``Isoperfect Price Discrimination: Bargaining and Market
Power,'' with David Myatt. Standard discussions of perfect price
discrimination rest on a hidden
assumption: that the monopolist can make take-it-or-leave-it offers. If
a monopoly charges different prices to each of a large number of
buyers, the correct paradigm is not the ultimatum game, but bilateral
monopoly. The monopolist's profit will not be the entire surplus, but
something less. Under ``balanced isoperfect price discrimination''-- a
constant split $\lambda=.5$ of the bargaining surplus with each
buyer--- and constant marginal cost, the monopolist has the same
profit as monopoly pricing if the demand curve is linear, less if demand
is concave, and more if demand is convex. Increasing marginal cost tends
to make the monopolist prefer price discrimination. Isoperfect price
discrimination is complemented by an idiosyncratic product design and
informative advertising, whereas simple monopoly pricing is
facilitated by plain-vanilla designs promoted via pure hype. Competition
pushes suppliers away from isoperfect price discrimination and towards
simple posted pricing.
http://www.rasmusen.org/papers/pdisc-myatt-rasmusen.pdf or in
http://www.rasmusen.org/papers/pdisc-myatt-
rasmusen.tex.
``Coarse Grades,'' with Rick Harbaugh.
Certifiers of quality often report only coarse grades to the public
despite having measured quality more
finely, e.g., "A" instead of "98". Why? We show that using coarse grades can
actually result in more information
reaching the public, because it encourages low-quality individuals or firms to
become certified. In our model the
certifier aims to minimize public uncertainty over quality subject to the
feasibility constraint of voluntary
certification at a fixed cost. Moving from the best exact grading scheme to the
best coarse one (a) induces more
participation and (b) reduces public uncertainty.
http://www.rasmusen.org/papers/coarse.harbaugh-rasmusen.pdf or in
http://www.rasmusen.org/papers/coarse.harbaugh-rasmusen.tex.
"The Concealment Argument: Why Christians Should Be Agnostics."
Logic and Biblical evidence suggest
that God wishes that some but not all humans become convinced of His existence
and desires. If so, this suggests
that attempts to either prove or disprove such things as God's existence, past
miracles, or present supernatural
intervention are doomed to failure, because God could and would take care to
evade any such efforts. In pdf or html (
http://rasmusen.org/papers/Conceal.htm).
``Quasi-Concavity," with Christopher Connell.
``Quasi-Concavity versus Concavity,'' with Christopher Connell.
What is the relation between concavity and quasi-concavity? We show that if and
only if function $ f(x)$ is strictly quasi-concave except possibly for a flat interval at its
maximum, there exists a strictly monotonically increasing function $g(x)$ such that $g(f)$ is
concave. Moreover, if and only if function $ f(x)$ is either weakly or strongly quasi-
concave, there exists a "monotonizing function" $h(x)$ and a monotonically increasing
function $g(x)$ such that $g(h(f(x)))$ is concave.
http://rasmusen.org/papers/quasi-connell-rasmusen.pdf or in
http://rasmusen.org/papers/quasi-connell-rasmusen.tex.
"Career Concerns and Ambiguity Aversion."
Why do people have ambiguity aversion, preferring, a gamble with a
50\% chance of success to one whose expected probability of success is
50\% but where that 50\% is an unbiased estimate? The answer modelled
here, in the spirit of the career concerns literature, is learning: a
risk-averse person does not wish observers to learn whether he is good
or bad at estimating probabilities. He therefore prefers a gamble with
objective probabilities.
In tex and pdf (
http://www.rasmusen.org/papers/ambiguity-rasmusen.pdf).
"Internalities and Paternalism: Applying the Compensation
Criterion to Multiple Selves
across Time " One reason to call an activity a vice and suppress it
is that it reduces a person's future happiness more than it
increases his present happiness. Gruber \& Koszegi (2001) show how a
vice tax can increase a person's welfare in a model of multiple selves
with hyperbolic preferences across time. An interself analogy of the
compensation criterion can justify a vice ban whether preferences are
hyperbolic or exponential, but subject to the caveat that the person
has a binding constraint on borrowing.
