453 research outputs found
The causes and economic consequences of envy.
In this lecture I first give an explanation for invidious preferences based on the (evolutionary) competition for resources. Then I show that these preferences have wide ranging and empirically relevant effects on labor markets, such as: workplace skill segregation, gradual promotions, wage increases that have no relation with productivity and downward wage flexibility. I suggest that labor and human resource economics can benefit from including envy into the standard set of factors considered in their theoretical and empirical models.Envy; Interdependent preferences; Skill segregation; Wage dynamics; Wage dispersion; Internal labor market; Recursive contracts;
Pharmaceutical generics, vertical product differentiation and public policy
This paper studies oligopolistic competition in off-patent pharmaceutical markets using a vertical product differentiation model. This model can explain the observation that countries with stronger regulations have smaller generic market shares. It can also explain the differences in observed regulatory regimes. Stronger regulation may be due to a higher proportion of production that is done by foreign firms. Finally, a closely related model can account for the observed increase in prices by patent owners after entry of generic producers.Pharmaceutical industry, generics, vertical product differentiation
Democracy and the curse of natural resources
We propose a theoretical model to explain empirical regularities related to the curse of natural
resources. This is an explicitly political model which emphasizes the behavior and incentives of
politicians. We extend the standard voting model to give voters political control beyond the
elections. This gives rise to a new restriction into our political economy model: policies should
not give rise to a revolution. Our model clarifies when resource discoveries might lead to
revolutions, namely, in countries with weak institutions. Natural resources may be bad for
democracy by harming political turnover. Our model also suggests a non-linear dependence of
human capital on natural resources. For low levels of democracy human capital depends
negatively on natural resources, while for high levels of democracy the dependence is reversed.
This theoretical finding is corroborated in both cross section and panel data regressions
Nash Bargaining with Downward Rigid Wages
We study the effect of downward wage rigidity in a dynamic model when wages are negotiated according to Nash
bargaining. Downward rigidity causes a decrease in the worker’s expected utility. For the firms the effect is ambiguous.Publicad
Markets for information : of inefficient firewalls and efficient monopolies
In this paper we build a formal model to study market environments where information is
costly to acquire and is of use also to potential competitors. In such situations a market for
information may form, where reports - of unverifiable quality - over the information acquired
are sold. A complete characterization of the equilibria of the game is provided. We find that
information is acquired when its costs are not too high and in that case it is also sold, though
reports are typically noisy. Also, the market for information tends to be a monopoly, and there is
typically inefficiency given by underinvestment in information acquisition. Regulatory
interventions in the form of firewalls, limiting the access to the sale of information to third
parties, uninterested in trading the underlying object, only make the inefficiency worse. On the
other hand, efficiency can be attained with a monopolist selling differentiated information,
provided entry is blocked. The above findings hold when information has a prevalent horizontal
differentiation component. When that is not the case, and the vertical differentiation element is
more important, firewalls can in fact be beneficial
Corporate Downsizing to Rebuild Team Spirit: How Costly Voting Can Foster Cooperation
We propose a new mechanism to achieve coordination through voting, for which we discuss a number of real-life applications. Among them, the mechanism provides for a new theory for downsizing in organizations. A crisis may lead to a decrease in the willingness to cooperate in an organization, and therefore to a bad equilibrium. A consensual downsizing episode
may signal credibly that survivors are willing to cooperate, and thus, it may be optimal and efficiency-enhancing (for the individuals remaining in the organization), as the empirical evidence suggests. A variation of the same mechanism leads to “efficient” upsizing.Publicad
IMPLEMENTATION, ELIMINATION OF WEAKLY DOMINATED STRATEGIES AND EVOLUTIONARY DYNAMICS
This paper studies convergence and stability properties of Sjöström's (1994) mechanism, under the assumption that boundedly rational players find their way to equilibrium using monotonic learning dynamics and best-reply dynamics. This mechanism implements most social choice functions in economic environments using as a solution concept one round of deletion of weakly dominated strategies and one round of deletion of strictly dominated strategies. However, there are other sets of Nash equilibria, whose payoffs may be very different from those desired by the social choice function. With monotonic dynamics, all these sets of equilibria contain limit points of the learning dynamics. Furthermore, even if the dynamics converge to the "right" set of equilibria (i.e. the one which contains the solution of the mechanism), it may converge to an equilibrium which is worse in welfare terms. In contrast with this result, any interior solution of the best-reply dynamics converges to the equilibrium whose outcome the planner desires.Implementation Theory, Evolutionary Dynamics
Interdependent preferences and segregating equilibria
This paper shows that models where preferences of individuals depend not only on their
allocations, but also on the well-being of other persons, can produce both large and
testable effects. We study the allocation of workers with heterogeneous productivities to
firms. We show that even small deviations from purely “selfish” preferences leads to
widespread workplace skill segregation. This result holds for a broad class and
distribution of social preferences. That is, workers of different abilities tend to work in
different firms, as long as they care somewhat more about the utilities of workers who
are “close”
The determinants of pricing in pharmaceuticals : are U.S. prices really higher than those of Canada?
This paper studies price determination in pharmaceutical markets using data for 25 countries,
six years and a comprehensive list of products from the MIDAS IMS database. We show that
market power and the quality of the product has a significantly positive impact of prices. The
nationality of the producer appears to have a small and often insignificant impact on prices,
which suggests that countries which regulates prices have relatively little power to do it in a way
that advances narrow national interest. We produce a theoretical explanation for this
phenomenon based on the fact that low negotiated prices in a country would have a knock-on
effect in other markets, and is thus strongly resisted by producers. Another key finding is that
the U.S. has prices that are not significantly higher than those of countries with similar income
levels. This, together with the former observation on the effect of the nationality of producers
casts doubt on the ability of countries to pursue “free-riding" regulation
Markets for information : of inefficient firewalls and efficient monopolies
In this paper we build a formal model to study market environments where information is costly to acquire and is of use also to potential competitors. In such situations a market for information may form, where reports - of unverifiable quality - over the information acquired are sold. A complete characterization of the equilibria of the game is provided. We find that information is acquired when its costs are not too high and in that case it is also sold, though reports are typically noisy. Also, the market for information tends to be a monopoly, and there is typically inefficiency given by underinvestment in information acquisition. Regulatory interventions in the form of firewalls, limiting the access to the sale of information to third parties, uninterested in trading the underlying object, only make the inefficiency worse. On the other hand, efficiency can be attained with a monopolist selling differentiated information, provided entry is blocked. The above findings hold when information has a prevalent horizontal differentiation component. When that is not the case, and the vertical differentiation element is more important, firewalls can in fact be beneficial.Information sale, Cheap talk, Conflicts of interest, Information acquisition, Chinese walls, Market efficiency
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