I estimate a matching model of business‐partnership formation to quantify the relative importance of productivity gains, financing gains, and the coordination failure of effort provision (moral hazard) among partners. Productivity gains account for 61% of the gain from the observed partnerships. For partners in the first quartile of the wealth distribution, however, financing accounts for 93% of the gain. The cost of moral hazard corresponds to 42% of the entire gain from partnerships. A loan policy specifically targeting partnerships is less effective in improving welfare than a conventional loan policy that provides loans to individual entrepreneurs.
{"title":"Estimating the benefits and costs of forming business partnerships","authors":"Jungho Lee","doi":"10.1111/1756-2171.12324","DOIUrl":"https://doi.org/10.1111/1756-2171.12324","url":null,"abstract":"I estimate a matching model of business‐partnership formation to quantify the relative importance of productivity gains, financing gains, and the coordination failure of effort provision (moral hazard) among partners. Productivity gains account for 61% of the gain from the observed partnerships. For partners in the first quartile of the wealth distribution, however, financing accounts for 93% of the gain. The cost of moral hazard corresponds to 42% of the entire gain from partnerships. A loan policy specifically targeting partnerships is less effective in improving welfare than a conventional loan policy that provides loans to individual entrepreneurs.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"531-562"},"PeriodicalIF":2.3,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12324","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49547409","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We compile an IO toolkit for aggregative games and use inclusive best reply functions to deliver oligopoly comparative statics and ranking of firms' actions and profits. Aggregative games apply to additively separable direct and indirect preferences, as well as generalized quadratic forms. The aggregative game structure delivers immediate consumer welfare results if demand functions have the IIA property. We close the model with a monopolistically competitive fringe to show strong neutrality properties for long-run equilibria. These properties underscore a unifying principle in the literature on merger analysis, privatization, Stackelberg leadership, and cost shocks.
{"title":"Aggregative games and oligopoly theory: short‐run and long‐run analysis","authors":"Simon P. Anderson, Nisvan Erkal, Daniel Piccinin","doi":"10.1111/1756-2171.12322","DOIUrl":"https://doi.org/10.1111/1756-2171.12322","url":null,"abstract":"We compile an IO toolkit for aggregative games and use inclusive best reply functions to deliver oligopoly comparative statics and ranking of firms' actions and profits. Aggregative games apply to additively separable direct and indirect preferences, as well as generalized quadratic forms. The aggregative game structure delivers immediate consumer welfare results if demand functions have the IIA property. We close the model with a monopolistically competitive fringe to show strong neutrality properties for long-run equilibria. These properties underscore a unifying principle in the literature on merger analysis, privatization, Stackelberg leadership, and cost shocks.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"470-495"},"PeriodicalIF":2.3,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12322","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47232317","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Many markets for homogeneous goods feature market power and heterogeneity in the prices paid by buyers. Search costs are a common explanation for this phenomenon and are a concern as they generate inefficiencies. In this paper, I study a competitive market for homogeneous goods and, by exploiting a unique dataset, I find three facts that are opposite to what one would expect from a market with these characteristics. First, sellers enjoy market power. Second, one can find customers paying 50 or 60% more than others for the same product at the same day. Third, price differences are systematic at the buyer level, providing evidence that sellers actively practice price discrimination. Inspired by these facts and by evidence supporting search costs as the source of market power, I propose and estimate a structural search model for two purposes. First, to measure how the market power generated by search costs affects welfare and, second, to study how price discrimination may magnify or reduce the welfare effects of search costs by altering competition intensity. My results address two important issues. First, search costs imply price distortions that generate a loss in total surplus that is about two-thirds of the welfare loss when shifting from perfect competition to monopoly. That is, even for a competitive market for homogeneous goods, search costs can have a severe effect on welfare. Second, price discrimination increases total surplus by as much as six percent relative to when sellers set uniform prices. The increase in welfare can be partially explained by price discrimination increasing search incentives and, hence, intensifying competition. ∗Department of Economics, Northwestern University; e-mail: g-marshall@u.northwestern.edu. Acknowledgements: I am especially grateful to Igal Hendel for his guidance and support. I am also grateful to Aviv Nevo and Rob Porter for their help and support. I also thank Germán Bet, Laura Doval, José Esṕın, Aanchal Jain, Chris Lau, Fernando Luco, Álvaro Parra, Esteban Petruzzello, Tiago Pires, Anthony Wray, and Jaber Zarezadeh for helpful suggestions and conversations, and seminar participants at Northwestern University and Pontificia Universidad Católica de Chile. All mistakes are my own.
