A Soft Budget Constraint Explanation for the Venture Capital Cycle

We explore why venture capital funds limit the amount of capital they raise and do not reinvest the proceeds. This structure is puzzling because it leads to a succession of several funds financing each new venture which multiplies the well known agency problems. We argue that an inside investor cannot provide a hard budget constraint while a less well informed outsider can. Therefore, the venture capitalist delegates the continuation decision to the outsider by ex ante restricting the amount of capital he has under management. The soft budget constraint problem becomes the more important the higher the entrepreneur’s private benefits are and the higher the probability of failure of a project is

Private Health Insurance Market Reforms in the Affordable Care Act (ACA)

[Excerpt] This report provides background information about the private health insurance market, including market segments and regulation. It then describes each ACA market reform. The reforms are grouped under the following categories: obtaining coverage; keeping coverage; cost of purchasing coverage; covered services; cost-sharing limits; consumer assistance and other health care protections; and plan requirements related to health care providers. The Appendix of the report provides details about the types of plans that are required to comply with the different reforms

Private Health Insurance Market Reforms in the Patient Protection and Affordable Care Act (ACA)

[Excerpt] The private health insurance provisions in the Patient Protection and Affordable Care Act (P.L. 111-148, ACA, as amended) include market reforms that impose requirements on private health insurance plans. Such reforms relate to the offer, issuance, generosity, and pricing of health plans, among other requirements. This report provides background information about the private health insurance market, including market segments and regulation. It describes each ACA market reform and notes any major implementation activity that has occurred (e.g., issuance of final rule from a department such as Health and Human Services). The appendices of the report provide additional information about the status of regulations relating to each reform and how the reforms apply to the different market segments and health plans

Attempting to Close the Food Gap: An Evaluation of the 2011 Fair Share Program in Gettysburg, PA

Background: Families in Adams County with an income between 160% and 250% of the Federal Poverty Income Guidelines and ineligible for federal food assistance programs were determined to be in the “food gap.” In collaboration with Adams County Farm Fresh Markets and the Center for Public Service at Gettysburg College, the Adams County Food Policy Council developed the Fair Share Program to provide monthly food vouchers and educational sessions to a group of families in the food gap to use at farmers markets in Gettysburg, PA. The goals of the program were to provide families not eligible for federal food assistance with an increased ability to purchase healthy foods, increase fruit and vegetable consumption, support local farms the local economy, and provide nutrition education and support. Purpose: We sought to identify the effectiveness of the pilot Fair Share Program in reaching its goals and to determine ways to improve the program in the future. Methods: 25 families who participated in the Fair Share Program during the summer of 2011 were given surveys at the start of the program, and interviews were conducted with participants at the end of the program. Surveys were given to the participating vendors at the farmers markets at the conclusion of the program. A bivariate analysis of the participant survey was done comparing results from Hispanic and non-Hispanic participants using SPSS Statistics 17.0, while the vendor surveys and interviews were evaluated qualitatively. Results: There were several noteworthy differences between the habits and perceptions of the Hispanic and non-Hispanic participants, including fruit and vegetable consumption patterns, reasons for not shopping at the farmer’s markets, and where food is typically obtained from. Interviews indicated that both participants and vendors had overall positive experiences with the program even though challenges including price and language differences were experienced. Conclusion: The Fair Share Project reached its goals and had a positive impact on the community. Improvements should be made if the program is to be continued in the future to address the challenges participants faced while participating, and there is strong support for continuation and extension of the program

U.S. v. Microsoft: Did Consumers Win?

U.S. v. Microsoft and the related state suit filed in 1998 appear finally to have concluded. In a unanimous en banc decision issued in late June 2004, the D.C. Circuit Court of Appeals rejected challenges to the remedies approved by the District Court in November 2002. The wave of follow-on private antitrust suits filed against Microsoft also appears to be subsiding. In this paper we review the remedies imposed in the United States, in terms of both their relationship to the violations found and their impact on consumer welfare. We conclude that the remedies addressed the violations ultimately found by the Court of Appeals (which were a subset of those found by the original district court and an even smaller subset of the violations alleged, both in court and in public discourse) and went beyond them in important ways. Thus, for those who believe that the courts were right in finding that some of Microsoft's actions harmed competition, the constraints placed on its behavior and the active, ongoing oversight by the Court and the plaintiffs provide useful protection against a recurrence of such harm. For those who believe that Microsoft should not have been found liable because of insufficient evidence of harm to consumers, the remedies may be unnecessary, but they avoided the serious potential damage to consumer welfare that was likely to accompany the main alternative proposals. The remedies actually imposed appear to have struck a reasonable balance between protecting consumers against the types of actions found illegal and harming consumers by unnecessarily restricting Microsoft's ability to compete.

