yet More Parsimonious? Rock-Antoine Mehanna . . . . . . . . . . . . . . . . . 51

Notes: ARTICLES Improving the Economic Performance of the Global Economy: The Challenges Ahead Robert C. Shelburne. . . . . . . . . . . . . . . . . . .73 Growth, Trade and Environmental Quality Don P. Clark. . . . . . . . . . . . . . . . . . .109 Toward a Framework for Analyzing Political Risk: Problems of Definition and Measurement Linda Longfellow Blodgett. . . . . . . . . . . . . . . . . . .125 Financial Globalisation and National Economic Sustainability Parikshit K. Basu. . . . . . . . . . . . . . . . . . . 145 Trade and Economic Transformation in Poland Richard J. Hunter, Jr. Leo V. Ryan. . . . . . . . . . . . . . . . . . . 163 Market Orientation and its Relationship to Profitability: A Study Comparing American, Japanese and British Companies Operating in the United States Abhay Shah, Charles Zeis, Hanilu Regassa, Ahmad Ahmadian. . . . . . . . . . . . . . . . . . . 179 Measuring Aid Flows: A New Approach Charles C. Chang, Eduardo Fernandez-Arias, Luis Servén. . . . . . . . . . . . . . . . . . .197

Notes: It is shown that player mobility has important consequences for the long-run equilibrium distribution in dynamic evolutionary models of strategy adjustment, when updating is prone to small probability perturbations, i.e. ``mistakes'' or ``mutations.'' Ellison (1993) concluded that the effect on the matching process of localized ``neighborhoods'' was to strengthen the stability of risk-dominant outcomes, originally demonstrated by Kandori, Mailath, and Rob (1993) (KMR) and Young (1993). I consider a model in which players can choose the neighborhoods to which they belong. When strategies and locations are updated simultaneously, only efficient strategies survive. The robustness of this conclusion is emphasized in a general locational model in which strategy revision opportunities are allowed to arrive at a faster rate than opportunities to change locations. The efficient strategy persists in all cases in which the locational structure is non-trivial. Moreover, even as the relative frequency of player mobility approaches zero, the efficient strategy occurs with boundedly positive relative frequency. This result is in stark contrast to the conclusions of the previous models.

Notes: Drawing insights from the literature and from the author's own survey work on contractual practices among manufacturers and traders in Africa, we study the transition from anonymous to personal to impersonal exchange. Using a dynamic game with heterogenous agents and information sharing, we derive precise conditions under which relational contracting spontaneously emerges and deters opportunistic breach even in the absence of formal market institutions. Exclusion of cheaters is not required for contracting to begin. As exchange develops, newcomers may be excluded from contracting when screening costs are high and agents long lived. Reputational equilibria in which cheaters are permanently excluded are not decentralizable unless contracting is already developed and breach of contract is interpreted as a sign of impending bankruptcy.

Notes: This paper examines the exercise of market power by German food and beverage export industries over international markets. Two approaches are used: pricing-to-market (PTM) and residual demand elasticity (RDE). We find that, while in some cases the PTM approach indicates market power, the RDE approach does not. Competitive conduct seems to prevail in these industries. The occurrence of PTM in some cases might be explained by fixed contracts, which are often used in the food and beverage export market.

Notes: This paper surveys some potential costs and benefits of increased concentration in agricultural markets in the context of an economic trade-off. The existing industrial organization literature is applied to agricultural markets to provide a more concrete structure for analysis. Although an important part of the debate, market power and the existing empirical literature measuring it are only part of a complete picture and suggestions are made on where this literature could go to increase its impact. Policy frameworks are examined to provide perspective on the relevant theoretical and empirical work.

Notes: No changes were made in the Abstract. Please use the previous Abstract that was submitted

Notes: Designing and pricing new products is one of the most critical activities for a firm, and it is well-known that taking into account consumer preferences for design decisions is essential for products later to be successful in a competitive environment (e.g., Urban and Hauser 1993). Consequently, measuring consumer preferences among multiattribute alternatives has been a primary concern in marketing research as well, and among many methodologies developed, conjoint analysis (Green and Rao 1971) has turned out to be one of the most widely used preference-based techniques for identifying and evaluating new product concepts. Moreover, a number of conjoint-based models with special focus on mathematical programming techniques for optimal product (line) design have been proposed (e.g., Zufryden 1977, 1982, Green and Krieger 1985, 1987b, 1992, Kohli and Krishnamurti 1987, Kohli and Sukumar 1990, Dobson and Kalish 1988, 1993, Balakrishnan and Jacob 1996, Chen and Hausman 2000). These models are directed at determining optimal product concepts using consumers' idiosyncratic or segment level part-worth preference functions estimated previously within a conjoint framework. Recently, Balakrishnan and Jacob (1996) have proposed the use of Genetic Algorithms (GA) to solve the problem of identifying a share maximizing single product design using conjoint data. In this paper, we follow Balakrishnan and Jacob's idea and employ and evaluate the GA approach with regard to the problem of optimal product line design. Similar to the approaches of Kohli and Sukumar (1990) and Nair et al. (1995), product lines are constructed directly from part-worths data obtained by conjoint analysis, which can be characterized as a one-step approach to product line design. In contrast, a two-step approach would start by first reducing the total set of feasible product profiles to a smaller set of promising items (reference set of candidate items) from which the products that constitute a product line are selected in a second step. Two-step approaches or partial models for either the first or second stage in this context have been proposed by Green and Krieger (1985, 1987a, 1987b, 1989), McBride and Zufryden (1988), Dobson and Kalish (1988, 1993) and, more recently, by Chen and Hausman (2000). Heretofore, with the only exception of Chen and Hausman's (2000) probabilistic model, all contributors to the literature on conjoint-based product line design have employed a deterministic, first-choice model of idiosyncratic preferences. Accordingly, a consumer is assumed to choose from her/his choice set the product with maximum perceived utility with certainty. However, the first choice rule seems to be an assumption too rigid for many product categories and individual choice situations, as the analyst often won't be in a position to control for all relevant variables influencing consumer behavior (e.g., situational factors). Therefore, in agreement with Chen and Hausman (2000), we incorporate a probabilistic choice rule to provide a more flexible representation of the consumer decision making process and start from segment-specific conjoint models of the conditional multinomial logit type. Favoring the multinomial logit model doesn't imply rejection of the widespread max-utility rule, as the MNL includes the option of mimicking this first choice rule. We further consider profit as a firm's economic criterion to evaluate decisions and introduce fixed and variable costs for each product profile. However, the proposed methodology is flexible enough to accomodate for other goals like market share (as well as for any other probabilistic choice rule). This model flexibility is provided by the implemented Genetic Algorithm as the underlying solver for the resulting nonlinear integer programming problem. Genetic Algorithms merely use objective function information (in the present context on expected profits of feasible product line solutions) and are easily adjustable to different objectives without the need for major algorithmic modifications. To assess the performance of the GA methodology for the product line design problem, we employ sensitivity analysis and Monte Carlo simulation. Sensitivity analysis is carried out to study the performance of the Genetic Algorithm w.r.t. varying GA parameter values (population size, crossover probability, mutation rate) and to finetune these values in order to provide near optimal solutions. Based on more than 1500 sensitivity runs applied to different problem sizes ranging from 12.650 to 10.586.800 feasible product line candidate solutions, we can recommend: (a) as expected, that a larger problem size be accompanied by a larger population size, with a minimum popsize of 130 for small problems and a minimum popsize of 250 for large problems, (b) a crossover probability of at least 0.9 and (c) an unexpectedly high mutation rate of 0.05 for small/medium-sized problems and a mutation rate in the order of 0.01 for large problem sizes. Following the results of the sensitivity analysis, we evaluated the GA performance for a large set of systematically varying market scenarios and associated problem sizes. We generated problems using a 4-factorial experimental design which varied by the number of attributes, number of levels in each attribute, number of items to be introduced by a new seller and number of competing firms except the new seller. The results of the Monte Carlo study with a total of 276 data sets that were analyzed show that the GA works efficiently in both providing near optimal product line solutions and CPU time. Particularly, (a) the worst-case performance ratio of the GA observed in a single run was 96.66%, indicating that the profit of the best product line solution found by the GA was never less than 96.66% of the profit of the optimal product line, (b) the hit ratio of identifying the optimal solution was 84.78% (234 out of 276 cases) and (c) it tooks at most 30 seconds for the GA to converge. Considering the option of Genetic Algorithms for repeated runs with (slightly) changed parameter settings and/or different initial populations (as opposed to many other heuristics) further improves the chances of finding the optimal solution.

