This paper describes a simple two-person, two-period bargaining game, and solves it using the concept of perfect Bayesian equilibrium, in which the actions of each player convey information which is used by his opponent. The paper examines the effects of changes in bargaining costs, the size of the “contract zone” and the length of the bargaining process on such aspects of the solution as the probability of impasse and the likelihood of concessions. The combination of information transfer and the lack of pre-commitment embodied in perfectness yields many surprising results. Common perceptions about the effects of parameter changes on bargaining processes are suspect, and should be checked in the particular game being discussed.
This paper shows how to test demand data for consistency with maximization, homotheticity, various forms of separability, and a rationing model without making any assumptions concerning the parametric form of underlying demand or utility functions.
This paper is concerned with the provision of quality in markets in which consumers have only imperfect information. The analysis focuses on a market for a product that can be produced at different quality levels. All consumers prefer higher to lower quality, but they may differ in their willingness to pay for quality. Producers can produce any quality they like, but higher qualities are more costly to produce. The information in this market is imperfect in the sense that the exact quality chosen by a firm is known only to the firm itself; some information about the quality of a firm's product will, however, reach its potential customers, even if they do not make any special effort to acquire it. Within the framework suggested here, two conclusions are drawn. First, prices may serve as signals which exactly differentiate the available quality levels. That is, there exists a fulfilledexpectations equilibrium at which each price signals a unique quality level. Second, the pricesignals are not arbitrary. Each price-signal exceeds the marginal cost of producing the quality it signals. Such a mark-up depends on the nature of the product-specific information received by consumers—the poorer the information, the higher the mark-up.
This paper introduces a model of “feedback effect equilibrium” i.e. equilibria in which an asymmetrically informed agent is motivated to communicate its privately known attribute but can do so only through channels or signals which convey directly useful information to competing agents. This revelation to the competition serves to reduce the value of the private information held by the first agent. Models of this kind are of obvious relevance to realistic theories of product or financial market disclosure policies of firms, patenting, and a host of related behavioural and regulatory issues. This model is developed in the context of a set of firms engaged in research and development rivalry, in which the value of privately held and disclosed information arises from its implications for the likelihood and timing of productive innovation.
This paper presents a theory of government intervention which provides an explanation for “industrial strategy” policies such as R & D or export subsidies in imperfectly competitive international markets. Domestic net welfare is improved by the capture of a greater share of the output of rent earning industries, although the subsidy-ridden noncooperative international equilibrium is jointly suboptimal. Behaviour of governments and firms is modelled as a three stage subgame perfect Nash equilibrium. The assumption that the government is the first player in this game allows it to influence equilibrium outcomes by altering the set of credible actions open to firms.
The available evidence indicates that, in aggregate, the growth in world food production over the past two decades has more than kept pace with the growth in population. This paper analyzes recent trends in world food production and consumption and outlines the Bank's approach to projections of food production and consumption providing results to the year 1995. It is shown that levels of consumption of various food items have improved in developing countries and are expected to continue to improve. Moreover, the results indicate favorable prospects for food production in developing countries. The paper comments throughout on areas where further work is required to refine the projection method and qualifies the generally optimistic outlook by identifying the types of actions that will be needed to accelerate food consumption and production in developing countries. Pricing policies in agriculture are seen as being particularly critical to the optimal development of the agricultural system in developing countries. International agricultural trade and food security is a matter of considerable concern to a large share of the world's population. Contradictory views on the subject exist. This paper is organized in three parts: i) a summary of world food trade and the trends that have recently emerged; ii) a discussion of world food security and the costs and benefits of a global food security scheme; and iii) an examination of specific countries' policies toward agriculture and food trade to demonstrate how government intervention can either contribute to or inhibit agricultural trade and food security. The paper concludes that when governments intervene in the legitimate functioning of markets, the ultimate outcome is to reduce national and global welfare since they seldom foresee all the ramifications of their actions.
Concern with the effects of aid by higher units of government to cities and other localities has ranged from enumeration of geographical distribution of aid (see, for example, T. L. Muller, 1982) to various attempts to identify and take into consideration local reactions that influence the ultimate effects. The latter include studies that focus on particular programs (see, for example, the analyses included in N. J. Glickman, 1980), effects on local government expenditures (see, for example, R. C. Fisher, 1982; P. N. Courant et al., 1979; and M. B. Johnson, 1979), and broader issues such as the concern with urban decline in many areas (see, for example, K. L. Bradbury et al., 1981, 1982). In this paper we attempt to contribute to the analysis of intergovernmental aids and other federal programs by suggesting a general framework for analyzing their effects and utilizing the framework to estimate some of the impacts. The framework concerns first the values of aid to localities and persons as affected by in-kind restrictions. Based on the values of aid, the geographic redistributions of income among areas due to all federal actions are considered, requiring estimation of the geographic distribution of nonaid items including taxes, place of federal purchases of goods and services, and the location of benefits of the purchases-along with attendant interregional multiplier effects due to induced changes in demand for local goods and services.
Since at least the Ford Administration, deregulation has been a politically popular slogan. Over the past ten years there has been a growing recognition that dismantling the economic regulation of various sectorsairlines, trucking, communications, and the like-requires simultaneous or prior dismantling of the barriers to entry and competition. This recognition was translated into action during the Ford and Carter Administrations when the chairmen of the CAB, the ICC, and the FCC were trying to convince a majority of their fellow commissioners or board members (and the relevant members of Congress) to adopt promarket, deregulatory positions. During those periods, each agency made significant progress in opening up entry to new firms and new service offerings, and in reducing the degree of detailed intervention in the daily affairs of the regulated companies. Since the advent of the Reagan Administration, however, the momentum pushing open entry and promoting competition in communications has definitely been blunted, if not entirely broken. As a result, it may not be politically feasible to let the market, rather than the government, serve as the arbitor of the public interest in communications. Because of some basic differences between the industries, opening entry to communications markets requires different policy actions from those required to allow entry into most transportation sectors. Communications is characterized by two features not present in airlines and trucking: the use of the frequency spectrum and the market power of certain firms caused by the presence of a very significant proportion of sunk vs. variable costs. The use of the spectrum realistically means that government will determine basic entry possibilities into the foreseeable future by the way that it allocates spectrum, a process similar to making land zoning decisions. Having a high proportion of sunk vs. variable costs means that antitrust-type issues will remain important. While this latter condition is seen primarily as applying to common carrier communications at this time, the rapid growth and spread of cable television systems will make this condition applicable to broadcasting markets in the future. Given these features, further movement towards a truly promarket, deregulatory policy in communications requires that spectrum allocation decisions be made with the explicit goals of encouraging entry, increasing competition, and decreasing the market power of currently dominant firms. In particular, spectrum needs to be allocated in a way that assures that spectrum is always available to permit new service offerings in competition with those being offered over wire systems. In this respect, the Fowler FCC has deviated from its most recent predecessors. The Fowler Commission seems to be concerned more with removing some, but by no means all, restrictions on existing firms than with encouraging competition and new entry into the industry. It has not been willing to expand the ability of new firms to offer existing services, where competition could come about most rapidly. Rather, to the extent that it has considered allowing entry at all, it has focused its attention on creating new services that are either secondary to existing services, are structured so they can only supplement and not compete with existing services, or are able to compete only far in the future. Recent FCC activities illustrate these deficlencies.