AEAweb: AER: Contents: June 2001

The American Economic Review
Vol. 91, No. 3, June 2001

Contents

Economic Choices
Daniel McFadden      351-378

Rules, Communication, and Collusion: Narrative Evidence from the Sugar Institute Case
David Genesove and Wallace P. Mullin      379-398

Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales
Philip A. Haile      399-427

Vertical Integration, Market Foreclosure, and Consumer Welfare in the Cable Television Industry
Tasneem Chipty     428-453

Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets
Michael R. Baye and John Morgan      454-474

Costly Predation and the Distribution of Competence
John Conlisk      475-484

A Theory of Buyer-Seller Networks
Rachel E. Kranton and Deborah F. Minehart      485-508

The Value of Information in Efficient Risk-Sharing Arrangements
Edward E. Schlee      509-524

Optimal Incentives for Teams
Yeon-Koo Che and Seung-Weon Yoo    525-541

The Optimal Allocation of Prizes in Contests
Benny Moldovanu and Aner Sela      542-558

Competition and Custom in Economic Contracts: A Case Study of Illinois Agriculture
H. Peyton Young and Mary A. Burke      559-573

Simulating Fundamental Tax Reform in the United States
David Altig, Alan J. Auerbach, Laurence J. Kotlikoff, Kent A. Smetters, and Jan Walliser     574-595

Is a Uniform Social Policy Better? Fiscal Federalism and Factor Mobility
Roberto Perotti      596-610

Demand Systems With and Without Errors
Arthur Lewbel     611-618

Using Engel’s Law to Estimate CPI Bias
Bruce W. Hamilton      619-630

Does Buffer-Stock Saving Explain the Smoothness and Excess Sensitivity of Consumption?
Sydney C. Ludvigson and Alexander Michaelides      631-647

Monetary Instability, the Predictability of Prices, and the Allocation of Investment: An Empirical Investigation Using U.K. Panel Data
Paul Beaudry, Mustafa Caglayan, and Fabio Schiantarelli    648-662

Business Fixed Investment and “Bubbles”: The Japanese Case
Robert S. Chirinko and Huntley Schaller      663-680

The Response of Expenditures to Anticipated Income Changes: Panel Data Estimates
Martin Browning and M. Dolores Collado      681-692

Estimating the Knowledge-Capital Model of the Multinational Enterprise
David L. Carr, James R. Markusen, and Keith E. Maskus      693-708

Optimal Regional Redistribution Under Asymmetric Information
Massimo Bordignon, Paolo Manasse, and Guido Tabellini     709-723

How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk:
Comment Tracy R. Lewis and David E. M. Sappington      724-730
Comment Dieter Balkenborg       731-738
Reply Rohan Pitchford       739-746

Auditors’ Report/Audited Financial Statements      747-754

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

Detailed notes on weekly meetings of the sugar-refining cartel show how communication helps firms collude, and so highlight the deficiencies in the current formal theory of collusion. The Sugar Institute did not fix prices or output. Prices were increased by homogenizing business practices to make price cutting more transparent. Meetings were used to interpret and adapt the agreement, coordinate on jointly profitable actions, ensure unilateral actions were not misconstrued as cheating, and determine whether cheating had occurred. In contrast to established theories, cheating did occur, but sparked only limited retaliation, partly due to the contractual relations with selling agents. (JEL L13, L41)

View article in pdf format (AEA members only)
Sign up for e-AER

When bidders anticipate an opportunity for resale trade, the value of winning an auction is determined in part by the option values of buying and selling in the secondary market. One implication is that a bidder’s willingness to pay at an auction increases with the expected level of competition between resale buyers. Empirical evidence from auctions of timber contracts supports this prediction and rejects standard models that ignore resale. The estimated effect is smaller after policy changes expected to diminish the prevalence of resale. Additional evidence supports the predicted presence of a common value element introduced by the resale opportunity. (JEL D44, D82, C52, L73)

View article in pdf format (AEA members only)
Sign up for e-AER

I examine the effects of vertical integration between programming and distribution in the cable television industry. I assess the effects of ownership structure on program offerings, prices, and subscriptions, and I compare consumer welfare across integrated and unintegrated markets. The results of this analysis suggest two general conclusions. First, integrated operators tend to exclude rival program services, suggesting that certain program services cannot gain access to the distribution networks of vertically integrated cable system operators. Second, vertical integration does not harm, and may actually benefit, consumers because of the associated efficiency gains. (JEL L10, L22, L40)

View article in pdf format (AEA members only)
Sign up for e-AER

We examine the equilibrium interaction between a market for price information (controlled by a gatekeeper) and the homogenous product market it serves. The gatekeeper charges fees to firms that advertise prices on its Internet site and to consumers who access the list of advertised prices. Gatekeeper profits are maximized in an equilibrium where (a) the product market exhibits price dispersion; (b) access fees are sufficiently low that all consumers subscribe; (c) advertising fees exceed socially optimal levels, thus inducing partial firm participation; and (d) advertised prices are below unadvertised prices. Introducing the market for information has ambiguous social welfare effects. (JEL D4, D8, M3, L13)

