Knowledge that Transforms

A binary choice problem with side-payments and quasi-linear utilities is considered. We study two compensation rules, called social choice functions. The egalitarian rule divides equally the surplus above the average utility level. The laissez-faire rule chooses an efficient decision but performs no transfer. Egalitarianism is characterized by a monotonicity axiom called Agreement: no two agents ever disagree in comparing two distinct preferences of a third one. Laissez-fairism is characterized by the No Subsidy axiom: a coalition would not be worse off if the other agents were not present.

A monopolist that sells in a market in which consumers differ in their willingness to pay for quality will distort and enlarge the range of products offered for sale. We examine the positive and normative impacts of remedies used to counteract such distortions. For the case of a price ceiling, the monopolist improves quality at the low quality end of the market, offsetting the distortion induced by the unregulated exercise of monopoly power. Social welfare can be shown to increase for a sufficiently slight degree of price regulation. For minimum quality standards, the social welfare implications are ambiguous because the standards may exclude some consumers from the market.

Governments sometimes impose price controls and nonprice rationing-by-queuing. Profit-seeking firms occasionally ration by putting their customers on “allocation.” Following Barzel [1974] and Deacon and Sonstelie [1985], we take the decision to ration as a given and analyze it, employing standard microeconomics and applied welfare economics. This paper adds to the literature by focusing on optimally rationing a good across markets. Further, we estimate the actual welfare cost of improper allocation across markets in the U. S. gasoline crises of 1973–1974 and 1979.

A computer simulation model in the tradition of evolutionary models of technical change is developed in this paper. It focuses on R&D competition in new product introductions and is based on data for the U. S. pharmaceutical industry during the 1970s. The sensitivity of innovation levels to the rate of generic competition, regulatory review time, and patent life is examined in the computer simulation experiments. These factors are found to have significant long-run effects on industry structure and innovation levels.

We consider two kinds of “outside opportunity” that a seller of an indivisible good might have: selling to a different buyer and consuming the good herself. In both models the seller is uncertain about the buyer's valuation, and becomes more pessimistic over time. When the seller becomes sufficiently pessimistic, she prefers the outside opportunity, so she will not bargain indefinitely with the current buyer. Despite the resulting finite-horizon nature of negotiations, the link between the buyer's willingness to accept an offer and the seller's eagerness to go “outside” generates multiple equilibria.

Journal Article Real Estate Assets and Consumer Spending Get access Kul B. Bhatia Kul B. Bhatia University of Western Ontario Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 102, Issue 2, May 1987, Pages 437–444, https://doi.org/10.2307/1885072 Published: 01 May 1987

Journal Article Consumer Differences and Prices in a Search Model Get access Peter Diamond Peter Diamond Massachusetts Institute of Technology Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 102, Issue 2, May 1987, Pages 429–436, https://doi.org/10.2307/1885071 Published: 01 May 1987

We examine the choice of organizational mode for a two-stage production process wherein cost realizations at each stage are observed only by the producing party. When these costs are positively correlated, the principal prefers to undertake second-stage production herself. When the correlation is negative and sufficiently small, she will prefer that the agent who performs the first stage also perform the second. For large negative correlation, either mode might be preferred. When costs are uncorrelated, the principal is indifferent between modes.

Jack L. Knetsch, J. A. Sinden; The Persistence of Evaluation Disparities*, The Quarterly Journal of Economics, Volume 102, Issue 3, 1 August 1987, Pages 69

This paper analyzes the resource-allocation and welfare effects of export-performance requirements imposed on foreign investors. It argues that a satisfactory analysis must consider the presence of tariff distortions and oligopolistic behavior in host-country markets. These create a second-best environment in which an evaluation of the welfare effects of such requirements is no longer straightforward. It is concluded that export requirements can improve home welfare by reducing payments to foreign capital, reducing the output of commodities which are being overproduced, and shifting profits toward domestically owned firms.