Analyzes the issues of cross-subsidization in public enterprises with economies of joint production. Incentives to competitive entry and subsidy-free prices; Relation of welfare maximizing prices to subsidy-free prices; Price elasticity of demand; Costs of alternative means of supply; Choice between protected monopoly and open competition.

Empirical evidence suggests the existence of ‘hot-issue’ markets for initial public offerings: in certain periods and in certain industries, new issues are underpriced and rationing occurs. This paper develops a model consistent with this observation, which assumes the firm itself best knows its prospects. In certain circumstances, firms with the most favorable prospects find it optimal to signal their type by underpricing their initial issue of shares, and investors know that only the best can recoup the cost of this signal from subsequent issues.

Franklin Allen, Gerald R. Faulhaber; Optimism Invites Deception*, The Quarterly Journal of Economics, Volume 103, Issue 2, 1 May 1988, Pages 397–407, https://do