{"title":"Search and Wholesale Price Discrimination","authors":"Guillermo Marshall","doi":"10.1111/1756-2171.12317","DOIUrl":"https://doi.org/10.1111/1756-2171.12317","url":null,"abstract":"Many markets for homogeneous goods feature market power and heterogeneity in the prices paid by buyers. Search costs are a common explanation for this phenomenon and are a concern as they generate inefficiencies. In this paper, I study a competitive market for homogeneous goods and, by exploiting a unique dataset, I find three facts that are opposite to what one would expect from a market with these characteristics. First, sellers enjoy market power. Second, one can find customers paying 50 or 60% more than others for the same product at the same day. Third, price differences are systematic at the buyer level, providing evidence that sellers actively practice price discrimination. Inspired by these facts and by evidence supporting search costs as the source of market power, I propose and estimate a structural search model for two purposes. First, to measure how the market power generated by search costs affects welfare and, second, to study how price discrimination may magnify or reduce the welfare effects of search costs by altering competition intensity. My results address two important issues. First, search costs imply price distortions that generate a loss in total surplus that is about two-thirds of the welfare loss when shifting from perfect competition to monopoly. That is, even for a competitive market for homogeneous goods, search costs can have a severe effect on welfare. Second, price discrimination increases total surplus by as much as six percent relative to when sellers set uniform prices. The increase in welfare can be partially explained by price discrimination increasing search incentives and, hence, intensifying competition. ∗Department of Economics, Northwestern University; e-mail: g-marshall@u.northwestern.edu. Acknowledgements: I am especially grateful to Igal Hendel for his guidance and support. I am also grateful to Aviv Nevo and Rob Porter for their help and support. I also thank Germán Bet, Laura Doval, José Esṕın, Aanchal Jain, Chris Lau, Fernando Luco, Álvaro Parra, Esteban Petruzzello, Tiago Pires, Anthony Wray, and Jaber Zarezadeh for helpful suggestions and conversations, and seminar participants at Northwestern University and Pontificia Universidad Católica de Chile. All mistakes are my own.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":" ","pages":""},"PeriodicalIF":2.3,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12317","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48125619","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I extend the canonical moral hazard model to allow the agent to face endogenous and non-contractible uncertainty. The agent works for the principal and simultaneously pursues private rewards. I establish conditions under which the first-order approach remains valid. The model adds to the literature on intrinsic versus extrinsic motivation. Specifically, to induce higher effort at work the contract may offer higher rewards but flatter incentives. The contract change makes the agent reevaluate his “work-life balance†. Larger employment rewards lessens the incentive to pursue private rewards. The greater reliance on labor income then necessitates weaker explicit incentives to induce high effort.
{"title":"Contracting with private rewards","authors":"René Kirkegaard","doi":"10.1111/1756-2171.12326","DOIUrl":"https://doi.org/10.1111/1756-2171.12326","url":null,"abstract":"I extend the canonical moral hazard model to allow the agent to face endogenous and non-contractible uncertainty. The agent works for the principal and simultaneously pursues private rewards. I establish conditions under which the first-order approach remains valid. The model adds to the literature on intrinsic versus extrinsic motivation. Specifically, to induce higher effort at work the contract may offer higher rewards but flatter incentives. The contract change makes the agent reevaluate his “work-life balance†. Larger employment rewards lessens the incentive to pursue private rewards. The greater reliance on labor income then necessitates weaker explicit incentives to induce high effort.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"589-612"},"PeriodicalIF":2.3,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12326","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45188458","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Nonretail platforms enable users to engage in noncommercial activities, while generating user information that helps ad targeting. We present a model in which the platform chooses a personalized ad‐display rule and an advertising fee (which depends on the targeted user group). The policy that maximizes the platform's advertising revenues creates an incentive for advertisers to strategize targeting. We provide a condition for incentive‐compatibility of the first‐best policy, and highlight the forces that make it harder to satisfy. We apply our result to examples of platforms. Our analysis of social networks turns out to be related to the “community‐detection” problem.
