A Naïve Bidder in a Common Value Auction

We study a common value auction in which two bidders compete for an item the value of which is a function of three independent characteristics. Each bidder observes one of these characteristics, but one of them is 'naive' in the sense that he does not realize the other bidder's signal contains useful information about the item's value. Therefore, this bidder bids as if this were an Independent Private Values auction. We show that the naive's bidder payoff exceeds that of his fully rational opponent for all symmetric unimodal signal distributions. We also show that naive bidding is persistent in the evolutionary sense.

Product Line Pricing in a Vertically Differentiated Oligopoly

This paper empirically examines the joint pricing decision of products in a firm's product line. When products are distinguished by a vertical characteristic, those products with higher values of that characteristic will command higher prices. We investigate whether, holding the value of the characteristic constant, there is a price premium for products on the industry and/or the firm frontier, i.e., for the products with the highest value of the characteristic in the market or in a firm's product line. The existence of price premia for lower ranked products is also investigated. Finally, the paper investigates whether firms set prices to avoid cannibalizing the other products in their portfolio, whether competition with rival firms is stronger for products that are closer to the frontier compared to other products, and whether a product's price declines with the time it is ownered by a firm. Using personal computer price data, we show that prices decline with the distance from the industry and firm frontiers. We find evidence that consumer tastes for brands is stronger for the consumers of frontier products (and thus competition between firms weaker in the top end of the market). Finally, there is evidence that a product's price is higher if a firm offers products with the immediately faster and immediately slower computer chip (holding the total number of a firm's offerings constant), possibly as an attempt way to reduce cannibalization.Pricing, Multiproduct firms, Personal Computers, Product Entry and Exit

Hub-and-spoke free trade areas: Theory and evidence from Israel

We study how the sequential formation of free trade areas affects trade flows between member countries. In a three-country, three-good model of comparative advantage if two countries have an FTA, and both sign a similar agreement with the third, trade between the two decreases. However, if only one of them signs an additional FTA, a hub- and-spoke pattern arises, and trade between the initial members increases. Israel's experience lends strong support to our model: trade between Israel and the EU, subject to an FTA since 1975, increased by an additional 29% after the introduction of the US-Israel FTA in 1985.free trade areas; hub-and-spoke; Israel; trade flows

Adoption of Pollution Prevention: The Role of Information Spillover, Mandatory Regulation, and Voluntary Program Participation

Interest in promoting Pollution Prevention (P2) has been increasing since 1991, following the passage of the Pollution Prevention Act (PPA) of 1990. As part of the PPA, facilities that are subject to the Toxics Releases Inventory (TRI) are required to disclose the number of incremental P2 activities for each listed chemicals from 1991 onward. Though the disclosure is required by the PPA, the adoption of P2 remains a voluntary initiative by firms. To promote P2 ethic among firms, the U.S.EPA has established several voluntary programs and P2 information clearinghouse. P2 technologies were more likely to be facility- and operation- specific and involved considerable information costs and uncertainty. Firms might learn about P2 technologies from their peers through information spillovers. Furthermore, the adoption of P2 technologies might have been motivated in part by regulatory pressures and in part by voluntary commitments. To investigate the role of information spillover, regulatory pressure and voluntary commitment in motivating the adoption of P2 technologies, we focus on the first voluntary program initiated by the U.S. EPA, the 33/50 program. The objective of the program was to reduce the releases of 17 chemicals by 33% by 1992 and by 50% by 1995. It also sought to promote P2 as the preferred method to achieve the reduction. We conduct the empirical analysis on 6974 facilities that were eligible for the 33/50 program from 1991 to 1995. We estimate the number of P2 technologies adopted for 33/50 chemicals and other TRI chemicals at the facility level with respect to program participation, compliance costs to regulations, prior P2 experience by the neighbors on the respective chemicals, and the program participation ratio in the neighborhood. We address the endogeneity of program participation with instrumental variables, and control for location and industry fixed effects. We find that facilities were more likely to learn about adoption of P2 technologies from their industry peers. The direct impact of program participation was only evident for 33/50 chemicals, and the presence of program participants did not significantly motivate P2 adoption in the neighborhood.Pollution prevention, Toxics Release Inventory (TRI), Voluntary 33/50 program, Information spillover, Environmental Economics and Policy, Q55, C21, L51,

GREEN MANAGEMENT AND THE NATURE OF TECHNICAL INNOVATION

Innovation is a key component of a firm's strategy to improve market competitiveness and operational efficiency as well as to respond effectively to changing consumer preferences and regulations. A firm has the choice of undertaking different types of innovations that differ in the extent to which they involve changes in products, processes or practices and lead to gains in efficiency or brand image. We postulate that the extent and nature of innovation undertaken by a firm depends on its management system which not only influences its organizational structure, but also the incentives for making continual improvement in its technical capabilities, the extent of employee involvement in decision making and the internal communication channels for information sharing. We develop an empirical framework to examine the extent to which a management system promotes innovation and how its effect differs across different types of innovations.Environmental Economics and Policy, Research and Development/Tech Change/Emerging Technologies,