Notes: Our objective is to broaden the current understanding of how horizontal differentiation interacts with both advertising and pricing by extending the analysis of Grossman and Shapiro (1984) to look at a full range of differentiation conditions. We seek to offer a useful perspective on the relationship between advertising and pricing by focusing attention on competitors whose essential difference prior to advertising and price decisions is product differentiation.We construct a model where demand for a firm's products is driven by three factors: consumers' awareness of products and their attributes, pricing, and the degree of fit between a product's attributes and the needs of the consumer. Following Salop (1979), differentiation is captured by representing the firms as equally spaced points in a unitary circular spatial market. We assume that product attributes are fixed and the firms make decisions about how much to advertise and what prices to set for their products.A distinct element of the model is the mechanism by which advertising makes consumers aware of products. Similar to Grossman and Shapiro (1985), advertising is represented as a series of messages received randomly by consumers in the market and consumers only have interest in a product if they have seen advertising about it. It is important to underline that advertising only affects consumers' awareness of a product and not their valuation of it. In addition, the probability of a consumer seeing a firm's advertising is independent of the consumer's location.The primary finding of our analysis is that the impact of informative advertising on market prices and profits is a function of the pre-existing level of differentiation in the market. Advertising is observed to create distinct groups of consumers based on the advertising to which they have been exposed. The optimal pricing is a function of competing firms balancing the needs of each of the groups that have interest in their products.When the level of differentiation between products is high, increases in advertising have no effect on observed prices. However, when the level of differentiation between products is moderate, increases in advertising tend to drive up prices. Finally, when the level of differentiation is low, we show that higher advertising leads to lower prices and profits.We also find that total welfare can increase when higher advertising leads to higher prices. This highlights the risk of reaching conclusions about the anti-competitive effects of high advertising based solely on an observed relationship between advertising and pricing.In a modified version of the model, we assume that the probability of a consumer seeing a firm's advertising depends on that consumer's location. More specifically, we consider situations in which firms can target heavier advertising to a) customers that are locationally close to them or b) customers that are locationally distant from them. This captures the notion of two different types of markets, one in which firms aggressively pursue the competitor's customers and the other in which firms focus their effort on loyal customers. We find that the targeting of advertising does affect the relationship between advertising and pricing. While the general pattern of results regarding the impact of differentiation on the advertising/price relationship is consistent across the three conditions examined, targeting has a particularly interesting effect in conditions of moderate differentiation. In fact, when distant consumers are targeted, the positive relationship observed with no targeting is reversed and prices fall with higher levels of advertising. However, the most interesting effect of targeted advertising is its effect on overall pricing. In conditions of low differentiation, targeting consumers who are nearby exacerbates price competition and reduces price below the no-targeting price. On the other hand, targeting consumers who are distant results in equilibrium prices that are higher than the no-targeting price. Exactly the opposite is observed when differentiation is moderate. These findings underline the importance of existing differentiation between firms for determining the effect that targeted advertising has on pricing. They also provide a potential explanation for offensive or defensive postures that firms employ in media buying that has not been considered previously.

Notes: The prohibition against intervention in the affairs of other sovereign states has been modified by licences permitting intervention for the purpose of combating external aggression or gross violations of human rights. Additionally, a norm which would mandate humanitarian intervention may be evolving. Because these changes lack principled legal bases, any intervention runs the risk of triggering large-scale armed conflict.

Notes: If we choose a perspective of consumer protection, and consider the impact of EC regulations or EC directives on the national systems (e.g. the Italian legal system), the idea to introduce general rules on fair trading into the common market should be highly recommended. The aim of this paper is indeed to give evidence of the fact that these rules are already existing in some national legal systems and cope very well with the rules provided by the Charter of Fundamental Rights. When a European Civil Code (a "model" code, or a set of general principles) will be enacted, those rules could cope with the other rules there provided and concerning the economic relationships between professionals and between professionals and consumers.

Notes: The legal capital doctrine was born as a compromise between the conflicting interests of corporations' creditors and shareholders. Indeed all capitalistic societies recognize that the distribution of benefits to shareholders is the incontestable purpose of corporations. Therefore whenever the corporation's activity results in the creation of value, the issue arises whether such value should be distributed to shareholders or committed to the corporation's treasury as a guarantee for the payment of creditors' claims. Although the aim of the legal capital rules is precisely to accommodate this conflict, American legislations have now abandoned those rules and Luca ENRIQUES and Jonathan R. MACEY conclude that such example should be followed by the European Union, and thus by the French Legal system, whose provisions on legal capital were directly inspired or at least confirmed by the Second Directive. On the contrary, the present study aims at showing that although the American abandonment of the legal capital doctrine was well justified by its incapacity to achieve its purpose, such a conclusion cannot be extended to the French solutions. Indeed the explanation of this incapacity is not to be found in the concept of legal capital itself but in the permissive aspect of the American rules and in their loose application. This article demonstrates that the European orientation should be continued, for the legal capital doctrine is perfectly able to serve its purpose when an appropriate set of provisions, such as the French one, is taken and strictly applied.

Notes: From labour abuses to mass dislocation of peoples, infrastructure projects in developing countries raise a number of human rights problems. This paper develops a concept of 'human rights risk' to understand how project planners approach infrastructure projects in diverse subject areas and in different locations. A number of ways of managing human rights risks are discussed including litigation, anti-corruption legislation and market-based codes for transnational corporations. Then, the handling of human rights problems within the context of three infrastructure projects is examined.

Notes: The French and Northern American corporate laws differ in many respects, including as to the type of clauses that the parties resort to between the signing and closing of a merger or acquisition. A comparative study of those clauses show, that the American corporate law offers a wider choice of such clauses. French lawyers may inspire themselves from some of those clauses that are still, to this date, unknown in France (for instance, the "rights on the company's stock provisions" and the "options on important assets provisions."). In May 15, 2001, the Loi sur les Nouvelles Regulations Economiques (NRE) came into effect in France, which aimed at introducing some of the main American Corporate Governance principles in French corporate law. In the field of mergers and acquisitions, the impact of the Loi NRE proves to be negative in some respects, and especially with regard to the liability incurred by French corporate directors in case of a breach that would occur between a signing and a closing. The main criticism one may raise is the fact, that the law ignores that American corporate directors' liability is of contractual nature, while that of French corporate directors is of a legal nature. Hence, the Loi NRE may not be effective or efficient until or unless one reforms the whole of the French directors' liability principles.

