Knowledge that Transforms

We explain how to award a monopoly franchise so as to maximize expected consumers' welfare. Potential producers initially possess imperfect private information about production cost. The franchise is awarded to the producer with the lowest expected costs, but prices exceed realized marginal costs. These ex post distortions foster more competitive bidding ex ante. The distortions for any bid-cost pair are invariant to the number of bidders (n), though expected distortions and profits decline with n.

This paper examines the cyclical behavior of price/marginal cost margins for U.S. manufacturing. Short-run marginal cost is markedly procyclical. In most industries, output price fails to respond to the cyclical movement in marginal cost; so price/marginal cost margins are markedly countercyclical. My results contradict business cycle theories that explain low production in a recession by a high real cost of producing; they support theories that explain low production in a recession by the inability of firms to sell their output.

We estimate how cost sharing, the portion of the bill the patient pays, affects the demand for medical services. The data come from a randomized experiment. A catastrophic insurance plan reduces expenditures 31 percent relative to zero out-of-pocket price. The price elasticity is approximately -0.2. We reject the hypothesis that less favorable coverage of outpatient services increases total expenditure (for example, by deterring preventive care or inducing hospitalization).

This paper presents formal, stylized representation of communication-accounting systems: oral assignment, portable object, written message, and telecommunication systems are considered. The environments that allows this formalization are characterized by spatial separation, private information, and a need to keep track of past actions, transfers, and shocks.

[The adjustment of relative prices to exchange rate movements is explained in an industrial organization approach, using various models. The extent of price adjustment, given labor costs in the respective currencies, is shown to depend on product substitutability, the relative number of domestic and foreign firms, and market structure. Some empirical evidence is offered to support the theory.]

A dynamic model of grain storage supports and elaborates the McCloskey/Nash empirical findings about grain price movements and interest rates. In particular, their finding of a negative time derivative of the growth rate of grain prices is explained, and a means of econometrically distinguishing the interest rate from storage rents is stated.