Decision making, Human judgment, Decision aids, Opportunity costs

Markets for many products are dominated by small group of states or countries with a natural advantage in the marketplace because of some initial endowment of resources, favorable climate, or location. The purpose of this paper is to explore how such markets involving a few political jurisdictions interact noncooperatively. We examine how such a market might be structured and operate and the extent of monopoly rent that can be extracted in the absence of collusion. We answer these questions for an empirically estimated model of western U.S. coal in which two states (Montana and Wyoming) dominate production. We demonstrate that in this market the amount of rent that can be extracted is greatly reduced through competition (relative to a cartel). Nevertheless, even with two producing states competing against each other, significant rents can be captured--significant enough to refute the contention that little rent can accrue without a cartel.

Markets for many products are dominated by small group of states or countries with a natural advantage in the marketplace because of some initial endowment of resources, favorable climate, or location. The purpose of this paper is to explore how such markets involving a few political jurisdictions interact noncooperatively. We examine how such a market might be structured and operate and the extent of monopoly rent that can be extracted in the absence of collusion. We answer these questions for an empirically estimated model of western U.S. coal in which two states (Montana and Wyoming) dominate production. We demonstrate that in this market the amount of rent that can be extracted is greatly reduced through competition (relative to a cartel). Nevertheless, even with two producing states competing against each other, significant rents can be captured--significant enough to refute the contention that little rent can accrue without a cartel.

This paper presents empirical evidence concerning relationships between experienced managers' demand for information, the supply of information, and judgment accuracy. The purpose of presenting this evidence is to shed light on the information-choice problem of accountants. Managers analyzed four performance reports and made diagnostic judgments. This paper uses a predecisional research method to investigate five issues. The evidence indicates that (1) there is a moderate level of convergence among three behavioral measures of demand, (2) there is a low but statistically significant level of demand consensus, (3) there is an association between supply and demand, (4) demand is not associated with judgment accuracy, and (5) judgment accuracy is an inverted-U function of the supply of information. Implications of this research are presented which relate to demand measurement convergence and the choice of methods to measure demand, demand consensus and the tailoring of reports and, finally, the association between information supply and judgment accuracy.

When estimating a single equation with an error generated by an autoregressive process of higher order than one using a sequence of likelihood ratio tests to determine the correct order, the asymptotic size of the tests will be biased because of multiple optima of the likelihood function. A new type is suggested similar to the Durbin test [2] which is not biased in this way. IN HIS ARTICLE on testing for serial correlation in the presence of lagged endogenous variables [2] Durbin proved a general theorem which gives a significance test shown to be generally asymptotically equivalent to a likelihood ratio test. This paper proposes a generalization which gives a test criterion that may be preferred to the existing test criteria insofar as it can be set up using a less arbitrary choice of the parameters to be re-estimated, and also has the advantage of being relatively simple to compute. It seems more appropriate than the general Durbin form of test for application to the dynamic specification problem discussed in the third section of this article.

Though public intervention in the market for research is virtually universal, economists have paid surprisingly little attention to the choice of the form of research incentive in a given market structure. Many studies concentrate on patents, but any assumption of their superiority over other incentives has been founded on intuition rather than on formal analysis. In this paper I analyze the choice between three of the most alternative means of public intervention in the research market, namely, patents, prizes, and direct contracting for research services. I show why, and under what conditions, any one of the three may be preferred by a social welfare-maximizing administrator in a competitive economy, using a model that, for the first time, pays explicit attention to differences in the informational roles of each of these alternatives. In the extensive literature on the economics of patents (see Arnold Plant, 1934; Fritz Machlup, 1958; Charles Taylor and Z. A. Silberston, 1973; Morton Kamien and Nancy Schwartz, 1975; and F. M. Scherer, 1977, for valuable surveys), formal analysis weighs the benefits of patents as a solution to the market failure associated with the inappropriability of knowledge against the welfare cost due to the restriction on the use of the knowledge generated, and this tradeoff is optimized by patent life adjustment in William Nordhaus (1969). Scant analytical attention is paid to alternative incentive mechanisms. (An exception is Ben Yu, 1981, who considers the role of prior contracting for inventions.) But as many writers (for example, Dan Usher, 1964; Yoram Barzel, 1968; Joseph Stiglitz, 1969; Carole Kitti, 1973; Glenn Loury, 1979; Partha Dasgupta and Stiglitz, 1980a) have pointed out in various contexts, the incentive offered by an unlimited patent to competitive researchers may be excessive, due to the common pool problem discussed further in Section I below. If the patent administrator and researchers share the same information, as implicitly assumed in previous models, then the patent life limitation can be adjusted to provide the optimal patent incentive, given the pool problem. But in all such models, patents would not be chosen in a fully optimized fiscal system. Researchers and the administrator are assumed to have identical information about the shadow price of potential inventions; a patent is just a means of turning this shadow price into a monetary reward. But monetary compensation can instead be offered directly to researchers by the state. Assuming that patent revenues incur a higher deadweight loss than an equivalent amount of public funds financed by less distortionary means (for example, a minimally efficient tax system), appropriate prizes or government contracts are socially preferable to patents with optimal lives. If the patent is ever to be the optimal incentive mechanism for research, it must possess advantages not captured in existing models. Informal discussions of patents emphasize their informational role. To include the latter as a justification for decentralized invention incentives, I incorporate an ex ante imbalance of information about costs and benefits of research in the model presented in Section II. But this alone is not quite enough. It is further necessary to specify that the terms of the award must be fixed before *Department of Economics, Economic Growth Center, Box 1987 Yale Station, Yale University, New Haven, CT 06520. I thank, with the usual caveat, Marguerite Alejandro-Wright, Cindy Arfken, Martin Baily, Nuong Brennan, Steven Englander, Robert Evenson, Richard Levin, Richard Nelson, Susan Rose-Ackerman, Denis Wright, and two referees for assistance of various kinds.

All but one of the U.S. recessions since World War II have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum. This does not mean that oil shocks caused these recessions. Evidence is presented, however, that even over the period 1948-72 this correlation is statistically significant and nonspurious, supporting the proposition that oil shocks were a contributing factor in at least some of the U.S. recessions prior to 1972. By extension, energy price increases may account for much of post-OPEC macroeconomic performance.

Auditing, Audit reports, Communication, Linguistics