Notes: With the rise of organised crime, money laundering has become a priority issue both at the national and international levels. In 2001, the OECD issued a report showing that trusts could be the instrument of money launderers. If trusts are usually used for perfectly legal operations, their advantages such as privacy may lead criminals to try and misuse them. But this area of the law has so far remained relatively unexplored and commentators have pointed out that a comprehensive examination of how trusts can be abused has never been carried out. The purpose of this research is admittedly narrower. It rather aims at identifying the possible conflicts between English anti-money laundering legislation and some of the traditional obligations of trustees, namely the duty of confidentiality and the duty to account. For the purpose of combating money laundering, ss. 93A and 93B of the Criminal Justice Act 1988 seem to have abrogated the duty of confidentiality owed by professionals to their clients/customers. These provisions even confer an immunity against actions for breach of confidence. Despite the fact that confidentiality is essential in a trust context, the scope of this immunity remains unclear. The trustees' position is all the more awkward since s. 93D will hold them liable if they disclose information which is likely to prejudice a police investigation in relation to money laundering. Beneficiaries, using their right to information, could possibly make trustees 'tip off'. At the end of the day, the sacrifices that trustees have to accept may not even be rewarded by the courts: the recent case of Bank of Scotland v. A Ltd demonstrates how trustees could be faced with the dilemma of violating either s. 93A or s. 93D. This decision illustrates one of several flaws in the UK anti-money laundering system.

Notes: Will the Europeanisation process destruct the social achievements of modern private law? Not necessarily so. The project of a European code, however, is unlikely to generate contructive responses to this query. The original German version of this contribution ("Ein europäisches Zivilgesetzbuch als einzige Lösung? Kooperation statt Hierarchie: Legitimationsprobleme und Argumentationsstrategien am Beispiel des Privatrechts")was first published in the "Forum Humanwissenschaften" of the daily newspaper "Frankfurter Rundschau" of Tuesday, 05-11-2002.

Notes: Within Soviet law, the tension between formalism and anti-formalism had mainly two aspects. They were diachronically inconsistent, and reflected the change of attitude that occurred before, and after, the establishment of Soviet law as "the law of the Socialist State". As a divide between the two phases, we can take the year 1936, when a new Constitution expressed the principles of the triumphant Soviet State and Law. A first aspect, that goes back to the early period of the Soviet rule (1918-1928), was imbedded in the recourse to anti-formalism as a tool to destroy the whole body of Russian (Czarist) law. Making use of French doctrines (Gény, Duguit), Soviet jurists in the 20ies drafted an interim codification based on the principle of abuse of rights . A dissemination of general clauses (social purpose of the law, respect of social/economic interests, good faith) was meant in order to give a politically inspired judiciary the tools to control and, when necessary, reverse, the formality of the statute. The politically selected judges, however, went too far in implementing their revolutionary zeal, and the Supreme Court was obliged to give order and predictability to the system, by quashing the samples of a too radical anti-formal understanding of the abuse of right doctrine. A different approach was taken when (mid of the 30ies), having firmly rooted a new system of Soviet law, the ideologists of the established Stalinist socialism exalted the principle of socialist legality, and identified at the same time customary law with conservatism, and judge made law with anarchism, so depriving of any possible legitimacy the two alternative sources of law. This approach, which substituted the principle of "revolutionary legality" with the principle of socialist legality, was clearly indebted with a different set of French inspired doctrines, based upon the principle of the absolute supremacy of the legislature, as the expression of the people's will. Strict formalism and adherence to the letter of the law, however, were temporarily contradicted by the Khruschev's attempts (1956-1964) to insert "social" elements within the theory of the Soviet state. The short-lived and unsuccessful experiment of "socialization of the State" favored, somehow, an overvaluation of the role that general clauses can play within the system of civil (private) law. This paper tells the story of the "historical accident" (to say, Khruschev ephemeral attempt to introduce anti-formalism within the structured formalism of Soviet state and law) that led to the preservation of flexible formulas within the codes of the 60ies, not only in the Soviet Union but also in Poland, Hungary, Czechoslovakia. An accident that did not meet the favor of legal scholars, but had anyhow an influence on the style of the law making. An influence that did hold until today, as the Civil Codes recently adopted in the area can show.

Notes: In recent years, many health maintenance organizations (HMOs)have exited the market for Medicare managed care; since 1998, the number of participating plans has fallen from 346 to 174. As a result of this reduced participation by HMOs, hundreds of thousands of Medicare beneficiaries have been involuntarily disenrolled from the program at the end of each year from 1998 to 2001.This paper estimates the Centers for Medicare and Medicaid Services (CMS) capitation payments that are necessary to support the participation of various numbers of HMOs in Medicare managed care per county market. This paper does not make a normative statement about how many HMOs should be supported in this program; rather, it makes a positive statement about the levels of payment necessary to support various numbers of HMOs.The identification strategy is to observe how the number of participating HMOs varies over counties and time in response to CMS payment, while controlling for estimated costs. This paper studies the period 1993-2001 and focuses in particular on the variation in payment, independent of costs, that occurred as a result of the Balanced Budget Act of 1997, which dramatically changed the way that HMOs are paid in this program. In light of the fact that it may not be cost-effective for CMS to support HMO participation in relatively rural or unpopulated counties, the sample used in this paper is limited to the 60 percent of U.S. counties with the largest populations of Medicare beneficiaries.The ordered probit results presented in this paper indicate that, to support one Medicare HMO in 2001 in half of the counties in the sample, CMS would have to pay $682.08 per average enrollee per month in the marginal county. To support one Medicare HMO in 2001 in every county in the sample, CMS would need to pay $1,008.25 per enrollee per month in the maximum-payment county. For comparison, the maximum monthly payment paid by CMS to any county in 2001 was $833.55.This paper finds that 79.3 percent of counties in the sample received a CMS payment in 2001 that was less than what was necessary to support a single HMO in Medicare managed care. Compared to those counties that received a payment exceeding the estimated threshold for HMO participation, these counties are, on average, more rural and less populated, with citizens who are less wealthy and less educated. The relative disadvantage of rural and unpopulated counties persists three years after the Balanced Budget Act of 1997, designed in part to eliminate such disparities, took effect.

Notes: This paper investigates the impact of a$1,000 refundable tax credit for self-only coverage on net premiums and insurance purchases for a representative sample of potential buyers in the individual insurance market. Two methods are used to estimate the distribution of premiums: predicted premiums based on a sample of actual purchasers, and premium quotations drawn from an e-insurance website. In most of the simulations, the net premiums for half or more of the prospective buyers are reduced to zero or low levels. The number of uninsured is reduced by 21 to 85 percent, depending on the size of the deductible in the benchmark plan. However, the results are sensitive to assumptions about insurer underwriting practices.

Notes: Medicare, which provides health insurance to Americans over the age of 65 and to Americans living with disabilities, is one of the government's largest social programs. It accounts for 12 percent of federal on- and off-budget outlays, and in fiscal year 1999,$212 billion in Medicare benefits were paid. The largest shares of spending are for inpatient hospital services (48 percent) and physician services (27 percent). In thirty years, the number of Americans covered by Medicare will nearly double to 77 million, or 22 percent of the U.S. population.Perhaps the most important question we can ask about the Medicare program is, What impact does it have on the health of the U.S. population? One feature of the Medicare program can be exploited to shed light on its impacts: its age specificity. Most people become eligible for Medicare suddenly, the day they turn 65. Consequently, the age profiles of health services utilization and health outcomes (morbidity and mortality) can provide revealing evidence about Medicare's impacts.My objective is to obtain precise estimates of medical utilization and outcomes, by single year of age, for ages close to age 65. The most precise estimates can be obtained by using information obtained from medical providers (hospitals and doctors) pooled over several years.Utilization of ambulatory care and, to a much smaller extent, inpatient care increases suddenly and significantly at age 65, presumably due to Medicare eligibility. The evidence points to a structural change in the frequency of physician visits precisely at age 65. Attainment of age 65 marks not only an upward shift but also the beginning of a rapid upward trend (up until age 75) of about 2.8 percent per year in annual visits per capita. The number of physician visits in which at least one drug is prescribed also jumps up at age 65. Reaching age 65 has a strong positive impact on the consumption of hospital services, but most of this impact appears to be the result of postponement of hospitalization in the prior two years.We also examine whether this increase in utilization leads to an improvement in outcomes--a reduction in morbidity and mortality--relative to what one would expect given the trends in outcomes prior to age 65. The estimates are consistent with the hypothesis that the Medicare-induced increase in health care utilization leads to a reduction in days spent in bed of about 13 percent and to slower growth in the probability of death after age 65. Physician visits are estimated to have a negative effect on the male death rate, conditional on age and the death rate in the previous year. The short-run elasticity of the death rate with respect to the number of physician visits is -.095, and the long-run elasticity is -.497: a permanent or sustained 10 percent increase in the number of visits ultimately leads to a 5 percent reduction in the death rate.Data on age-specific death probabilities every 10 years since 1900, i.e., before as well as after Medicare was enacted, provide an alternative way to test for the effect of Medicare on longevity. They also provide strong support for the hypothesis that Medicare increased the survival rate of the elderly by about 13 percent.

