Non-Separable, Quasiconcave Utilities are Easy -- in a Perfect Price Discrimination Market Model

Recent results, establishing evidence of intractability for such restrictive utility functions as additively separable, piecewise-linear and concave, under both Fisher and Arrow-Debreu market models, have prompted the question of whether we have failed to capture some essential elements of real markets, which seem to do a good job of finding prices that maintain parity between supply and demand. The main point of this paper is to show that even non-separable, quasiconcave utility functions can be handled efficiently in a suitably chosen, though natural, realistic and useful, market model; our model allows for perfect price discrimination. Our model supports unique equilibrium prices and, for the restriction to concave utilities, satisfies both welfare theorems

Household Models: An Historical Perspective

This paper is a survey of the literature on theoretical models of the household, paying particular attention to some of the earlier contributions, and using them to place the current state of the theory in perspective. One of its aims is to suggest that the literature’s neglect of Samuelson’s proposal, that households can be modelled as if they maximised a form of social welfare function, was a mistake. However, the idea following directly from the Nash bargaining models, that the household’s preference ordering over the utility profiles of its members depends on exogenous variables, in particular wage rates and non-wage incomes, is an important one. Combined with Samuelson’s proposal, it can be made the basis for a general approach to modelling household decision taking, flexible enough to encompass non-cooperative behaviour and Pareto inefficiencies arising out of the inevitable incompleteness and unenforceability of domestic agreements. We also point out the importance of household production and some of the implications of its neglect in modelling households. Above all, the aim is to provide a deeper understanding of the current theoretical literature on household economics by means of a survey of its history.household behavior, family economics, household welfare, time allocation, labor supply, household production, child care, gender, discrimination, cooperative models, non-cooperative models, trade models, microeconomic history

Essays on Monotone Comparative Statics for Constrained Optimization Problems with Applications

My dissertation consists of three chapters. Chapters 1 and 2 both address extensions to existing monotone comparative statics results for constrained optimization problems using lattice programming techniques. Chapter 3 applies monotone comparative statics results to the question how environmental regulation affects investment in innovation in imperfectly competitive markets. Generally we can distinguish between two types of comparative statics problems. The first type of problem considers the change of the optimal solution to a maximization problem as the objective function changes, the other type considers the change due to a change in the constraint set. Lattice-based comparative statics theorems have been developed for both types of problems in the literature. The strengths of these lattice-theoretic comparative statics results are that they don't depend on the usual smoothness, interiority and concavity assumptions as required by the classical approach based on the Implicit Function Theorem, as well as convexity of the constraint set. Moreover, these comparative statics results also apply in the case of non-unique solutions.Quah (2007) expanded existing results by Milgrom and Shannon (1994) by making them applicable to some non-lattice constraint sets. In the first chapter, I extend existing comparative statics theorems to parametrized objective functions and non-lattice constraint sets. This generalization makes it possible to analyze a variety of economic optimization problems that fall into this class of problems which cannot be addressed using existing lattice-based techniques. I provide examples from consumer theory, producer theory and environmental economics that show the result's broad scope of applications. The second chapter studies monotone comparative statics with respect to price changes in the consumer's utility maximization problem. Most attempts to derive this property rely on aspects of the demand curve, and it has been hard to derive this property using assumptions on the primitive utility function. Using new results on the comparative statics of demand in Quah (2007), I provide simple and easy conditions on utility functions that yield the gross substitutes property. Quah (2007) provides conditions on utility functions that yield normal demand. I add an assumption on elasticity of marginal rate of substitution, which combined with Quah's assumptions yields gross substitutes. I apply this assumption to the family of constant elasticity of substitution preferences. My approach is grounded in the standard comparative statics decomposition of a change in demand due to a change in price into a substitution effect and an income effect. Quah's assumptions are helpful to sign the income effect. Combined with the elasticity assumption, we can sign the overall effect. As a by-product, I also present conditions which yield the gross complements property. Chapter 3 is an application of monotone comparative statics results to the question how environmental regulation affects incentives for R&D investment. For decades, there has been debate among economists whether environmental regulation hurts firms by restricting their choices or provides them with a comparative advantage through investment in innovation in more efficient technology. This chapter studies the effect of environmental regulation on firms' investment in R&D in imperfectly competitive output markets using a monotone comparative statics approach. I provide necessary and sufficient conditions on the profit function that guarantee nondecreasing R&D investment as regulation is tightened and find that a form of weak complementarity between environmental R&D investment and the policy variable plays a crucial role. Moreover, I provide properties of such profit functions through assumptions on demand, Cournot output and cost functions

A survey on intra-household models and evidence

Intra-household models have achieved significant theoretical development and received considerable empirical support within the past decade. This paper is a comprehensive and updated survey on three most influential categories of intra-household models: the Nash cooperative bargaining settings, the collective settings, and the non-cooperative settings. Various models and the latest development within each category are discussed, along with corresponding testable restrictions and limitations. Dynamic cooperative bargaining models and endogenous collective models are introduced as the latest efforts in incorporating a richer set of elements to the intra-household theory. The latest empirical results are summarized along with their policy implications.Intrahousehold economics; bargaining models; collective models

A survey on intra-household models and evidence

Intra-household models have achieved significant theoretical development and received considerable empirical support within the past decade. This paper is a comprehensive and updated survey on three most influential categories of intra-household models: the Nash cooperative bargaining settings, the collective settings, and the non-cooperative settings. Various models and the latest development within each category are discussed, along with corresponding testable restrictions and limitations. Dynamic cooperative bargaining models and endogenous collective models are introduced as the latest efforts in incorporating a richer set of elements to the intra-household theory. The latest empirical results are summarized along with their policy implications

