To surcharge or not to surcharge? A two-sided market perspective of the no-surchage rule

In Electronic Payment Networks (EPNs) the No-Surcharge Rule (NSR) requires that merchants charge the same final good price regardless of the means of payment chosen by the customer. In this paper, we analyze a three-party model (consumers, merchants, and proprietary EPNs) to assess the impact of a NSR on the electronic payments system, in particular, on competition among EPNs, network pricing to merchants and consumers, EPNs' profits, and social welfare. We show that imposing a NSR has a number of effects. First, it softens competition among EPNs and rebalances the fee structure in favor of cardholders and to the detriment of merchants. Second, we show that the NSR is a profitable strategy for EPNs if and only if the network e¤ect from merchants to cardholders is sufficiently weak. Third, the NSR is socially (un)desirable if the network externalities from merchants to cardholders are sufficiently weak (strong) and the merchants' market power in the goods market is sufficiently high (low). Our policy advice is that regulators should decide on whether the NSR is appropriate on a market-by-market basis instead of imposing a uniform regulation for all markets. JEL Classification: L13, L42, L80American Express, Discover, Electronic payment system, market power, MasterCard, network externalities, no-surcharge rule, regulation, two-sided markets, Visa

Sticky wages: evidence from quarterly microeconomic data

This paper documents nominal wage stickiness using an original quarterly firm-level dataset. We use the ACEMO survey, which reports the base wage for up to 12 employee categories in French firms over the period 1998 to 2005, and obtain the following main results. First, the quarterly frequency of wage change is around 35 percent. Second, there is some downward rigidity in the base wage. Third, wage changes are mainly synchronized within firms but to a large extent staggered across firms. Fourth, standard Calvo or Taylor schemes fail to match micro wage adjustment patterns, but fixed duration "Taylor-like" wage contracts are observed for a minority of firms. Based on a two-thresholds sample selection model, we perform an econometric analysis of wage changes. Our results suggest that the timing of wage adjustments is not state-dependent, and are consistent with existence of predetermined of wage changes. They also suggest that both backward- and forward-looking behavior is relevant in wage setting. JEL Classification: E24, J3wage predetermination, Wage stickiness

Fixed and variable-rate mortgages, business cycles and monetary policy

The aim of this paper is twofold. First, I study how the proportion of fixed and variable-rate mortgages in an economy can affect the way shocks are propagated. Second, I analyze optimal implementable simple monetary policy rules and the welfare implications of this proportion. I develop and solve a New Keynesian dynamic stochastic general equilibrium model that features a housing market and a group of constrained individuals who need housing collateral to obtain loans. A given proportion of constrained households borrows at a variable rate, while the rest borrows at a fixed rate. The model predicts that in an economy with mostly variable-rate mortgages, an exogenous interest rate shock has larger effects on borrowers than in a fixed-rate economy. Aggregate effects are also larger for the variable-rate economy. For plausible parametrizations, differences are muted by wealth effects on labor supply and by the presence of savers. More persistent shocks, such as inflation target and technology shocks, cause larger aggregate differences. From a normative perspective I find that, in the presence of collateral constraints, the optimal Taylor rule is less aggressive against inflation than in the standard sticky-price model. Furthermore, for given monetary policy, a high proportion of fixed-rate mortgages is welfare enhancin

Essays on Estimating Production Functions

In the first essay I estimate production functions of multiproduct firms when technologies are product-specific but inputs are observable only at the firm-level. I provide an estimation strategy that solves for the unobservable inputs while correcting for the well-known simultaneity, collinearity and omitted price problems in production function estimation. The key insights of the estimation strategy are, first, using output demand estimates in identifying the product-level input allocations and production functions, and second, using an inverse of the production function to control for endogeneity. The second essay describes the biases that arise when production functions are estimated under the standard assumption of a firm-level technology, while the true technologies are product-specific. The assumption of a firm-level technology implies that the technology parameters are identical across the various goods produced in the industry, and that a multiproduct firm produces all of its output with a single technology. To examine the implications of these simplifying assumptions, I estimate a firm-level production function on a dataset generated of an industry where two types of goods are produced with product-specific Cobb-Douglas production functions. I find that the biases in the estimated firm-level parameters are substantial even when the true product-specific technologies are very similar. The directions and the magnitudes of the biases are determined by intricate functions of the true product-specific technologies and the product scopes of the firms in the industry. The estimated productivity levels have a relatively low correlation with the true firm-level productivity levels when the firms' product scopes are heterogeneous, as they usually are. The third essay estimates the range of productivity gains achieved by information technology investments in the Finnish manufacturing sector. The contribution is to provide estimates of IT's productivity effects while accounting for some of the key characteristics of IT, i.e., that returns to IT depend on previous IT or complementary investments, come with lags, and, due to the aforementioned factors, are heterogeneous across firms and over time. I find that the productivity effects of IT range from negative to positive. For example, most firms obtain a negative productivity effect in the first year after the investment, which may be due to disruption in the production process caused by the implementation of the IT investment. Two years after the IT investment was made, most firms attain a positive productivity effect. In the third year after the investment, almost all firms gain a positive productivity effect. The estimation results suggest that the common practice of estimating a single output elasticity for an IT stock that is constructed as a linear function of the IT investments is unlikely to provide a truthful description of the productivity effects of IT

John Hume : origins of a Derry icon 1960-74

John Hume held executive office for just five months out of a political career lasting more than 30 years. Yet he became one of the most influential politicians of the past 50 years and was instrumental in changing the course of politics not just in Northern Ireland, but also Dublin, London and Washington. This thesis examines Hume’s political origins from his earliest appearances in public life in the 1960s and how he rejected much of the received political ideology which endured for 40 years after the Partition of Ireland. It explores how Hume synthesised and entwined various strands of fresh thought and formed a distinctive approach which he made his own. It explains his rise from relative obscurity using a thematic approach. A chapter explores the “hidden history” of Hume’s Derry and its formative effect on him. Another chapter details Hume’s efforts to supplant the Nationalist Party and, along with five others, to create a new political force to further his distinctive approach to the Irish question. The third chapter examines in detail Hume’s efforts to reformulate the Northern Ireland policy of the Irish government and a fourth details his efforts to harness the power of the US. Hume’s troubled and arguably counter-productive relations with unionists in Northern Ireland are explored in chapter five and an explanation is offered as to why Hume failed to convince so many unionists of his case. It plots the changes in Hume’s approach which occurred in response to the eruption of the Troubles. The final chapter examines Hume’s relations with the British government and cites his insistence that London, as a sovereign power, involve itself fully in the search for a settlement. Throughout, constant reference is made to Hume’s Derry origins and the centrality of the city’s history and politics in his political make up