Notes: This paper reviews recent empirical evidence on the effects of hospital ownership conversions on quality of care and provision of public goods, such as uncompensated care, and presents new results on these topics based on hospital discharge data from the Healthcare Cost and Utilization Project's (HCUP) Nationwide Inpatient Sample. My analysis of these data reveals that conversion from government or private nonprofit to for-profit ownership has no effect on in-hospital mortality, but rates of pneumonia complications increased following conversion to for-profit status. Other research, discussed in the paper, found increased mortality rates following discharge from the hospital for patients admitted to hospitals that had converted to for-profit ownership. There was no effect of such conversions on the propensity to admit uninsured or Medicaid patients. Clearly, there is considerable heterogeneity in outcomes attributable to conversions. Overall, the evidence suggests a role for public scrutiny of hospital ownership conversions.

Notes: This paper concerns the interpretation of equilibrium in non-additive beliefs in two-player normal form games. We argue that such equilibria involve beliefs and actions which are consistent with a lack of common knowledge of the game. Our argument rests on representation results which show that different notions of equilibrium in games with non-additive beliefs may be reinterpreted as equilibrium in associated games of incomplete information with additive (Bayesian) beliefs where common knowledge of the (original) game does not apply. The representation results show one way of comparing and understanding the various notions of equilibrium, for games with non-additive beliefs, advanced in the literature.

Notes: The bias of forward exchange rates as a predictor of future spot rates is typically explained or decomposed as (1) a risk premium and (2) a convexity term which accounts for the fact that, when there is stochastic inflation, nominal gains from forward currency speculation are higher than real ones and correspondingly losses are smaller. We use Nalebuff's envelope puzzle to explain a third source of bias which involves real profits from foreign exchange speculation. Both the "real profit" bias and stochastic inflation bias arise from convexity of g(s)=1/s and so derive from Jensen's inequality as observed by Siegel (1972).

Notes: This paper analyses the role of the managers' non-pecuniary private benefits in an incomplete contract approach to the regulation of utilities. Private benefits may take various forms: excessive job security, perks, overstaffing, feeling of power. The model describes the relationship between a government and the manager of a firm which produces a pure public good, under private or public ownership. The firm's production is characterized by its quantity and its flexibility, the latter corresponding to adaptability to changes in consumers' tastes or to new technologies. A larger output quantity entails larger private benefits to the manager, while increasing flexibility runs counter to the managers' private benefits. The manager decides upon non-verifiable investment in human and non-human capital so as to facilitate an increase in the output quantity (capacity investment) or to improve the firm's flexibility (investment in organizational adaptability). We compare the effects of the ownership regime on the manager's incentives to invest and on the aggregate welfare. The private firm under-invests in capacity and organizational flexibility. This is because the government holds up a part of the gains through ex post renegotiation of the initial (incomplete) contract. Our analysis also highlights a fundamental bias in the investment behavior of the state-owned firm: the manager of the public firm only invests in capacity (he may even invest more than under private ownership) but he never invests in organizational adaptability. The model shows that an increase in the government's bargaining power exacerbates the hold up problem when the firm is privately owned, but that this result may be reversed for capacity investment under public ownership. Finally, we show that the superiority of private or public ownership depends simultaneously on three factors: the respective bargaining power of the manager and of the government, the degree of specificity of investments and the relative weight of quantity and flexibility concerns in the social welfare.

Notes: Disinflations typically lead to recessions in actual economies. A classical policy issue is the choice between a cold-turkey and a gradualist approach to minimize the output loss associated with a period of disinflation. This paper explores which policy option is less costly in terms of foregone output through a menu cost model in which the credibility of government policies is the decisive factor in determining the appropriate speed of disinflation. It shows that, in the event of non-credibility, cold-turkey disinflation minimizes foregone output, whereas full credibility favors a gradualist approach.

Notes: This paper examines the impact of technological progress in the effectiveness of quality-improving, demand-enhancing activities on wage inequality and the employment structure in an ideal variety model of monopolistic competition. In a first step, it is shown that such technological change leads to a higher non-production employment share in the economy, in turn raising price mark-up factors for differentiated goods. Moreover, accounting for the fact that demand-enhancing activities are skill-intensive, the model provides a novel mechanism for the way in which new technologies affect the relative demand for skilled labor in the economy. Although an increased effectiveness of product innovations raises the demand for skilled labor in the differentiated goods sector, the impact on wage inequality is generally ambiguous if, in addition, there is a low-skilled intensive, homogenous goods sector. This is because higher mark-ups in the differentiated goods sector may shift the goods demand structure towards standardized goods. Finally, these results are compared with the impact of "skill-biased" process innovations, which have primarily been considered in the theoretical skill-bias literature. Using a simple illustration, it is argued that, once analytically distinguishing between production-related and quality-improving tasks, skill-biased process innovations do not necessarily lead to a rise in skill premia even in a one-sector model.

Notes: This paper analyses the optimal choice of fiscal policy in a model where public spending enters the production and utility functions and can be financed using flat rate taxes on consumption and on capital and labor incomes. Within this framework we generalize some previous results in the literature. Our results show that the optimal tax structure involves positive values of all the tax rates, which depend on structural parameters and how the returns to public capital are appropriated by private factors. We also conclude that the correct allocation of public spending is more important for welfare than the choice of the tax structure.

Notes: Scale effects in growth, positive effects of the population size on per capita output growth, have been rejected by cross-country regressions. This paper, however, finds that long-run time-series data supports the effects. Moreover, although scale effects in growth seem to be inconsistent with the fact that a substantial increase in the R&D labor in the postwar United States did not raise its growth rate, the theoretical part of this paper proposes costly international knowledge diffusion as its possible reason, suggesting that growth did not improve most likely because additional R&D labor was devoted to knowledge diffusion, rather than innovation. Calibration analysis shows that the key variables predicted by the model are not very different from their actual values in the postwar United States.

Notes: The progressivity of the tax system has a potentially large disincentive effect on human capital accumulation. It is thus surprising that Heckman, Lochner, and Taber (1998b, 1999a,b) represent the only previous empirical work on this important topic. I build on their work a) by accounting for the tax system when estimating the model, b) by performing welfare analysis, c) by examining the transition from one steady state to another, and d) by adding a number of robustness checks. I first estimate a dynamic general equilibrium model of schooling and on-the-job training on micro data. The estimates are then used to measure the extent to which the progressivity of the tax system distorts human capital. I find a small long run effect of progressivity on schooling. I find larger short run effects, but that they are short lived. The impact of the reform on human capital acquired on the job depends on how it is measured. Under one measure the effect is large, but the consequence of this on earnings seems to be small. Perhaps surprisingly, the welfare effects are typically favorable for progressive wage taxes (with flat capital taxation) versus a flat income tax in the long run. The welfare effects are different when I examine a progressive income tax as virtually all workers prefer the flat income tax to it. I also build on Heckman, Lochner, and Taber's (1998b,1999a,b) evidence on the extent to which taxation of physical capital favors human capital investment. These simulations also yield small long run effects on schooling and on human capital stocks.

