Economic goods are frequently sold according to a price per unit where the quantity characteristic does not measure all the economically important characteristics of the good. Milk is sold by the quart, automobiles rented by the mile, physicians' services bought by the visit, and tennis lessons by the hour. In all cases, heterogeneous units are available in the market and the price per unit quantity depends upon the amount of the unpriced characteristic contained in each unit. The per quart price of depends upon the butterfat content, the mileage costs of automobile rentals on the cars' make, and the price per unit time for personal services on the providers' skill and training. The common distinction made between these variants of the same good is that they differ in quality, where refers to the amounts of the unpriced attributes contained in each unit of the priced attribute.' Thus, is packaged according to the attribute milk liquid and the of refers to the ratio of butterfat per unit of liquid.2 This paper considers some of the unique aspects of the economics of supply and demand under this situation where products contain (at least) two desired attributes, only one of which is quantified and measured prior to purchase. Product is here defined by the ratio of the second quality attribute per unit of the measured quantity attribute.3 This simple specification of allows a direct link between standard economic models of related products and the economics of variable product quality. Previous analyses which treat simply as a shift parameter in the demand function are shown to obscure the actual subtleties of supply and demand with variable, endogenous quality.4 The paper proceeds by first examining the efficient and quantity, and the competitive equilibrium. The market equilibrium under monopoly is then contrasted in the second section. The general theme of the

The conditions under which transactors can use the market (repeat-purchase) mechanism of contract enforcement are examined. Increased price is shown to be a means of assuring contractual performance. A necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance. This will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm-specific assets. Advertising investments thereby become a positive indicator of likely performance.

The conditions under which transactors can use the market (repeat-purchase) mechanism of contract enforcement are examined. Increased price is shown to be a means of assuring contractual performance. A necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance. This will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm-specific assets. Advertising investments thereby become a positive indicator of likely performance.

This paper examines the effects of the Federal Trade Commission's Advertising Substantiation Program, developed in the early 1970s. This program coupled changes in the legal definition of deception with more vigorous FTC enforcement. We analyze changes in advertising intensity, media choice, media wealth, and the progress of new entrants. The evidence suggests that adoption of substantiation requirements increased the credibility of advertising.

This paper examines the effects of the Federal Trade Commission's Advertising Substantiation Program, developed in the early 1970s. This program coupled changes in the legal definition of deception with more vigorous FTC enforcement. The authors analyze changes in advertising intensity, media choice, media wealth, and the progress of new entrants. The evidence suggests that adoption of substantiation requirements increased the credibility of advertising. Copyright 1990 by American Economic Association.

A transaction costs framework is developed to explain the choice between lump-sum and per unit payment provisions in private timber-harvesting contracts. Predictions about which contract type minimizes the transaction costs of presale measurement and contract enforcement and monitoring are derived and tested using private timber sales contracts from North Carolina. The empirical results provide strong support for the transaction costs approach and also reject several predictions from a risk-based model. The transaction costs framework also provides insights into the choice between negotiated and competitive sales procedures.

Randal R. Rucker, Keith B. Leffler, To Harvest or Not to Harvest? An Analysis of Cutting Behavior on Federal Timber Sales Contracts, The Review of Economics and Statistics, Vol. 70, No. 2 (May, 1988), pp. 207-213

A transaction costs framework is developed to explain the choice between lump-sum and per unit payment provisions in private timber-harvesting contracts. Predictions about which contract type minimizes the transaction costs of presale measurement and contract enforcement and monitoring are derived and tested using private timber sales contracts from North Carolina. The empirical results provide strong support for the transaction costs approach and also reject several predictions from a risk-based model. The transaction costs framework also provides insights into the choice between negotiated and competitive sales procedures.