Optimal Product Variety in a Hotelling Model

In Hotelling style duopoly location games the product variety (or firm locations) is typically not socially optimal. This occurs because the competitive outcome is driven by the density of consumers at the margin while the socially optimal outcome depends on the whole distribution of consumer locations/tastes. We consider a natural extension of the standard model in which firms are imperfectly informed about the distribution of consumers, in particular firms are uncertain about the consumer mean. In the uniform case, as the aggregate uncertainty about the mean becomes large relative to the dispersion of consumers about the mean, competitive locations become socially optimal. A limit result on prices for discontinuous, log-concave densities shows the result will hold in a range of cases.

The Political Economy of Infrastructure Investment: Competition, Collusion and Uncertainty

Infrastructure, as it impacts transport costs, is crucial in determining equilibrium outcomes in spatial competition; however, infrastructure investment is typically exogenous. Our political economy analysis of infrastructure choice is based upon consumer preferences derived from Salop’s circular city model. In this setting, infrastructure investment has two effects: it directly lowers costs to consumers and indirectly affects market power. We show how political support for infrastructure investments depends crucially on the details of the market. Competition boosts popular support for infrastructure — often excessively so — while collusion leads to underinvestment. The uncertainty produced by infrastructure induced entry leads to traps and thresholds.

Political Economy of Infrastructure Investment: A Spatial Approach

The importance of infrastructure for growth is well established in the macroeconomic literature. Previous research has treated public investment in infrastructure as exogenous. We remedy this shortcoming by providing a political economy analysis of infrastructure choice based upon consumer preferences derived from spatial competition models. The transport cost parameter providesa natural index of infrastructure in these models. In this setting, infrastructure investment has two possible effects: to directly lower transaction costs and indirectly to affect market power. We begin with a single marketplace model in which only the direct effect is present and then bring in the indirect effect by extending the analysis to competition on the circle. Analysis of market structure, consumer participation, entry and transport cost curvature give a rich variety of results. Socially optimal outcomes occur in some cases but infrastructure traps are common. Our results suggest that in less developed countries competition enhancing policies are a key prerequisite for public support of infrastructure investmentSpatial Competition, Political Economy, Market Structure, Infrastructure Investment, Voting

Who Decides about Change and Restructuring in Organizations?

We model the determinants of who makes decisions, the principal or an agent, when there are multiple decisions. Decision making takes effort and time; and, once implemented, the expected loss from a particular decision (or project) increases with the length of time since the last decision was made. The model shows delegation is more likely as: (i) controllable uncertainty increases; (ii) uncontrollable uncertainty decreases; (iii) the number of plants in the firm decreases; (iv) the complexity of the decision increases; and (v) the importance of the decision increases. The theoretical predictions are consistent with our novel empirical results on the delegation of major organizational change decisions using workplace data. Our unique data allows us to identify who made a decision to implement a significant change, as well as key internal and external factors highlighted as potentially important in our theory. Empirically, delegation is more likely in organizations that: face a competitive product market; export; have predictable product demand; have a larger workplace; and that have fewer other workplaces in the same organization producing a similar output. We find business strategy is not related to the allocation of decision making authority; delegation, however, is associated with the use of human resource techniques such as the provision of bonuses to employees.decision making authority, decentralization, delegation, competition, exports, uncertainty, principal and agent

Confidentially is not enough: framing effects in student evaluation of economics teaching

Contrary to previous research we show lack of anonymity is associated with large positive shifts in student evaluation of teaching. The results are consistent with the simple observation that due to higher expected future earnings economics and business students have more at stake in terms of potential retaliation by an instructor. The observed positive bias is strongest for international students. Our analysis is based on both a comparison of distributions and ordered probit multi-variate regression. These methods overcome the statistical problems associated with previous studies which looked at differences in means for ordinal responses.

Spacial Equilibrium in a State Space Approach to Demand Uncertainty

Firms are likely to be uncertain about consumer preferences when launching products. The existing literature models preference uncertainty as an additive shock to the consumer distribution in a characteristic space model. The additive shock only shifts the mean of the consumers' ideal points. We generalize this approach to a state space model in which a vector of parameters can give rise to dierent distributions of consumer tastes in dierent states, allowing other moments of the consumer density to be uncertain. An equilibrium existence result is given. In the case of symmetric distributions, the unique subgame-perfect equilibrium can be described by a simple closed-form solution.Location; Product Dierentiation; Uncertainty; Hotelling

Uncertainty in Spatial Duopoly with Possibly Asymmetric Distributions: a State Space Approach

In spatial competition firms are likely to be uncertain about consumer locations when launching products either because of shifting demograph- ics or of asymmetric information about preferences. Realistically distri- butions of consumer locations should be allowed to vary over states and need not be uniform. However, the existing literature models location uncertainty as an additive shock to a uniform consumer distribution. The additive shock restricts uncertainty to the mean of the consumers loca- tions. We generalize this approach to a state space model in which a vector of parameters gives rise to different distributions of consumer tastes in dif- ferent states, allowing other moments (besides the mean) of the consumer distribution to be uncertain. We illustrate our model with an asymmetric consumer distribution and obtain a unique subgame perfect equilibrium with an explicit, closed-form solution. An equilibrium existence result is then given for the general case. For symmetric distributions, the unique subgame perfect equilibrium in the general case can be described by a simple closed-form solution.Location, Product Differentiation, Uncertainty, Hotelling

Who decides about change and restructuring in organizations?

The authors of this paper model the determinants of who makes decisions, the principal or an agent, when there are multiple decisions. Decision making takes effort and time; and, once implemented, the expected loss from a particular decision (or project) increases with the length of time since the last decision was made. The model shows delegation is more likely as: (i) controllable uncertainty increases; (ii) uncontrollable uncertainty decreases; (iii) the number of plants in the firm decreases; (iv) the complexity of the decision increases; and (v) the importance of the decision increases. The theoretical predictions are consistent with the authors\u27 novel empirical results on the delegation of major organizational change decisions using workplace data. Their unique data allows them to identify who made a decision to implement a significant change, as well as key internal and external factors highlighted as potentially important in their theory. Empirically, delegation is more likely in organizations that: face a competitive product market; export; have predictable product demand; have a larger workplace; and that have fewer other workplaces in the same organization producing a similar output. The authors find business strategy is not related to the allocation of decision making authority; delegation, however, is associated with the use of human resource techniques such as the provision of bonuses to employees

Vertical Integration and Capacity Competition in Electricity Markets

This paper characterises the impact of vertical integration on price equilibria and incentives to strategically withhold capacity in a wholesale electricity auction.  A two-stage game is analysed where vertically integrated firms first declare the quantity of electricity available and then compete in a uniform price auction. Consistent with empirical literature on electricity markets, the model finds that firms’ incentives are determined by their net demand position in the market.   Results indicate that for the majority of parameter values, a vertically integrated structure yields a greater occurrence of competitive pricing in the wholesale market. Contrary to recent analysis of non-integration, vertical integration eliminates incentives for strategic capacity withholding