Notes: This paper derives loss functions for analyses of optimal monetarypolicy that are grounded in the welfare of private agents, in thecase of explicit optimizing models of private-sector behavior inwhich the real effects of monetary policy result from nominalprice rigidity. A quadratic approximation to the utility-basedwelfare criterion is developed that allows comparison between thiscriterion and the ad hoc quadratic loss functions typicallyassumed in the literature on monetary policy evaluation. It isshown that the goal of inflation stabilization, generally presumedto be an important (and perhaps the preeminent) goal of monetarypolicy, can in fact be justified in such a framework, insofar asvariable inflation results in real distortions when prices are notadjusted throughout the economy in a perfectly synchronizedfashion. The exact sense in which inflation variability mattersfor welfare, however, depends upon the details of price-settingbehavior.Conditions are described under which optimal policy involvescomplete stabilization of the price level. It is shown that thismay be optimal even in the presence of "supply shocks" ofseveral possible sorts (including technology shocks and exogenousvariation in preferences regarding labor supply), and even in thepresence of distortions that imply that the optimal output gap ispositive (and despite existence of a non-vertical long-runPhillips curve). At the same time, a variety of reasons arediscussed why complete price-level stabilization is not optimal inmore complicated (and probably more realistic) settings.

Notes: Governments determine the size of the unit of value just as they determine the length of the length and weight of physical units of measure. What are the different ways that a government can control the size of the unit of value, that is, control the price level? In general, the government designates a resource--gold, paper currency, another country's currency--and defines its unit of value as a particular amount of that resource. An interesting variant--proposed by Irving Fisher in 1913 and implemented more recently in Chile--is to alter the resource content of the unit to stabilize the price level. Another idea is to alter the interest rate paid on reserves in a way that stabilizes the price level.

Notes: A popular modelin the literature postulates an interest rate rule, a NAIRU price equation, and an aggregate demand equation in which aggregate demand depends on the real interest rate. In this model a positive inflation shock with the nominal interest rate held constant is explosive because it increases aggregate demand (because the real interest rate is lower),which increases inflation through the price equation, which further increases aggregate demand, and so on. In order for the model to be stable, the nominal interest rate must rise more than inflation, which means that the coefficient on inflation in the interest rate rule must be greater than one. The results in this paper suggest, however, that an inflation shock with the nominal interest rate held constant has a negative effect on real output. There are three reasons. First, the data support the use of nominal rather than real interest rates in aggregate expenditure equations. Second, the evidence suggests that the percentage increase in nominal household wealth from a positive inflation shock is less than the percentage increase in the price level, which is contractionary because of the fall in real wealth. Third, there is evidence that wages lag prices, and so a positive inflation shock results inan initial fall in real wage rates and thus real labor income, which is contractionary. If these three features are true, they imply that a positive inflation shock has a negativeeffect on aggregate demand even if the nominal interest rate is held constant. Not only does the Fed not have to increase the nominal interestrate more than the increase in inflation for there to be a contraction, it does not have to increase the nominal rate at all!

Notes: Countries with more developed financial sectors experience smaller fluctuations in real per capita output, consumption, and investment growth. However, the manner in which the financial sector develops matters. The relative importance of banks in the financial system is important in explaining GDP, consumption, and investment volatility, and the proportion of credit provided to the private sector explains the volatility of consumption and output. The main results are generated using fixed-effects estimation with panel data from 70 countries covering the years 1956 through 1998.

Notes: We use population data from the U.S. Census to track regional patterns of growth from 1790 through 1990. At the county level, we find that an initial general tendency towards population convergence lasting roughly through the 1800s becomes reversed: particularly in the post-WWII period, regional populations have diverged. The finding of divergence hinges on two factors: the exclusion of transition dynamics and the level of aggregation. Regarding the former, state-level populations exhibit consistent patterns of transitional population growth over roughly two- to six-decade periods surrounding the admission of states to the union, followed by long periods of relatively steady growth. When transitional periods are included in our county-level analysis, divergent steady state patterns of growth become masked. Regarding the latter, when we aggregate to the state level, divergent county-level patterns of growth are again masked: even when transitional periods are excluded, state-level populations exhibit tendencies towards convergence.

Notes: The objective of this paper is to provide some stylized facts on the links between current account deficits and a broad set of economic variables proposed by the literature. In order to accomplish this task, we complement and extend previous empirical research by (1) using a large and consistent macroeconomic data set on current account deficits and other national income variables, (2) focusing on developing economies by drawing on a panel data set consisting of 44 developing countries and annual information for the period 1966-94, (3) adopting a reduced-form approach, instead of holding to a particular structural model, (4) distinguishing between within-country and cross-country effects, and (5) employing a class of estimators that controls for simultaneity and reverse causation. Some of our findings are the following. (i) Current account deficits are moderately persistent. (ii) A rise in domestic output growth generates larger current account deficits. (iii) Shocks that increase the terms of trade or appreciate the real exchange rate are linked with higher current account deficits. And (iv) either higher growth rates in industrialized economies or larger international interest rates reduce the current account deficit in developing economies.

Notes: We analyze public investment in social infrastructure using a two-period model in which a government must intermediate all infrastructure investment. Voters choose a government from two alternative types, high quality and low quality. A high quality government obtains higher returns on infrastructure but also demands a bigger consumption payoff for intermediating investment, implying higher taxes for the voting public. We find that these intermediation costs cause threshold effects in the electoral process -- closed economies above a critical level of first period income elect high quality governments while economies below that level elect low quality ones. Thresholds vanish when voters can borrow abroad; capital mobility reduces the current consumption cost of infrastructure investment and favors better quality governments.We then study the choice of government when government actions are observable with "noise". Small amounts of noise have no effect on the choice of government type or on infrastructure provision. However, once the level of noise becomes large, the agency problem raises the cost of intermediation, reduces infrastructure provision, and biases elections toward low quality governments. Finally, we test the model with cross-country data and find preliminary empirical support for the principal results.

Notes: It is well known that business cycles in OECD countries exhibit a remarkable degree of synchronization. Much less known is that the peak of the OECD cycle is associated with high prices of labour-intensive products and low prices of capital-intensive ones. We document this cyclical behavior of product prices and argue that it offers an important clue as to why business cycles are so synchronized. Positive shocks in one or more countries raise the prices of labour-intensive products and, as a result, the demand for labour throughout the industrialized world. This generates increases in wages, employment and output in all industrial countries. Through this channel, shocks are positively transmitted across countries, creating a force towards the synchronization of business cycles.

Notes: This paper uses data on the only systematic count of the homeless throughout the United States to estimate the effect on the rate of homelessness of a wide variety of potentially important determinants, including several major policy responses to homelessness that have not been included in previous studies. It improves upon estimates of the effect of previously studied determinants by using measures that correspond more closely to underlying theoretical constructs, especially by accounting for geographical price differences. It also conducts numerous sensitivity analyses and analyzes the consequences of the undercount of the homeless for point estimates and hypothesis tests. The paper's most important finding from a policy perspective is that targeting the current budget authority for housing assistance on the poorest eligible households will essentially eliminate homelessness among those who apply for assistance. Achieving this goal promptly without concentrating the poorest households in housing projects and without spending more money requires vouchering out project-based assistance. The primary methodological finding of the paper is that the 1990 Decennial Census did not produce sufficiently accurate counts, especially of the street homeless, to permit very precise estimates of the effects of many factors which surely affect the rate of homelessness. The main exception is the price of housing. Other things equal, higher housing prices lead to more homelessness.

