Volume 24, Issue 1

I study how private information on the evolution of preference interacts with the dynamic screening contracts in a principal-agent framework with short-term commitment. Privacy on the evolution of preference preserves the agent’s future information advantage, even following truthful revelation of preference. This relaxes the ratchet effects if the consumer’s initial preference is skewedly distributed and the evolution of preference is distributed sufficiently evenly, while it strengthens the ratchet effects if otherwise. Through its relaxation or strengthening of the ratchet effects, privacy on (im)persistency implies an improvement or distortion in the equilibrium revelation of preference. I also characterize the respective implications on the optimal contracts. Such privacy is not welcomed by all types of the agent, for it redistributes the information rent among different types. Privacy on the evolution of preference sustains in equilibrium, as it is not optimal for the principal to perfectly screen the (im)persistency per se .

This paper studies a monopolist’s choices of quality and shelf life of a perishable good in the presence of demand uncertainty and sunk production cost. It shows that, in response to demand uncertainty, the firm typically produces multiple products which differ in quality and shelf life; under certain conditions, products with a longer shelf life are of lower quality; a probability distribution of demand which first-order (second-order) stochastically dominates another induces more (more or fewer) product varieties. It also provides conditions under which a higher quality product has a higher absolute profit margin but a lower percentage margin.

We study how decentralized transfers, originated by a selfish motive to preserve direct links, affect the resilience of a network against a shock. Well-off agents transfer resources to other agents in order to prevent the shock from reaching their neighbors. We show that the connectivity of a well-defined portion of the network, specifically, the propagation network, determines the resilience of the entire network. We also show how, although transfers are allocated to a subset of agents, the resilience effect of these transfers is amplified. Lastly, we show that the wealth distribution impacts resilience by determining the incentives of the agents to transfers resources.

This paper shows that, in the presence of negative production external effects (e.g., waste, pollution), market-driven technology adoption is socially inefficient. Two distinct market structures are considered within the neoclassical framework: perfect competition and monopoly. In both cases, there is a range of cost structures under which firms prefer the adoption of inferior technologies. A number of policy instruments are considered in terms of their welfare enhancing properties.

This paper investigates the issue of strategic delegation by considering the role of management centrality in contracting with different stakeholders. In a sequential negotiation unionized duopoly model, the results obtained by profit-maximizing entrepreneurial firms (where strategic choices are taken by firm owners and wage bargaining involves owners and unions) are compared against those of managerial firms (where strategic choices are delegated to managers who are also involved in wage bargaining vis-à-vis unions). Differences in the relative bargaining power among stakeholders (owners, managers and unions) play a key role in determining optimal delegation contracts, as well as the endogenous choice by firm owners to delegate strategic decisions to the management. Moreover, the distribution of stakeholders’ relative bargaining power affects firms’ profitability and overall welfare. In particular, to minimize potential conflict of interests between firm owners and the overall society, regulation directed to soften the managers’ bargaining strength vis-à-vis shareholders must be designed and implemented.

The existing literature on bankruptcy division either ignores creditor type or focuses on secured and unsecured creditors, subsuming operational creditors in the latter category. Further, implications for the debtor and the economy as a whole are under-emphasized. We build a general equilibrium model with default using three game-theoretic division rules to examine the appropriate adjudication of the claims of financial and operational creditors for optimum output and firm profits as well as creditor welfare. Our paper extends and enriches the normative discussion on these game-theoretic division rules. The analysis indicates that the proportion of claims held by financial and operational creditors is a key determinant of overall outcomes, and that interests of the corporate debtor represent common ground that could soften creditor competition. Using a dataset of bankruptcy resolution cases from India, we identify the specific rules that approximate actual payout for different claim proportions and deduce the overriding power of financial creditors. Institutional changes that would result in better long-term outcomes are proposed.

This paper analyzes the impacts of product differentiation in general oligopolistic equilibrium with trade. With constant wages, when product differentiation increases, the extensive margins of home and foreign exports decrease, and the domestic and foreign scopes of variety in each industry increase unambiguously. However, the impact of product differentiation on the labor requirement of each firm is mixed. In general equilibrium, an increment of product differentiation increases the wage rate unambiguously if the total variety of goods is large enough in all industry. However, if all firms are single-product ones, an increment of product differentiation increases the wage rate unambiguously in general equilibrium.