View article in pdf format (AEA members only)
Sign up for e-AER

An evolutionary game model shows how an equilibrium distribution of competence may evolve when members of a population prey on one another, but when predatory competence is costly to acquire. Under one interpretation, the competence distribution is an endogenously determined distribution of bounded rationality. An example shows how “tricksters” and “suckers” might coexist in the long run. The analysis leads to a curious result about a mixed equilibrium for a symmetric, zero-sum game. An increase in the costs of one or more competence levels has exactly zero effect on the fraction of the population at those levels. (JEL C79, D89)

View article in pdf format (AEA members only)
Sign up for e-AER

This paper introduces a new model of exchange: networks, rather than markets, of buyers and sellers. It begins with the empirically motivated premise that a buyer and seller must have a relationship, a “link,” to exchange goods. Networks—buyers, sellers, and the pattern of links connecting them—are common exchange environments. This paper develops a methodology to study network structures and explains why agents may form networks. In a model that captures characteristics of a variety of industries, the paper shows that buyers and sellers, acting strategically in their own self-interests, can form the network structures that maximize overall welfare. (JEL D00, L00)

View article in pdf format (AEA members only)
Sign up for e-AER

Suppose that agents share risks in competitive markets. We show that better
information makes everyone worse off if the economy has a representative agent—that is, the economy’s demand for state-contingent consumption equals the demand of a hypothetical agent who owns all the economy’s wealth. The representative agent, moreover, is normatively unrepresentative: although each agent dislikes information, the “representative” agent is indifferent. Although we emphasize pure exchange, our results imply that a representative-agent model might seriously misstate the welfare effects of improved information in an economy with production and risk sharing, even if it performs well otherwise. (JEL D8)

View article in pdf format (AEA members only)
Sign up for e-AER

Much of the existing theory of incentives describes a static relationship that lasts for just one transaction. This static assumption is not only unrealistic, but the resulting predictions appear to be at odds with many work organizations. The current paper introduces possible long-term interaction among agents, and studies how the design of explicit incentives and work organizations can exploit, and interact with, the implicit incentives generated by the repeated interaction of the agents. The optimal incentive scheme is shown to display observed features of the increasingly popular “teams,” such as the use of low-powered, group incentives. (JEL D23, J33, J41, L23)

View article in pdf format (AEA members only)
Sign up for e-AER

We study a contest with multiple, nonidentical prizes. Participants are privately informed about a parameter (ability) affecting their costs of effort. The contestant with the highest effort wins the first prize, the contestant with the second-highest effort wins the second prize, and so on until all the prizes are allocated. The contest’s designer maximizes expected effort. When cost functions are linear or concave in effort, it is optimal to allocate the entire prize sum to a single “first” prize. When cost functions are convex, several positive prizes may be optimal. (JEL D44, J31, D72, D82)

View article in pdf format (AEA members only)
Sign up for e-AER

Survey data suggest that cropsharing contracts exhibit a much higher degree of uniformity than is warranted by economic fundamentals. We propose a dynamic model of contract choice to explain this phenomenon. Landowners and tenants recontract periodically, taking into account expected returns as well as conformity with local practice. The resulting stochastic dynamical system is studied using techniques from statistical mechanics. The most likely states consist of patches where contractual terms are nearly uniform, separated by boundaries where the terms shift abruptly. These and other predictions of the model are borne out by survey data on agricultural contracts in Illinois. (JEL J43,C73)

View article in pdf format (AEA members only)
Sign up for e-AER

This paper uses a new, large-scale, dynamic life-cycle simulation model to
compare the welfare and macroeconomic effects of transitions to five fundamental alternatives to the U.S. federal income tax, including a proportional consumption tax and a flat tax. The model incorporates intragenerational heterogeneity and a detailed specification of alternative tax systems. Simulation results project significant long-run increases in output for some reforms. For other reforms, namely those that seek to insulate the poor and initial older generations from adverse welfare changes, long-run output gains are modest. (JEL H20, C68)

View article in pdf format (AEA members only)
Sign up for e-AER

This paper develops a two-country model to study two questions. How do the degrees of centralization of redistribution and of factor mobility affect the productive efficiency of the economies? What degrees of centralization of redistribution and of factor mobility are likely to be chosen by majority rule? The model shows that a system of centralized redistribution can lead to less efficient outcomes if labor or capital are not mobile; and an inefficient outcome, with incomplete or no factor mobility, receives a majority of votes in both countries, whenever the structure of labor markets is very different in the two countries. (JEL D72, E62, H50, H77)

View article in pdf format (AEA members only)
Sign up for e-AER

Revealed preference theory assumes that each consumer has demands that are rational, meaning that they arise from the maximization of his or her own utility function. In contrast, econometric or statistical demand models assume that each consumer’s demands equal a rational systematic component derived from a common utility function, plus an individual-specific, additive error term. This paper reconciles these differences, by providing necessary and sufficient conditions for rationality of statistical demand models given individual consumer rationality. (JEL D11, D12, C30, C43)

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

Estimating the Knowledge-Capital Model of the Multinational Enterprise
David L. Carr, James R. Markusen, and Keith E. Maskus        

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk:

View Comment in pdf format
Tracy R. Lewis and David E. M. Sappington     

View Comment in pdf format
Dieter Balkenborg      

View Reply in pdf format
Rohan Pitchford        

No abstract available.

Sign up for e-AER

Auditors’ Report/Audited Financial Statements      

No abstract available.

View statements in pdf format (AEA members only)
Sign up for e-AER

Back to Contents