Assortment and Pricing Optimisation under non-conventional customer choice models

Nowadays, extensive research is being done in the area of revenue management, with applications across industries. In the center of this area lays the assortment problem, which amounts to find a subset of products to offer in order to maximise revenue, provided that customers follow a certain model of choice. Most studied models satisfy the following property: whenever the offered set is enlarged, then the probability of selecting a specific product decreases. This property is called regularity in the literature. However, customer behaviour often shows violations of this condition such as the decoy effect, where adding extra options sometimes leads to a positive effect for some products, whose probabilities of being selected increase relative to other products (e.g., including a medium size popcorn slightly cheaper than the large one, with the purpose of making the latter more attractive by comparison). We study two models of customer choice where regularity violations can be accommodated (hence the non-conventionality), and show that the assortment optimisation problem can still be solved in polynomial time. First we analyse the Sequential Multinomial Logit (SML). Under the SML model, products are partitioned into two levels, to capture differences in attractiveness, brand awareness and, or visibility of the products in the market. When a consumer is presented with an assortment of products, she first considers products on the first level and, if none of them is purchased, products in the second level are considered. This model is a special case of the Perception-Adjusted Luce Model (PALM) recently proposed by Echenique et al.(2018). It can explain many behavioural phenomena such as the attraction, compromise, similarity effects and choice overload which cannot be explained by the Multinomial Logit (MNL) model or any discrete choice model based on random utility. We show that the concept of revenue-ordered assortment sets, which contain an optimal assortment under the MNL model, can be generalized to the SML model. More precisely, we show that all optimal assortments under the SML are revenue-ordered by level, a natural generalization of revenue-ordered assortments that contains, at most, a quadratic number of assortments. As a corollary, assortment optimization under the SML is polynomial-time solvable Secondly, the Two-Stage Luce model (2SLM), is a discrete choice model introduced by Echenique and Saito (2018) that generalizes the standard multinomial logit model (MNL). The 2SLM does not satisfy the Independence of Irrelevant Alternatives (IIA) property nor regularity, and to model customer behaviour, each product has an intrinsic utility, and uses a dominance relation between products. Given a proposed assortment S, consumers first discard all dominated products in S before using an MNL model on the remaining products. As a result, the model can capture behaviour that cannot be replicated by any discrete choice model based on random utilities. We show that the assortment problem under the 2SLM is polynomially-solvable. Moreover, we prove that the capacitated assortment optimization problem is NP-hard and present polynomial-time algorithms for the cases where (1) the dominance relation is attractiveness correlated and (2) its transitive reduction is a forest. The proofs exploit a strong connection between assortments under the 2SLM and independent sets in comparability graphs. The third and final contribution is an in-depth study of the pricing problem under the 2SLM. We first note that changes in prices should be reflected in the dominance relation if the differences between the resulting attractiveness are large enough. This is formalised by solving the joint assortment and pricing problem under the Threshold Luce model, where one product dominates another if the ratio between their attractiveness is greater than a fixed threshold. In this setting, we show that this problem can be solved in polynomial time

How Do Antitobacco Campaign Advertising and Smoking Status Affect Beliefs and Intentions? Some Similarities and Differences Between Adults and Adolescents

This article presents two studies that examine similarities and differences with respect to how adults and adolescents process and respond to information in an antitobacco ad campaign. Study 1 examines (1) the effects of antitobacco advertising campaign measures (e.g., campaign advertisement integration, perceived strength of ad-based messages, attitude toward the ad campaign) on four key adult antismoking beliefs and (2) the influence of these campaign evaluations and beliefs on smokers’ intentions to quit smoking. Hierarchical regression results show that antismoking ad campaign reactions explain substantial additional variance in beliefs about tobacco industry deceptiveness, smoking addictiveness, harmfulness of secondhand smoke, and restrictions on smoking at different public venues. The findings also show that the campaign variables as a whole are positively related to intentions to quit smoking, beyond the variance that is explained by demographics. In Study 2, the authors replicate and extend these findings for the campaign using similar measures and procedures for a sample of more than 900 adolescents. They draw comparisons between these adult and adolescent findings and offer some implications for potential corrective advertising for consumers’ beliefs about smoking that may be required of tobacco companies based on U.S. v. Philip Morris USA, Inc

Naughty or nice? Punishment and the interaction of formal and informal incentives in long-term contractual relationships

The paper develops a model of repeated interaction between a buyer and a seller, which is then tested via laboratory experiments. The model allows for both formal and informal incentives in the contractual relationship between the parties. Formal incentives are explicit, performance-conditioned obligations enforced by third parties, such as a binding bonus paid for meeting an objectively measurable criterion. Informal incentives are non-binding promises to reward good performance. Although they are not enforced by external institutions, parties engaged in long-term interactions have incentives to “keep their words” about these promises and such payments can provide motivation for desirable performance. The current literature posits that these two types of incentives can function either as complements, so that joint use leads to better outcomes than either alone, or as substitutes, so that the availability of formal incentives may actually undermine the effectiveness of informal incentives. This study uses laboratory experiments to provide a rigorous test of hypotheses about the interaction of these incentives. The observed results suggest that the complementarity effect occurs in certain situations, but that the substitution effect does not occur as predicted, possibly because people do not punish transgressions in the manner that the theoretical model assumes.Relational contracts, experimental economics