Notes: In our laboratory customer markets, sellers post price and buyers incur cost (controlled at zero, low and high values) when they switch to a new seller. Sellers' production costs follow various random walks in 28 sessions, each with 50-100 trading periods. We find that prices are sticky, and sellers absorb almost half of their cost shocks. Transaction prices are about 10 percent higher when buyers face positive switch costs, and trading efficiency is slightly impaired. Experienced buyers switch about 10 percent of the time with either high or low switch costs. Buyers switch more often when they face a higher posted price, have a lower valuation for the good, face lower switch costs, have more time remaining, and have more favorable information on alternative prices. Sellers price higher when they have more attached buyers, when buyers have less information on rivals' prices, when rivals post higher prices, and when less time remains.

Notes: This paper shows that a small open economy that suffers from involuntary unemployment should levy a positive source-based tax on capital income. A revenue-neutral tax reform that increases the capital tax rate and reduces the labour tax rate will induce firms to substitute labour for capital. Such a tax reform will lower the marginal cost of production, increase output, reduce unemployment, and increase domestic welfare as long as the labour tax rate exceeds the capital tax rate. The result holds even though trade unions might succeed in subsequently increasing the net-of-tax wage rate, if the elasticity of substitution between capital and labour is above a critical value (which is itself below one). Finally, and importantly, independent of the size of the elasticity of substitution, the government can promote wage moderation and reduce unemployment by increasing the personal tax credit of employed workers instead of reducing the labour tax rate.

Notes: During the 1998-99 season, the National Hockey League randomly varied the number of referees used across games, seemingly providing a rare opportunity to test directly the deterrence model. Combining experimental parameter estimates with an economic model, there is little evidence that the rate of offending changed substantially with the addition of a second referee. The reason, however, appears to be that the second referee had little impact on the probability of punishment. As a consequence, the experiment ultimately turns out to be of limited use for testing deterrence.

Notes: This article argues that the existence of adverse selection (worker heterogeneity) can explain the underprovision of general training by employers. High-ability workers value the option to entertain outside wage offers once their abilty becomes known to the market. Offering short-term contracts is, therefore, a way to screen high-ability types from low-ability types. A firm is not willing to train workers under short-term contracts. Hence, despite the positive returns to training, training may be underprovided in equilibrium. More generally, this article contributes to the literature that seeks to explain the puzzling phenomenon of short-term contracts governing long-term buyer-seller relationships.

Notes: This research reports the results of an analysis of prize structures among competing firms paying tournament wages. In motorcycle racing, sponsors compete in an auction for riders using tournament prizes as bids. Since racers can only ride one bike and wear one helmet, they are forced to choose among sponsors of similar products. We find that in the face of competition, sponsors are forced to lower the incentive intensity of their prize differentials as rival sponsors post larger purses. Our test offers new corroboration of the Lazear-Rosen tournament model. Other researchers have found that workers respond to bigger prize differentials by working harder. We find that firms recognize this and also recognize that in the competitive labor-market equilibrium this extra work must be compensated by offering higher expected wages through bigger purses. Our results complete the theoretical circle: workers respond to the incentive effects of tournament wages and firms anticipate this behavior when making tournament wage offers.

Notes: Recent studies find that environmental taxes typically exacerbate pre-existing tax distortions and, therefore, the optimal pollution tax should lie below the Pigouvian level (social marginal damages). This paper analyzes a general equilibrium model with non-separable preferences and technology, relatively rare assumptions in this literature, and finds that the second-best optimal pollution tax can be above or below the first-best Pigouvian level. Surprisingly, the ordering of the two does not depend on the degree of pre-existing tax distortion. Moreover, it depends not just on the difference between the two goods' cross-price elasticities with leisure, but on that difference compared to the elasticity of demand for the polluting intermediate input. Finally, the paper shows that under plausible parameter conditions, a greater pre-existing tax distortion can increase the optimal level of environmental regulation.

Notes: According to the economic theory of patents, patents are needed so that pioneer firm have time to recoup their sunk costs of research and development. The key element in the economic theory is that pioneer firms have large, hard to recoup, sunk costs. Yet patents are not awarded on the basis of a firm's sunk costs. Patent law, in fact, ignores costs. The disconnect between patent law and patent theory suggests either that modifying patent law so that it better fits with patent theory would reduce the costs and inefficiencies associated with current patent practice or that the standard economic theory of patents is wrong.

Notes: In recent years, a handful of countries have converted the financing of their social security systems from pay-as-you-go (PAYGO) to partial or full funding. Privatization is viewed as one way to insulate social security from the political and demographic pressures that currently threaten the financial stability of PAYGO systems. However, privatization would improve a nation's situation only if such a reform increases domestic saving. In this paper I use evidence from Chile, where social security was privatized in 1981, to assess the impact of such a reform on household saving rates. I find that the reform provided a significant stimulus for net of social security household saving; increasing household saving rates between 5 and 10 percentage points.

Notes: We analyze the behavior of foreign banks who sequentially provide credit to finance projects in an emerging market. The foreign banks are exposed to both project-risks and the macro-economic risk of a currency crisis, and there are no bailout guarantees. Nevertheless, we show that it is often the case that banks provide too much credit too easily and that this behavior may precipitate the onset of a currency crisis. We demonstrate how the imposition of capital controls in the form of taxes and subsidies on foreign investment may improve the situation. Whereas most of the literature on currency crises focuses its analysis on debtor countries and thus on the borrowers' side, our paper illustrates that the lenders' side also deserves attention.

Notes: This paper explores the use of heuristic search algorithms for modeling human decision making. It is shown that this algorithm is consistent with many observed behavioral regularities, and may help explain deviations from rational choice. The main insight is that the heuristic function can be viewed as formal implementation of one aspect of emotion as discussed in Descarte's Error by Antonio Damasio. Consistent with Damasio's observations, it is shown that the quality of decision making is very sensitive to the nature of the heuristic ("emotion"), and hence this may help us better understand the role of emotion in rational choice theory.

Notes: The President's Commission to Strengthen Social Security proposed three plans for reforming Social Security. All of them would create individual accounts financed by diverting funds from the Social Security Trust Fund. One of the three Commission proposals (Model 1) would not restore long-term balance to Social Security. This paper focuses on the other two proposals - Models 2 and 3 - which would restore long-term balance. Models 2 and 3 contain a number of elements and are quite complicated. To understand the plans, we describe their proposed changes to Social Security benefits (which we refer to as "traditional benefits"), the individual accounts that the plans would establish, the combined effect on retirement income from the changes in traditional Social Security benefits and the individual accounts, and the impact on Social Security financing and the rest of the budget.

Notes: This paper describes the bid signaling that occurred in many of the FCC spectrum auctions. Bidders in these auctions bid on numerous spectrum licenses simultaneously, with bidding remaining open on all licenses until no bidder is willing to raise the bid on any license. Simultaneous open bidding allows bidders to send messages to their rivals, telling them on which licenses to bid and which to avoid. This "code bidding" occurs when one bidder tags the last few digits of its bid with the market number of a related license. We examine how extensively bidders signaled each other with retaliating bids and code bids in the DEF-block PCS spectrum auction. We find that only a small fraction of the bidders commonly used retaliating bids and code bids. These bidders won more than 40% of the spectrum for sale and paid significantly less for their overall winnings.

Notes: I investigate the competition between suppliers of components of a system for which there are network effects among users. Bundling one of these components with an outside good reduces the cost to consumers of using the system. This cost reduction is not necessarily welfare-enhancing, and bundling can also reduce welfare by decreasing innovation incentives. The model is used to evaluate Microsoft's bundling of Windows with Internet Explorer and its effect on competition with Netscape.