Entry-Deterring Nonlinear Pricing with Bounded Rationality

This paper considers an entry-deterring nonlinear pricing problem faced by an incumbent firm of a network good. The analysis recognizes that the installed user base/network of incumbent monopolist has preemptive power in deterring entry if the entrant’s good is incompatible with the incumbent’s network. This power is, however, dramatically weakened by the bounded rationality of consumers in the sense that it is vulnerable to small pessimistic forecasting error when the marginal cost of entrants falls in some medium range. These findings provide a formal analysis that helps reconcile two seemingly contrasting phenomena: on one hand, it is very difficult for a new, incompatible technology to gain a footing when the product is subject to network externalities; on the other hand, new technologies may frequently escape from inefficient lock-in and supersede the old technologies even in the absence of backward incompatibility. Our results therefore shed light on how the market makes transition between incompatible technology regimes

Dynamic Pricing and Inventory Management: Theory and Applications

We develop the models and methods to study the impact of some emerging trends in technology, marketplace, and society upon the pricing and inventory policy of a firm. We focus on the situation where the firm is in a dynamic, uncertain, and (possibly) competitive market environment. The market trends of particular interest to us are: (a) social networks, (b) sustainability concerns, and (c) customer behaviors. The two main running questions this dissertation aims to address are: (a) How these emerging market trends would influence the operations decisions and profitability of a firm; and (b) What pricing and inventory strategies a firm could use to leverage these trends. We also develop an effective comparative statics analysis method to address these two questions under different market trends. Overall, our results suggest that the current market trends of social networks, sustainability concerns, and customer behaviors have significant and interesting impact upon the operations policy of a firm, and that the firm could adopt some innovative pricing and inventory strategies to exploit these trends and substantially improve its profit. Our main findings are: (a) Network externalities (the monopoly setting). We find that network externalities prompt a firm to face the tradeoff between generating current profits and inducing future demands when making the price and inventory decisions, so that it should increase the base-stock level, and to decrease [increase] the sales price when the network size is small [large]. Our extensive numerical experiments also demonstrate the effectiveness of the heuristic policies that leverage network externalities by balancing generating current profits and inducing demands in the near future. (Chapter 2.) (b) Network externalities (the dynamic competition setting). In a competitive market with network externalities, the competing firms face the tradeoff between generating current profits and winning future market shares (i.e., the exploitation-induction tradeoff). We characterize the pure strategy Markov perfect equilibrium in both the simultaneous competition and the promotion-first competition. We show that, to balance the exploitation-induction tradeoff, the competing firms should increase promotional efforts, offer price discounts, and improve service levels. The exploitation-induction tradeoff could be a new driving force for the fat-cat effect (i.e., the equilibrium promotional efforts are higher under the promotion-first competition than those under the simultaneous competition). (Chapter 3.) (d) Trade-in remanufacturing. We show that, with the adoption of the very commonly used trade-in remanufacturing program, the firm may enjoy a higher profit with strategic customers than with myopic customers. Moreover, trade-in remanufacturing creates a tension between firm profitability and environmental sustainability with strategic customers, but benefits both the firm and the environment with myopic customers. We also find that, with either strategic or myopic customers, the socially optimal outcome can be achieved by using a simple linear subsidy and tax scheme. The commonly used government policy to subsidize for remanufacturing alone, however, does not induce the social optimum in general. (Chapter 4.) (d) Scarcity effect of inventory. We show that the scarcity effect drives both optimal prices and order-up-to levels down, whereas increased operational flexibilities (e.g., the inventory disposal and inventory withholding opportunities) mitigate the demand loss caused by high excess inventory and increase the optimal order-up-to levels and sales prices. Our extensive numerical studies also demonstrate that dynamic pricing leads to a much more significant profit improvement with the scarcity effect of inventory than without. (Chapter 5.) (e) Comparative statics analysis method. We develop a comparative statics method to study a general joint pricing and inventory management model with multiple demand segments, multiple suppliers, and stochastically evolving market conditions. Our new method makes componentwise comparisons between the focal decision variables under different parameter values, so it is capable of performing comparative statics analysis in a model where part of the decision variables are non-monotone, and it is well scalable. Hence, our new method is promising for comparative statics analysis in other operations management models. (Chapter 6.

Entry-Deterring Nonlinear Pricing with Bounded Rationality

This paper considers an entry-deterring nonlinear pricing problem faced by an incumbent firm of a network good. The analysis recognizes that the installed user base/network of incumbent monopolist has preemptive power in deterring entry if the entrant’s good is incompatible with the incumbent’s network. This power is, however, dramatically weakened by the bounded rationality of consumers in the sense that it is vulnerable to small pessimistic forecasting error when the marginal cost of entrants falls in some medium range. These findings provide a formal analysis that helps reconcile two seemingly contrasting phenomena: on one hand, it is very difficult for a new, incompatible technology to gain a footing when the product is subject to network externalities; on the other hand, new technologies may frequently escape from inefficient lock-in and supersede the old technologies even in the absence of backward incompatibility. Our results therefore shed light on how the market makes transition between incompatible technology regimes

The Endogenous Value of Information”

This doctoral thesis examines the value of information in settings, where two or more agents interact. In such situations, contrary to one-person decision problems, a more informative signal is not necessarily more valuable, and it may be profit-maximizing for an information seller to deliberately garble or damage his signal before selling it to another agent. More generally, the value of information depends on the precise contractual arrangement under which the information is to be transferred and used. I examine the following applications: (i) value of information in portfolio decision problems; and (ii) the transfer of information to a wealth-constrained investor. In a multiagent setting I examine (iii) the value of hared information services; and (iv) the value of information and flexibility for screening a heterogeneous consumer base