Not guilty? Another look at the nature and nurture of economics students

Economists praise the efficiency of the price mechanism in allocating scarce resources. Others, however, often reject it as unfair. In this study, we investigate the extent to which economists also differ from non-economists in how they value the fairness of the price system, and examine how deeply such differences are rooted in their course of studies. The result: studying economics does in fact influence how they arrive at value judgements, though students' attitudes do not stem solely from this factor - their views already differ from those of non-economics students right at the beginning of their studies. --Economists,fairness,learning,selection,attitudes

Demand Elasticities for Mobile Telecommunications in Austria

This paper analyses price elasticities in the Austrian market for mobile telecommunications services using data on firm specific tariffs in the period between January 1998 and March 2002. Dynamic panel data regressions are used to estimate short-run and long-run demand elasticities for business customers and for private consumers with both postpaid contracts and prepaid cards.We find that business customers have a higher elasticity of demand than private consumers, where postpaid customers tend to have a higher demand elasticity than prepaid customers. Also demand is generally more elastic in the long run. In addition, the paper also provides estimates for firm-specific demand elasticities which range from –0.47 to –1.1.Mobile telephony, price elasticities, unbalanced panel data, dynamic panel data analysis

Unionisation Structures and Innovation Incentives

This paper examines how different unionisation structures affect firms' innovation incentives and industry employment. We distinguish three modes of unionisation with increasing degree of centralisation: (1) "Decentralisation" where wages are determined independently at the firm-level, (2) "coordination" where one industry union sets individual wages for all firms, and (3) "centralisation" where an industry union sets a uniform wage rate for all firms. While firms' investment incentives are largest under "centralisation" investment incentives are non-monotone in the degree of centralisation: "Decentralisation" carries higher investment incentives than "coordination". Labour market policy can spur innovation by decentralising unionisation structures or through non-discrimination rules.

Unionization Structures and Firms' Incentives for Productivity Enhancing Investments

This paper examines how unionization structures that differ in the degree of wage centralization affect firms' incentives to increase labor productivity. We distinguish three modes of unionization with increasing degree of centralization: (1) "Decentralization" where wages are determined independently at the firm-level, (2) "coordination" where an industry union sets individual wages for all firms at the firmlevel, and (3) "centralization" where a uniform wage rate is set for the entire industry. We show that firms' investment incentives are largest under complete centralization. However, investment incentives are non-monotone in the degree of centralization so that "decentralization" carries higher investment incentives than "coordination." Depending on the innovation outcome, workers' wage bill is maximized under "centralization" if firms' productivity differences remain small. Otherwise, workers prefer an intermediate degree of centralization, which holds innovative activity down at its lowest level. Labor market policy can spur innovation by either decentralizing unionization structures or by imposing non-discrimination rules on monopoly unions. ZUSAMMENFASSUNG - (Gewerkschaftssysteme und die Anreize der Unternehmen zur Produktivitätssteigerung) Diese Arbeit untersucht den Einfluß unterschiedlicher Gewerkschaftssysteme auf die Anreize von Unternehmen, ihre Arbeitsproduktivität zu erhöhen. Wir unterscheiden zwischen drei Gewerkschaftsstrukturen mit zunehmendem Zentralisierungsgrad: 1.) "Dezentrale Lohnsetzung", bei der Löhne ohne zentrale Koordination auf Unternehmensebene bestimmt werden, 2.) "koordinierte Lohnsetzung", bei der eine Industriegewerkschaft die Lohnforderungen gegenüber einzelnen Arbeitgebern koordiniert und 3.) "zentralisierte Lohnsetzung", bei der ein einheitlicher Lohnsatz für die gesamte Industrie bestimmt wird. Wir zeigen, daß die Investitionsanreize der Unternehmen bei "zentralisierter Lohnsetzung" am stärksten sind. Die Investitionsanreize sind allerdings nicht monoton im Zentralisierungsgrad: "Dezentralisierte Lohnsetzung" führt zu stärkeren Investitionsanreizen als "koordinierte Lohnsetzung". Die Lohnsumme ist in einem zentralisierten Gewerkschaftssystem maximal, solange die Innovationen hinreichend "klein" sind, so daß die Unterschiede in der Produktivität zwischen den Unternehmen gering bleiben. Bei "großen" Innovationen bevorzugen Arbeitnehmer hingegen eine "koordinierte Lohnsetzung", wodurch die Innovationstätigkeit der Unternehmen auf ihr niedrigstes Niveau gedrückt wird. Arbeitsmarktpolitik kann die Innovationsanreize entweder durch eine Dezentralisierung der Lohnsetzung oder durch Diskriminierungsverbote für Monopolgewerkschaften erhöhen.Unions, Oligopoly, Innovation, Productivity, Wage-Setting Centralization, Labor Market Flexibility

Government Incentives when Pollution Permits are Durable Goods

This paper analyzes the incentive effects of pollution taxes versus pollution permits for a revenue maximizing Government that also pursues environmental objectives. In our model, pollution permits are analyzed as durable goods, and the leasing of pollution permits is seen as an equivalent to a pollution tax. We show that environmental policy based on durable pollution permits can be welfare superior to a pollution tax regime. The intuition is that a monopolistic Government would, in order to maximize its revenues, try to restrict the permit sales below the welfare maximizing level. While a pollution tax or leasing charge allows the Government to credibly commit to a monopoly level of pollution in future periods, a system based on durable permits weakens the monopolistic Government?s ability to credibly restrict future sales. Therefore, a pollution tax regime may be better for the environment and simultaneously increase Government revenues, but social welfare is larger with pollution permits. Hence, a regime where the Government cannot commit to monopoly quantities may be preferable from a welfare economic perspective. This argument in favor of durable permits complements more traditional arguments based on information asymmetries and innovation incentives. --Emissions Permits,Pollution Tax,Time Inconsistency,Durable Goods

