Education and Redistribution

Education is a very expensive way of carrying out redistributive policies. This is because those who have been more favoured by nature/luck are also those who benefit most from the investment in education: if educational resources are distributed according to the ability to benefit, as efficiency would require, the better off should receive more, which is clearly inequitable. Some counterintuitive features of the provision of education can be understood in terms of this conflict between equity and efficiency: electoral preferences for the provision of university subsidies, the distributive consequences of admission tests, and the interaction between house prices and the quality of schools.

A Theoretical Analysis of Public Funding for Research

This paper studies government funding for scientific research. Funds must be distributed among different research institutions and allocated between basic and applied research. Informational constraints prevent less productive institutions to be given any government funding. In order to internalise the beneficial effects of research, the government requires the most productive institutions to carry out more applied research than they would like. Funding for basic research is used by the government to induce more productive institutions to carry out more applied research then they would like.Basic and applied research, R&D, Scientific advances.

Exclusive Nightclubs and Lonely Hearts Columns: Non-monotone Participation in Optional Intermediation

In many decentralised markets, the traders who benefit most from an exchange do not employ intermediaries even though they can easily afford them. For other traders, those who benefit little from trade, intermediaries are too expensive. Together, these observations lead to empirically observed participation choices which are non-monotone in “type”. This paper provides a theoretical foundation for this hitherto unexplained phenomenon. We build a dynamic model, where the equilibrium bargaining share of a trader is a convex increasing function of her type. This characteristic ensures the existence of equilibria where only traders of middle type employ the intermediary, while the rest, the high and the low types, prefer to search for a trading partner directly.Keywords: Decentralised markets, Price formation, Walrasian equilibriumTwo-sided markets, intermediation, matching, marriage.

The Design of the University System

This paper compares the organisation of the university sector under private provision with the structure which would be chosen by a welfare maximising government. It studies a general equilibrium model where universities carry out research and teach students. To attend university and earn higher incomes in the labour market, students pay a tuition fee. Each university chooses its tuition fee to maximise the amount of resources it can devote to research. Research bestows an externality on society because it increases labour market earnings. Government intervention needs to balance labour market efficiency considerations — which would tend to equalise the number of students attending each university — with considerations of efficiency on the production side, which suggest that the most productive universities should teach more students and carry out more research. We find that government concentrates research more that the private market would, but less than it would like to do if it had perfect information about the productivity of universities. It also allows fewer universities than would operate in a private system.Higher education; The organisation of the university sector.

Could Do Better: The Effectiveness of Incentives and Competition in Schools.

This paper studies the effects of incentive mechanisms and of the competitive environment on the interaction between schools and students, in a set-up where their effort affects the students' educational attainment. We show that increasing the power of the incentive scheme and the effectiveness of competition may have the counterintuitive effect of lowering the students' attainment. In a simple dynamic set-up, where the reputation of the schools affects recruitment, and we show that increased competition leads to segregation of pupils by ability.students effort; schools quality; incentives in education; competition between schools; quasi-markets.

Short Term and Long Term Effects of Price Cap Regulation

This paper uses a very simple example (two goods, linear symmetric demand and cost) to study the effects of the price cap regulatory mechanism. We show that if a given price vector is preferred (using current welfare as the criterion) to another, then it is not necessarily the case that it is also preferred in the long run (using the presented discounted value of welfare as the criterion). The relationship between current welfare and profit and therefore the firm's incentive to bargain for a given price vector depend on the specific details of the mechanism considered.Ramsey prices; Price cap regulation.

Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price

In this paper we extend the standard matching analysis of decentralized markets allowing for the possibility that some traders are matched to more than one trader on the opposite side of the market. In contrast to the literature, we are able to reconcile the Walrasian equilibrium with the outcome of decentralized strategic trade: we show that there exist matching mechanisms which determine local market conditions such that the equilibrium price and quantities are the same as would result in the Walrasian global market.Decentralised markets, Price formation, Walrasian equilibrium

Mixed Oligopoly: Old and New

Many industries and “sectors” of a modern economy display the interaction of private and public agents which forms the topic of this seminar. A first approximation classification identifies three broad types of situations, which beyond the prima facie similarity, are however radically different in origin and nature.

Toc ’n’ Roll: Bargaining, Service Quality and Specificity in the UK Railway Network

The paper studies the regulatory design in an industry where the regulated downstream provider of services to final consumers purchases the necessary inputs from an upstream supplier. The model is closely inspired by the UK regulatory mechanism for the railway network. Its philosophy is one of vertical separation between ownership and operation of the rolling stock: the Train Operating Company (TOC) leases from a ROlling Stock COmpany (ROSCO) the trains it uses in its franchise. This, we show, increases the flexibility and competitiveness of the network. On the other hand, it also reduces the specificity of the rolling stock, thus increasing the cost of running the service, and the TOC’s incentive to exert quality enhancing effort, thus reducing the utility of the final users. Our simple model shows that the UK regime of separation may in fact be preferable from a welfare viewpoint.Network regulation; Railways; Incomplete contracts; Relation specific investment