Notes: I analyze the effect of linear taxation on discrete choices between risky occupations. In the basic model, two occupations differ in the magnitude of income risks, and citizens differ in their expected productivity in one of the occupations. I derive sufficient conditions under which income redistribution encourages a greater part of the population to choose the riskier occupation associated with higher expected income. The results are then generalized to an arbitrary number of groups of citizens facing an arbitrary number of discrete occupational choices belonging to the same linear distribution class.

Notes: Bilateral exchange and asset specific investments are becoming increasingly common as agricultural markets continue to industrialize and become vertical coordinated. The extent that well-designed contracts can prevent investment "holdup" in bilateral exchange situations has been examined extensively in the general economics literature. Che and Hausch (1999) established the strong result that contracts have no value if the relationship specific investment is purely cooperative and if the contracting parties cannot commit to not renegotiate the contract ex post. In this paper, it is shown that contracts are generally valuable in a Che and Hausch environment if information between the seller and buyer is asymmetric and there is a cost to eliminating this asymmetry.

Notes: We compare the current Canadian supply management regime in which producers and importers benefit from rent-seeking activities that set production quota and import quota levels with those under a tariff, in which producers partakes in rent-seeking activities in order to induce the government to introduce a favorable tariff regime. We explore two different quota-setting games: (1) the import quota and production quota are set at a level that arises from a Cournot-Nash equilibrium between producers and importers; and (2) the producer marketing board acts as a Stackelberg leader, taking into account the importers' reaction to its production quota level. We compare these quota-setting games with two different tariff-setting games: (1) A non-cooperative game in which the government sets the tariff at a level that maximizes tariff revenue; and (2) A cooperative game in which producers, through rent-seeking activities, induce the government to set the tariff at a level that maximizes joint government and producer rents.

Notes: In the past several decades, new-product diffusion models has been an active area of research in marketing (see, e.g., Mahajan, Muller, and Wind 2000, and Mahajan and Wind 1986). Such models are useful because they can provide important insights into the timing of initial purchase of new products by consumers. Much of the work in this area has been spawned by a seminal paper of Bass (1969), in which it was postulated that the trajectory of cumulative adoptions of a new product follows a deterministic function whose instantaneous growth rate depends on two parameters, one of which captures a consumer?s intrinsic tendency to purchase, independent of the number of previous adopters, and the other captures a positive force of influence on a consumer by previous adopters. While Bass?s model, or the Bass Model (BM), yields an S-shaped cumulative-adoptions curve that has proven to provide excellent empirical fit for a wide range of new-product-adoptions data sets (especially for consumer durables), there also has been a common belief (see, e.g., Eliashberg and Chatterjee 1986) that it would be of interest to have an appropriate stochastic version of his model. The purpose of this paper is to formulate and study a stochastic counterpart of the BM. Inspired by a very early paper of Taga and Isii (1959), we formulate the trajectory of cumulative number of adoptions as a pure birth process with a set of state-dependent birth rates that are judiciously chosen to closely parallel the roles played by the two parameters in the deterministic BM. We demonstrate that with our choice of birth rates, the resulting pure birth process exhibits characteristics that resemble those in the BM. In particular, we show that the fraction of individuals who have adopted the product by time t in our formulation agrees with (converges in probability to) the corresponding deterministic fraction in a BM with the same pair of parameters, when the total number of consumers in the target population approaches infinity. Our formulation, therefore, supports and expands the BM by having explicit micro-level stochastic interactions amongst individual adopters.

Notes: Frequent Shopper programs are becoming ubiquitous in retailing. Retailers seem unsure however about whether these programs are leading to higher loyalty, or to higher profits. In this paper we analyze data from a US supermarket chain that has used a number of frequent shopper rewards to improve sales and profitability. We find that while these programs are profitable, this is only because substantial incremental sales to casual shoppers (cherry pickers) oset subsidies to already loyal customers. In this way our findings are inconsistent with existing theories about how frequent shopper programs are supposed to work. We construct our own Hotelling-like model that explicitly models cherry picking behavior and show that its predictions match the data quite closely. We further test the predictions of our model by characterizing the impact of such programs on trip frequency and basket size. We then use the model to examine more complex scenarios. For example, our analysis suggests that frequent shopper programs may be unprofitable if they eliminate all cherry picking. This may explain why some retailers seem dissatisfied with their programs. We end by proposing a solution that retains the benefits of the frequent shopper programs and yet continues to let supermarkets benefit from price discrimination.

Notes: Although much excitement has arisen over the potential for "interactivity" on the Web, very little is understood about what exactly creates a sense of interactivity and what impact it has on user behavior. Businesses are spending millions of dollars to add interactivity to their Web sites, in the form of games, animated pictures, and personalization tools, without knowing exactly what impact this has on their customers. In this research, the critical components of this computer-mediated interactivity and, more broadly, the larger realm of virtual experiences that it can create are explored. In doing so, I investigate the impact of the new media capabilities on consumers' interpretations of these experiences and the product-based persuasion that results from them. Given that direct product experience is usually the optimal method for consumers to learn about product information (Berger and Mitchell 1989; Marks and Kamins 1988; Smith and Swinyard 1988; Wu and Shaffer 1987), one of a marketer's goals should be to strive for verisimilitude in any indirect communications. This research explores how the Web might emulate direct experience and how the effects of these virtual experiences might differ from those resulting from exposure to traditional advertising media. In order to measure the sense of experience within a computer-mediated environment, I employ the construct of telepresence. Telepresence is defined as a sense of presence in a mediated environment, wherein the user experiences the computer-mediated environment as less mediated than it actually is (Steuer 1992). This construct of telepresence is also used to evaluate the process by which media characteristics influence consumer responses to marketing communications. The two primary objectives of this research are to understand how telepresence is created and how it affects consumer response to computer-mediated communications. I explore two critical media characteristics that are hypothesized to influence telepresence: (1) user control and (2) media richness. The potential for user control is a critical element of interactivity (Lombard and Snyder-Duch 2001). In addition, on the Web, it is controllable by the marketer Web (Ariely 2000). Media richness represents the sensory breadth (number of communication channels) and depth (quality within each channel) of the stimuli (Steuer 1992). As the degree of telepresence increases, the more similar the mediated experience will be to an actual direct product experience. Thus, when a state of telepresence is created in a persuasive communication, marketers may expect consumers to develop more intense attitudes and beliefs toward the product and its attributes than they would in a more mediated communication experience, such as that typically engendered by television or print advertisements (Fazio and Zanna 1981). Two experiments are conducted using a 2 (media richness) X 2 (user control) design in a computer-mediated environment (Figure 1). Wine (Study 1) and face cream (Study 2) are used because of the importance of experience attributes in product selection and preference formation for these two categories. Control is operationalized as control over the form of the information -- the order of information acquisition, holding the information content constant. "High user control" participants had control over the order in which they viewed the categories. These participants could view the categories in any order they desired, but were required to see all before exiting. The subjects in the "low user control" condition were guided through the topics in a pre-determined order. Media richness was operationalized via the modality of the medium. That is, media breadth was manipulated, while holding depth constant. In the low media richness condition participants were exposed to text and still pictures, with no sound. In the high media richness condition, full-motion video and sound were added. Both stimuli were pre-tested to to assure information equivalence. Telepresence is measured with a variation of the 7-item scale employed by Kim and Biocca (1997) and Novak et al. (2000). Attribute belief strength and product attitude intensity measures are also collected. The results show that both user control and media richness had significant positive influences on the creation of telepresence and on product attribute beliefs and overall attitudes toward the product. In Study 2, we also find a significant positive interaction effect between user control and media richness in the creation of telepresence. In both studies, telepresence was found to have a significant and positive impact on persuasion at both the attribute and product levels. Moreover, the results reveal the process by which this occurs; telepresence is shown to serve as a mediating variable in the relationship between these two media characteristics, represented through a "realism index," and attribute and product-level persuasion. Finally, I test two variations of the 7-item telepresence scale; comparisons of the results with those from previous studies provide further evidence of the unidimensionality of this scale and offer suggestions for future scale refinements. This study answers a number of key questions about consumer response to advertising in computer-mediated environments. This research has demonstrated a novel way of operationalizing control and media richness in a computer-mediated environment, and of measuring the role of telepresence in the process. A systematic program of research exploring the impact of the many facets of control and combinations of modalities on different types of individuals is necessary before we can be confident in our understanding of the impact of computer-mediated product experiences on consumer behavior.

