A large importer who places relatively greater weight on future than current oil consumption will import less oil in the future than if it were able to commit itself in advance to future tariffs, and may find itself worse off than if it were unable to impose tariffs at all. Futures markets and storage modify these adverse effects and may avoid the problem of dynamic inconsistency.

Journal Article The Isolation Paradox and the Discount Rate for Benefit-Cost Analysis: A Comment Get access David M. Newbery David M. Newbery University of California, Berkeley Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 105, Issue 1, February 1990, Pages 235–238, https://doi.org/10.2307/2937827 Published: 01 February 1990

Vehicles damage roads and, thus, increase road repair costs and create a road damage externality by raising the operating costs of subsequent vehicles. The main result is that if periodic road maintenance is condition responsive and if all road damage is attributable to traffic, then, in steady state with zero traffic growth, the average road damage externality is zero a nd the appropriate road damage charge is the average maintenance cost. Where weather accounts for some road damage, the road damage externality is no longer identically zero, but is quantitatively negligible. Road charges now recover a fraction of road costs. Copyright 1988 by The Econometric Society.

Most studies of commodity price stabilization assume that all agents behave competitively. However, many commodities suitable for stockpiling are produced by countries with a significant share of the world market, and commodity agreements themselves often result in cartelization of the market. The paper explores the consequences of market power for the choice of storage rule and the degree of price stabilization. It finds that with linear demand, dominant producers choose more stable prices than under perfect competition and price stability increases with their market share. With constant elastic demand the competitive degree of price stabilization is achieved.

Most of the British electricity supply industry has been privatized. Two dominant generators supply bulk electricity to an unregulated "pool." They submit a supply schedule of prices for generation and receive the market-clearing price, which varies with demand. Despite claims that this should be highly competitive, we show that the Nash equilibrium in supply schedules implies a high markup on marginal cost and substantial deadweight losses. Further simulations, to show the effect of entry by 1994, produce somewhat lower prices, at the cost of excessive entry; subdividing the generators into five firms would produce better results.

A large importer who places relatively greater weight on future than current oil consumption will import less oil in the future than if it were able to commit itself in advance to future tariffs, and may find itself worse off than if it were unable to impose tariffs at all. Futures markets and storage modify these adverse effects and may avoid the problem of dynamic inconsistency. Copyright 1990 by American Economic Association.

Most of the British electricity supply industry has been privatized. Two dominant generators supply bulk electricity to an unregulated "pool." They submit a supply schedule of prices for generation and receive the market-clearing price, which varies with demand. Despite claims that this should be highly competitive, the authors show that the Nash equilibrium in supply schedules implies a high markup on marginal cost and substantial deadweight losses. Further simulations, to show the effect of entry by 1994, produce somewhat lower prices at the cost of excessive entry; subdividing the generators into five firms would produce better results. Copyright 1992 by University of Chicago Press.

Stephen Salant takes issue with a single paragraph of our 1982 paper (Section IIC, p. 518) and then claims that our conclusions result either from faulty logic or from our implicit assumption that a market fails to operate. We respond by showing that our conclusions are logically consistent, and that Salant's argument is flawed by its incompleteness. The preemptive patenting results hold whenever equally efficient firms compete with nonzero transaction costs (a point which is not contested by Salant), and whenever any cost disadvantage experienced by the incumbent is less than the transaction costs incurred in the process of bargaining for production rights. Furthermore, we will show that if the incumbent's cost disadvantage exceeds transaction costs, then the preemption result hinges on the relative transaction costs in the markets for R&D outputs and inputs. The conditions derived by Salant are erroneous, and indeed irrelevant to the incentives for preemption. Salant mounts his main argument on the assumption that transaction costs are zero, but fails to realize the full implications of this counterfactual assumption. Ronald Coase told us many years ago that bargaining in the absence of transaction costs (broadly interpreted) will eliminate cost inefficiencies and yield a Pareto optimal allocation. By selecting excerpts from two different papers and then providing his own emphasis, Salant constructs the impression that our results contradict the Coase argument. We feel this creative journalism is an inaccurate representation of our conclusions. The implications for preemptive patenting depend on transaction costs, as Salant shows. For any finite transaction cost, an equally efficient monopolist can preempt competitors (subject to the technological and strategic assumptions in our model). Salant argues that if a monopolist is less efficient than a rival, and if the cost penalty exceeds transaction costs, then the rival firm will preempt the monopolist. As it stands, this conclusion is false. It is arbitrary to restrict bargaining, as Salant does, to a single market or group of markets. If firms can negotiate in the patent market, they can also negotiate in markets for inputs to the R&D process. Assuming (as we had explicitly done) no diseconomies that are solely due to management, technological inefficiency must be the result of inferior R&D inputs. These inputs can be bargained for as well.