This study focuses on firms with cost-efficient technology that use licensing to influence product market behaviour, market prices and outputs and the resulting welfare effects. We show how licensing fees can be constructed that lead to identical collective industry outputs as under collusion while industry output is equal to or higher than that achieved under competition and sustained in equilibrium. Hence, consumers are either indifferent to firms’ collusion or better off when they do collude, whereas firms (producers) are always better off due to the improved cost efficiency of integrating the new production technology. This provides a theoretical foundation that explains why technology licensing is observed in highly concentrated industries characterised by significant diseconomies of scale relative to demand. We contribute to the literature by demonstrating how technology licensing involving collusion can reduce the dissipation effect and improve social welfare in oligopolistic industries. An important policy implication is that collusion involving technology licensing should not always be challenged by antitrust authorities, particularly when it does not transfer welfare from consumers to producers.

Using an appropriate game-theoretic approach, this article develops a non-cooperative two-stage game in a Cournot duopolistic network industry in which firms strategically choose whether to produce compatible goods in the first decision-making stage. Quality differentiation affects the sub-game perfect Nash equilibrium (SPNE): (i) the network effect acts differently between low- and high-quality firms, depending on their compatibility choice; (ii) if the network externality is positive (resp. negative), to produce compatible (resp. incompatible) goods is the unique SPNE; however, this equilibrium configuration leads the high-quality firm to be worse off; (iii) there is room for a side payment from the high- to the low-quality firm to deviate toward incompatibility (resp. compatibility) under positive (resp. negative) network externality. This payment represents a Pareto improvement on the firm side but not from a societal perspective, as consumers would be worse off. The article also pinpoints the social welfare outcomes corresponding to the SPNE.

Time-inconsistent preferences, which are modeled by relative discount functions, are a common explanation for the empirical finding that lifecycle profiles of household consumption are typically hump-shaped rather than monotonic. More precisely, time-inconsistent preferences that are present-biased often generate a hump-shaped consumption profile over the lifecycle. We develop a general framework for understanding present bias in consumption through a future weighting factor that perturbs the discount factor of utility at future periods away from exponential discounting. Using our framework we derive necessary and sufficient conditions on the future weighting factors for the log consumption profile to be locally concave. We find that these conditions, which are necessary for the consumption profile to be hump-shaped, are stronger than just assuming a present bias. Furthermore, we explore the conditions under which the consumption profile determined in the first period of life Pareto dominates the realized consumption profile. Lastly, we explore the interconnections between these two sets of conditions, elucidating the linkages between the determinants of hump-shaped consumption profiles and the conditions necessary for the initial consumption path to achieve Pareto dominance.

This paper adopts a green managerial delegation model in a polluting network industry wherein consumers form fulfilled rational expectations of network externalities. We show that firms are consistently incentivized to undertake ECSR (environmental corporate social responsibility) under price competition, while positive network externalities can increase the strategic level of ECSR. We also show that product substitutability between network products can play an important role in determining a firm’s strategic level of ECSR and resulting profits. Finally, ECSR is conducive to increasing environmental quality and social welfare in a high-polluting network industry. Therefore, the strategic adoption of ECSR in a network industry is Pareto-improving as environmental damage becomes serious.

This paper extends the findings of Liu, Wang, and Lee (2015. “Strategic Environmental Corporate Social Responsibility in a Differentiated Duopoly Market.” Economics Letters 129: 108–11), along two dimensions. First, we consider the case of endogenous market structure a la Singh and Vives (1984. “Price and Quantity Competition in a Differentiated Duopoly.” The RAND Journal of Economics : 546–54). Second, we refine the ECSR certification standards in differentiated duopoly with analysis of both uniform and discriminating standards. We find that NGO certifier will set the ECSR standards below the optimal level. We show that given the ECSR certification standards, there is a possibility of both price and quantity contracts choices by the firms in endogenous market structure. Additionally, we highlight the market structures emerging due to uniform and discriminating ECSR standards.

Using Chebyshev’s sum inequality, we generalize E [ X 2 ] ≥ E 2 [ X ] into a moment inequality with a general combination of moments that compares E [ X r + s ] and E [ X r ] E [ X s ]. We also provide its economic application.