On the Welfare Consequences of Political Activity

When economic actors are also allowed to become politically active, perhaps to influence a government price policy, they face decision problems with essentially simultaneous political and economic features. If, in addition, two groups struggle to pull the administered price level in opposite directions, an important strategic component is introduced. On two levels, then, such situations depart from the competitive economy framework of Arrow and Debreu. The model of this paper is designed to reconcile the general equilibrium model with politically active interest groups. This model is then used to assess the welfare consequences of such lobbying activity. We find that very often a lobbying program with price distortions is not the best means for regulating these economies. However, there may be cases in which no alternative policy could achieve the outcome resulting from the lobbying program. Keywords: Political economy, lobbying behavior, rent-seeking, distortionary policy.Political economy, lobbying behavior, rent-seeking, distortionary policy., Political Economy,

2-Player Nash and Nonsymmetric Bargaining Games: Algorithms and Structural Properties

The solution to a Nash or a nonsymmetric bargaining game is obtained by maximizing a concave function over a convex set, i.e., it is the solution to a convex program. We show that each 2-player game whose convex program has linear constraints, admits a rational solution and such a solution can be found in polynomial time using only an LP solver. If in addition, the game is succinct, i.e., the coefficients in its convex program are ``small'', then its solution can be found in strongly polynomial time. We also give a non-succinct linear game whose solution can be found in strongly polynomial time

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

Concave Generalized Flows with Applications to Market Equilibria

We consider a nonlinear extension of the generalized network flow model, with the flow leaving an arc being an increasing concave function of the flow entering it, as proposed by Truemper and Shigeno. We give a polynomial time combinatorial algorithm for solving corresponding flow maximization problems, finding an epsilon-approximate solution in O(m(m+log n)log(MUm/epsilon)) arithmetic operations and value oracle queries, where M and U are upper bounds on simple parameters. This also gives a new algorithm for linear generalized flows, an efficient, purely scaling variant of the Fat-Path algorithm by Goldberg, Plotkin and Tardos, not using any cycle cancellations. We show that this general convex programming model serves as a common framework for several market equilibrium problems, including the linear Fisher market model and its various extensions. Our result immediately extends these market models to more general settings. We also obtain a combinatorial algorithm for nonsymmetric Arrow-Debreu Nash bargaining, settling an open question by Vazirani.Comment: Major revision. Instead of highest gain augmenting paths, we employ the Fat-Path framework. Many parts simplified, running time for the linear case improve

Government and the provision of public goods: from equilibrium models to mechanism design

Focussing on their analysis of the optimal public goods provision problems, this paper follows the parallel development of equilibrium models and mechanism design after the accommodation of Samuelson's definition of collective goods to the general equilibrium framework. Both paradigms lead to the negative conclusion of the impossibility of a fully decentralized optimal public goods provision throught market or market-like institutions.general equilibrium, Lindahl-Foley equilibrium, Wicksell-Foley public competitive equilibrium, private provision equilibrium, mechanism design, free-rider problem, incentive compatibility, principal-agent models

Government and the provision of public goods : from equilibrium models to mechanism design

Focusing on their analysis of the optimal public goods provision problem, this paper follows the parallel development of equilibrium models and mechanism design after the accomodation of Samuelson's definition of collective goods to the general equilibrium framework. Both paradigms lead to the negative conclusion of the impossibility of a fully decentralized optimal public goods provision through market or market-like institutions.Lindahl-Foley equilibrium, Wicksell-Foley equilibrium, private provision equilibrium, free-rider problem, mechanism design, incentive compatibility, principal-agent models.

Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In

We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i.e., these are “ruled out”. Ex post, they freely bargain over outcomes on the list, i.e., the contract specifies no mechanism to structure their choice; in this sense outcomes on the list are not “ruled in”. A “loose” contract (long list) maximizes flexibility but may interfere with ex ante investment incentives. When these incentives are important enough, the parties may write a “tight” contract (short list), even though this leads to ex post inefficiency.

Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In

We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i. e. , these are “ruled out”. Ex post, they freely bargain over outcomes on the list, i. e. , the contract specifies no mechanism to structure their choice; in this sense outcomes on the list are not “ruled in”. A “loose” contract (long list) maximizes flexibility but may interfere with ex ante investment incentives. When these incentives are important enough, the parties may write a “tight” contract (short list), even though this leads to ex post inefficiency.

Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In

We view a contract as a list of outcomes. Ex ante, the parties commit not to consider outcomes not on the list, i.e., these are ruled out'. Ex post, they freely bargain over outcomes on the list, i.e., the contract specifies no mechanism to structure their choice; in this sense outcomes on the list are not ruled in'. A loose' contract (long list) maximizes flexibility but may interfere with ex ante investment incentives. When these incentives are important enough, the parties may write a tight' contract (short list), even though this leads to ex post inefficiency.