Why Do Firms Strive to Be Green? Explaining the Adoption of Total Quality Environmental Management

Many firms are undertaking environmentally friendly organizational change by applying the philosophy of Total Quality Management with its emphasis on reducing waste and increasing efficiency to improve their management of pollution. This paper investigates the factors that lead to total quality environmental management (TQEM) by large firms. We find that internal considerations stemming from a firm's technical capability, size of operations, and volume of past emissions are positively associated with the TQEM adoption decision. The first two factors are proxies for the firm's costs of adopting TQEM while the third factor is related to the benefits from increasing efficiency and waste reduction, and thus proxies for internally generated demand for TQEM. In contrast, external market and regulatory considerations, such as the desire to improve a firm's image with customers and regulators, earning good-will with regulators and the anticipation of future regulations appear not be associated with the adoption of TQEM. All of the external factors are also better thought of as influencing the firm's benefits from (or demand for) TQEM. Thus, the paper's main conclusion is that the adoption of TQEM is driven mostly by supply-side factors, and that to the extent that demand-side factors are important, they too originate internally within the firm rather than externally from the market and government regulation.Firm Organizational Structure, Regulatory and Market Pressures, Toxic Pollution, Environmental Economics and Policy, D23, M11,

Why a move to a simultaneous Presidential Primary system might be counter-productive

Despite the current wall-to-wall coverage of the 2016 primary race, the primary elections themselves are not scheduled to begin until February 2016, and will last until June. This drawn-out primary cycle gives a great deal of influence to a small number of voters in early primary states, such as Iowa and New Hampshire. George Deltas, Helios Herrera and Mattias Polborn look at proposed alternatives to this system, in the form of a one-day national primary system or one where all states in the Northeast, Midwest, West and South would vote simultaneously. Using models of voter information, they argue that a sequential voting system performs much better than a one-day national primary, but that the parties could improve the system even further by encouraging lagging candidates to drop out more quickly

Hub-and-Spoke Free Trade Areas

This paper is an output of the Research Training Network 'Trade, Industrialisation and Development' (Contract No. HPRN-CT-2002-00236) funded through the Improving Human Potential activity of the European Commission's Fifth Framework ProgrammeThis paper analyzes how the sequential formation of free trade areas affects the volume of trade between member countries. In a three--country, three--good model, if two countries have a free trade area, and both sign a similar agreement with the third, trade between the two decreases, and welfare rises in both. However, if only one of them signs an FTA with the third, a hub-and-spoke pattern arises. If the two spokes have a comparative advantage in different goods, trade between the two countries in the initial FTA increases, with welfare rising in the hub and falling in the spoke. We provide evidence consistent with the theoretical model when studying the experience of Israel.Financial aid from the Spanish Ministerio de Educación y Ciencia (SEJ2005-05831) and the Fundación Ramón Areces is gratefully acknowledge

Product Proliferation and Pricing in a Market with Positional Effects

We provide an explanation for product versioning that is not driven by differential costs or consumer preference heterogeneity, and investigate its implications. Consumers care whether a product they own is better than that owned by others, and whether others own a better product than them. These positional effects can induce a firm to offer products of different quality, with the high quality product becoming more exclusive as these effects strengthen. Consumers with no positional preferences become worse off when the broader market acquires them, except following the introduction of the second product, when some such consumers become better off. Positional preference also reduce total consumer surplus holding the number of products fixed; however, they increase consumer surplus if they lead the firm to introduce a second product of sufficiently high quality. We discuss empirical implications of the theory

Similarity Of R&D Activities, Physical Proximity, and The Extent Of R&D Spillovers

The diffusion of knowledge generates positive externalities if knowledge flows increase the productivity of Research and Development (R&D) by the recipients of these flows. This paper investigates the extent to which this positive spillover effect of knowledge diffusion depends on the similarity of research activities by the originator and recipient of the knowledge. The paper also investigates at what rate these spillover effects diminish as the distance between the originator and recipient increases. We find, using regional patent and R&D expenditure data from the European Union, that similarity between R&D activities is not only statistically significant, but salient: regions with completely dissimilar R&D activities exhibit essentially no spillovers at all. We also find an increase in the distance between the originating and recipient region by 550 kilometres reduces spillovers by 75% (as low as 55% in some specifications). Unlike much of the extant literature, the rate of spatial decay of spillovers is estimated jointly with the remaining parameters of the model rather than through specification searches over a set of alternative weight matrices. Our results are robust to the inclusion of unobserved country effects and border barriers