Notes: Sweepstakes and contests are an extremely common promotional strategy used by firms. The sweepstakes and contests often differ significantly in the design of reward structure. For example, in 1999, Godiva Chocolates conducted a sweepstakes where one box of chocolates contained a diamond jewellery. The chance of winning was 1 in 320,000. In 2000, M&M conducted a contest where the Grand Prize of a $1,000,000 had winning odds of 1 in 380,000,000 and a million second prizes of a coupon redeemable for a M&M packet had the odds of 1 in 380. In a contest conducted by Planters in 2000, the first prize too was a $1 m (odds 1 in 5,000,000) but there were only 100 second prizes of a NFL football jacket with odds of 1 in 50,000. In 1999, Old Navy conducted a sweepstake where there were 4,552 first prize winners who got $100 gift cards with the odds of winning 1 in 1,000, the 9,105 second prize of $ 20 gift certificates had odds of 1 in 500 and the 13,660 third prizes of $10 certificates and 883,476 fourth prizes of $5 had winning odds of 1 in 333 and 1 in 50 respectively. These examples raise the issue of how reward structure would affect consumer valuation and participation. The objective of this paper is to obtain an understanding of how consumers' valuation of sweepstakes varies on the basis of differing consumer segments and the characteristics of the consumers. Our paper focuses on the decisions pertaining to the reward structure. We examine some commonly used sweepstakes and provide insights on how consumer valuations depend on the number of winners, the number of levels of prizes, and the difference in the awards between the levels (reward spread). We follow the Cumulative Prospect Theory to develop a model for consumer valuations of alternative formats of sweepstakes. The model applies a S-shaped probability weighting function and a loss-aversion framework for the consumers who switched to less preferred brands for sweepstakes but eventually did not win any prizes. We analytically derive our theoretical results and experimentally test some of the key implications. The results of the model show that the sweepstakes reward structure should be based on three factors: the objectives of the firm, the risk aversion of the customers, and the level of sub-additivity of probability weighting. The results of the model prescribes that the firm should begin by setting sweepstake objectives in terms of either attracting switchers or targeting current users. If the objective is to target current users, then the number of prizes awarded should be lower than in the case where the targets are switchers. If the current users are risk neutral, then the consumer value-maximizing award is a single grand prize. If the current users are risk averse, then the award should consist of multiple "large" prizes. When the firm's objective is to draw sales away from competitors, the value-maximizing strategy is to distribute the award money over more prizes. If the non-current user segment is risk neutral with respect to gains but sufficiently risk averse in the domain of losses, then the prescribed reward structure is to have a single grand prize but also include several small prizes which ideally should be close to the opportunity cost of the customers. If the non-loyal customers are risk averse in gain and loss averse, then the best prize allocation is to have both multiple large prizes as well as several small prizes.Another recommendation from the model analysis is that the firm should minimize the number of prizes at each level. In practice, the costs of implementing and communicating such a prize structure could be high. To trade-off between the logistical and communication costs and the theoretically value-maximizing approach, firms could increase the number of prizes at each level for easier implementation. A trade-off is involved between increasing the attractiveness of the sweepstake and the implementation costs of administering several levels of prizes. Often, when the prizes are products rather than cash, the firm may obtain quantity discounts for the products but the value of the products will be the same for the sweepstake participants.

Notes: This paper is based on a presentation made to the participants of the Trento Common Core Project in July 1999.

Notes: Paper presented at the conference 'Communication from the Commission on European Contract Law' organised by the Society of European Contract Law on November 30th and December 1st, 2001 in Leuven, Belgium.

Notes: Paper delivered at the VIII General Meeting of the "Common Core of European Private Law" held in Trento, Italy, on July 4-6, 2002.

Notes: Paper presented to the Common Core of European Private Law Plenary Session on July 4, 2002, Trento, Italy.

Notes: Most law and economics studies of contractual enforcement and excuse have focused on agreements in which the parties have fully specified their obligations with well-defined contract terms, and most have concluded that the excuse of contractual obligations will generally be inefficient. This essay focuses on the role of contractual enforcement and excuse in relational agreements -- ones in which the parties ordinarily adapt their obligations to changed circumstances and unforeseen contingencies as they arise. The analysis implies that appropriate rules for the excuse of contractual obligations may increase the cooperativeness and longevity of a wide range of long-term business relationships.

Notes: In memoriam professeur Frédéric-Edouard Klein. Cet article paraîtra dans la Revue critique de droit international privé, 2003.

Notes: The implementation of China's economic reforms, beginning in the early 1980's, and the formal establishment of a "Socialist Market Economy" in the following decade, stimulated substantial changes and improvements in the Insurance Laws and Regulations of the People's Republic of China (hereafter: PRC). The need for a modern and sophisticated legal framework aimed at regulating rights and remedies arising out of insurance contracts, as well as the insurance business in general, became clear and compelling as soon as the Communist State began its slow but inexorable retreat and it ceased to take care of every aspect of the life of the Chinese People. In the new socialist market context, the insurance contract is predestined to become the most important legal and economic tool available to those individuals who are not willing and/or able to bear the entirety of the risks associated with the implementation of the modern economic reforms. Against such backdrop, this paper is aimed at exploring the history of insurance in China as well as the framework of insurance laws and regulation enacted in the PRC during the recent years. In particular, the focus of this essay will be upon the legal principles and rules that currently govern insurance contracts and the relationship thereby established between the insurance company and the insured. Hence, the analysis of the legal protection of policyholders' rights and interests in China will center around the rules of insurance contracts interpretation, integration and performance at present in force. In light of the international nature of the contract of insurance, this paper will also offer a comparison of different approaches to policyholders' protection adopted in various legal systems belonging to both the common law and the civil law tradition.

Notes: This paper advocates the immediate beginning of a genuine, pluralistic political process leading to a binding codification of European Private Law. It is a critique of what I characterize as the post-modernist "soft" discourse of current European private law. This soft ideology stays behind proposals of "restatement" of European law; notions of "model" European codes; assertions of the sufficiency of European legal science as an alternative to codification; theories of competition between national legal systems as an efficient pattern of private law integration; notions of facilitating, optional "default law" as an efficient alternative to mandatory binding legal rules. My claim is that such soft rhetoric is yet another pattern of reception of American legal categories, poorly fitting the present fabric of the European legal scenario, and yielding to a variety of political consequences that should be spelled out rather than kept tacit. The new European Code should be hard, minimal, not limited to contracts, and process-oriented. It should aim to reflect the social fabric of European capitalism. The European codification process should look beyond the frontiers of fortress Europe and locate itself in the global dynamic of lawmaking.

Notes: Paper presented at the Conference "EC LAW OF MARKETING CONTRACTS AND FAIR DEALING" organised by the Society of European Contract Law (SECOLA) in London, on May 16-17, 2002