{"title":"Incentive‐compatible advertising on nonretail platforms","authors":"K. Eliaz, R. Spiegler","doi":"10.1111/1756-2171.12316","DOIUrl":"https://doi.org/10.1111/1756-2171.12316","url":null,"abstract":"Nonretail platforms enable users to engage in noncommercial activities, while generating user information that helps ad targeting. We present a model in which the platform chooses a personalized ad‐display rule and an advertising fee (which depends on the targeted user group). The policy that maximizes the platform's advertising revenues creates an incentive for advertisers to strategize targeting. We provide a condition for incentive‐compatibility of the first‐best policy, and highlight the forces that make it harder to satisfy. We apply our result to examples of platforms. Our analysis of social networks turns out to be related to the “community‐detection” problem.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"323-345"},"PeriodicalIF":2.3,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12316","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45129399","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We provide a model in which consumers search for firms directly or through platforms. Platforms lower search costs but charge firms for the transactions they facilitate. Platform fees raise the possibility of showrooming, in which consumers search on a platform but then switch and buy directly to take advantage of lower direct prices. In settings like this, search platforms like Booking.com have adopted price parity clauses, requiring firms to offer their best prices on the platform, arguing this is needed to prevent showrooming. However, despite allowing for showrooming in our model, we find that price parity clauses often harm consumers.
{"title":"Search platforms: showrooming and price parity clauses","authors":"Chengsi Wang, Julian Wright","doi":"10.1111/1756-2171.12305","DOIUrl":"https://doi.org/10.1111/1756-2171.12305","url":null,"abstract":"We provide a model in which consumers search for firms directly or through platforms. Platforms lower search costs but charge firms for the transactions they facilitate. Platform fees raise the possibility of showrooming, in which consumers search on a platform but then switch and buy directly to take advantage of lower direct prices. In settings like this, search platforms like Booking.com have adopted price parity clauses, requiring firms to offer their best prices on the platform, arguing this is needed to prevent showrooming. However, despite allowing for showrooming in our model, we find that price parity clauses often harm consumers.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"32-58"},"PeriodicalIF":2.3,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12305","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47192849","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The impact of the managed care backlash on health care spending","authors":"M. Pinkovskiy","doi":"10.1111/1756-2171.12306","DOIUrl":"https://doi.org/10.1111/1756-2171.12306","url":null,"abstract":"","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":"51 1","pages":"59-108"},"PeriodicalIF":2.3,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12306","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"63248567","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Between 2005 and 2015, US electricity sector emissions of nitrogen oxides, which harm human health and the environment, declined by two-thirds, and many coal-fired power plants became unprofitable and retired. Intense public controversy has focused on these changes, but the literature has not identified their underlying cause. Using a new electricity sector model that accurately reproduces unit operation, emissions, and retirement, we find that electricity consumption and gas prices account for nearly all the coal plant profitability decline and resulting retirements. Nitrogen oxides regulations explain most of the emissions reductions but had little effect on coal plant profitability and retirement.
{"title":"The roles of energy markets and environmental regulation in reducing coal‐fired plant profits and electricity sector emissions","authors":"Joshua Linn, Kristen McCormack","doi":"10.1111/1756-2171.12294","DOIUrl":"https://doi.org/10.1111/1756-2171.12294","url":null,"abstract":"Between 2005 and 2015, US electricity sector emissions of nitrogen oxides, which harm human health and the environment, declined by two-thirds, and many coal-fired power plants became unprofitable and retired. Intense public controversy has focused on these changes, but the literature has not identified their underlying cause. Using a new electricity sector model that accurately reproduces unit operation, emissions, and retirement, we find that electricity consumption and gas prices account for nearly all the coal plant profitability decline and resulting retirements. Nitrogen oxides regulations explain most of the emissions reductions but had little effect on coal plant profitability and retirement.","PeriodicalId":51342,"journal":{"name":"Rand Journal of Economics","volume":" ","pages":""},"PeriodicalIF":2.3,"publicationDate":"2019-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/1756-2171.12294","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44648914","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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