Strategic Outsourcing Revisited

This paper analyzes a sequential game where firms decide about outsourcing the production of a non-specific input good to an imperfectly competitive input market. We apply the taxonomy of business strategies introduced by Fudenberg and Tirole (1984) to characterize the different equilibria. We find that outsourcing generally softens competition in the final product market. If firms anticipate the impact of their outsourcing decisions on input prices, there may be equilibria where firms outsource so as to collude or to raise rivals’ costs. We illustrate our analysis using a linear Cournot model.strategic outsourcing, Cournot model

Unionisation Structures and Firms' Incentives for Productivity Enhancing Investments

This paper examines how unionisation structures that differ in the degree of wage centralisation affect firms' incentives to increase labour productivity. We distinguish three modes of unionisation with increasing degree of centralisation. (1) "Decentralisation" where wages are determined independently at the firm-level, (2) "coordination" where an industry union sets individual wages for all firms at the firm-level, and (3) "centralisation" where a uniform wage rate is set for the entire industry. We show that firms' investment incentives are largest under complete centralisation. However, investment incentives are non-monotone in the degree of centralisation so that "decentralization" carries higher investment incentives than "coordination." Depending on the innovation outcome, workers' wage bill is maximised under centralisation" if firms' productivity differences remain small. Otherwise, workers prefer an intermediate degree of centralisation, which holds innovative activity down at its lowest level. Labour market policy can spur innovation by either decentralising unionisation structures or by imposing non-discrimination rules on monopoly unions.unionised oligopoly, innovation, productivity, labour market institutions

Economic principles of state aid control

This paper summarizes the economic principles of European state aid control. We start with a discussion of the economic justification for state aid control, including the definition of state aid in European law and exceptions to the general ban of state aid. We then explore the motives for granting state aid, ranging from the correction of market failures over political motives to political economy considerations. We then discuss how state aid control fits into the framework of European competition policy before we comment extensively on the more economic approach to state aid control, as implemented by the European Commission, and the state aid action plan. --

Indirect network effects with two salop circles: the example of the music industry

This paper analyses the interdependency between the market for music recordings and concert tickets, assuming that there are positive indirect network effects both from the record market to ticket sales for live performances and vice versa. Using a model with two interrelated Salop circles we show that prices in both markets are corrected downwards when compared to the standard Salop model. Furthermore, we show that the effects of file sharing on firms' profitability and on variety are ambiguous. File sharing can increase profits through increased concert ticket demand and thereby also lead to additional market entry and additional variety. --Music Industry,Indirect Network Effects,Salop Model,File Sharing

Collective Wage Setting When Wages Are Generally Binding: An Antitrust Perspective

This paper explores the anticompetitive effects that wage determination between an employers’ association and the industry’s labor union may have when wages are generally binding. It is shown that employers’ associations can, under certain circumstances, use generally binding standard wages to raise rivals’ costs. In equilibrium, it may be optimal for the labor union to demand a wage rate which is either above or below the entry deterring limit wage. Hence, it might be the case that a strong labor union serves as an efficiency enhancing countervailing power, because it keeps the employers’ association from raising the standard wage up to the limit wage. The model is used to explain why both German employers’ associations and German labor unions appear to oppose the removal of a specific legal instrument provided for in the German labor law, the so-called Allgemeinverbindlicherklärung (AVE), which makes collectively negotiated employment contracts binding for an entire industry. The entry deterring effect of the AVE suggests that labor market organization is an important determinant of product market competition and should therefore be considered as part of antitrust policies. ZUSAMMENFASSUNG - (Kollektive Lohnvereinbarungen und die Allgemeinverbindlicherklärung aus wettbewerbspolitischer Sicht) Der vorliegende Aufsatz analysiert wettbewerbsbeschränkende Wirkungen, die von allgemeinverbindlichen, kollektiven Lohnabschlüssen zwischen Gewerkschaften und Arbeitgeberverbänden ausgehen können. Es wird gezeigt, daß Arbeitgeberverbände unter bestimmten Bedingungen ein Interesse an allgemeinverbindlichen Tariflöhnen haben, um strategisch die Kosten der Konkurrenz überproportional zu erhöhen (raising rivals’ costs-Strategie). Durch hinreichend hohe Tariflöhne kann ein Marktzutritt von Konkurrenzunternehmen sogar vollkommen abgewehrt werden. Ob die Gewerkschaft im Gleichgewicht einen Lohn über oder unter dem marktzutrittsbeschränkenden Lohn bevorzugt, hängt von den genauen Parameterkonstellationen ab. Das Modell macht jedoch deutlich, daß eine Gewerkschaft als "ausgleichende Kraft" (countervailing power) in Erscheinung treten kann, die eine marktzutrittsbeschränkende Lohnsetzung durch einen monopolistischen Arbeitgeberverband vereitelt. Das Modell beleuchtet das Verhalten der deutschen Arbeitgeberverbände und Gewerkschaften und bietet eine Erklärung, warum sich beide Tarifparteien in Deutschland gegen eine Abschaffung der Allgemeinverbindlicherklärung (AVE) aussprechen, durch die kollektive Lohnabschlüsse den Charakter von Minimallöhnen annehmen. Die vorgelegte Analyse offenbart die wettbewerbsbeschränkenden Wirkungen der AVE und zeigt somit, daß die Organisation von Arbeitsmärkten entscheidenden Einfluß auf die Wettbewerbsintensität auf Gütermärkten hat. Folglich sollte die Organisation des Arbeitsmarktes auch bei der wettbewerbspolitischen Einschätzung von Gütermärkten berücksichtigt werden.Collective wage setting; wages; antitrust