In tex and pdf (
http://www.rasmusen.org/papers/internality-rasmusen.pdf).
"First versus Second-Mover Advantage with Information
Asymmetry about the Size of New Markets," (with Young-Ro Yoon). Is
it better to move first, or second--- to innovate, or to imitate?
Suppose one player has superior information about which of two new
markets is better. If he enters first, he might be able to secure a
natural monopoly. (The less-informed player also has this motive.) If he
enters second, he can prevent the other player from imitating him. We
find, predictably, that the more accurate the informed player's
information the more he wants to delay in order to prevent the spillover
of his information. Also, the less accurate the informed player's
information the more he wants to move first in order to foreclose a
market. In addition, the bigger the difference in markets, the more
likely the two players will make the same choice. More surprisingly, if
the informed player's information becomes more accurate that can hurt
both industry profits and consumer welfare by inducing both players to
choose what they hope is the bigger market, leaving the other market not
served. tex and pdf (
http://www.rasmusen.org/papers/entry-rasmusen-yoon.pdf).
"Executive Compensation in Japan: Estimating Levels and
Determinants from Tax Records" (with Minoru Nakazato and J. Mark
Ramseyer). Most studies of executive compensation have data on pay but
not total income. Studies of executives in Japan lack even good data on
pay. We have tax data on total executive incomes, enabling us to
estimate salaries and an executive’s exposure to firm risk from a new
angle. We confirm the conventional wisdom that Japanese executives
earn far less than American ones--- about one-fifth the pay, adjusting
for firm size. Tobit regressions show that pay in Japan depends heavily
on firm size (with an elasticity of .22). Paper, data, and programs are at
http://www.rasmusen.org/papers/exec/exec.htm.
"A Model of Trust in Quality and North-South Trade."
Countries have different comparative advantages in quality. These might
be due to technological differences, or to reputation differences of the
sort described in Klein & Leffler (1981). Reputation differences are
particularly interesting, since good reputations are a form of ``social
capital'' that is amenable to modelling. They can explain why firms in
these industries like to export even if the foreign price is no higher
than the domestic one, and why governments would like to have large
``high-value'' sectors. In tex
and pdf (
http://www.rasmusen.org/papers/trade-rasmusen.pdf).
"Some Common Confusions about Hyperbolic Discounting."
There is a lot of confusion over what ``hyperbolic discounting'' means.
I try to clear up that confusion.
In tex and pdf (
http://www.rasmusen.org/special/hyperbolic-rasmusen.pdf).
"Price Discrimination between Retailers with and
without
Market Power " (with Barick Chung). Suppose a monopolist
manufacturer sells at two prices to retailers in small towns and large
cities. To prevent retailers’ arbitrage, the manufacturer needs to set
the wholesale price difference smaller than the transportation cost. As
a result, with linear pricing the retail price for towns will be even
higher than that in double marginalization; and with a two-part tariff,
the wholesale price for towns will be higher than the marginal cost. In
this context, double marginalization cannot be totally eliminated by
two-part tariff pricing. tex and pdf (
http://www.rasmusen.org/papers/retailers-chung-rasmusen.pdf).
"The Industrial Organization of the Japanese Bar: Levels and
Determinants of Attorney Income," (with Minoru Nakazato and J.
Mark
Ramseyer). Using micro-level data on attorney incomes in 2004, we
reconstruct the industrial organization of the Japanese legal services
industry. These data suggest a somewhat bifurcated bar, with two sources
of unusually high income: talent in Tokyo, and scarcityelsewhere. The
most talented would-be lawyers (those with the highest opportunity
costs) pass the bar-exam equivalent on one of their first tries or
abandon the effort. If they pass, they tend to opt for careers in
Tokyo that involve complex litigation and business transactions. This
work places a premium on their talent, and from it they earn
appropriately high incomes. The less talented face lower opportunity
costs, and willingly spend many years studying for the exam. If they
eventually pass, they disproportionately forego the many amenities
available to professional families in Tokyo and opt instead for careers
in the under-lawyered provinces. There, they earn scarcity and
monopoly rents not available in the far more competitive Tokyo market.
In
MS Word (
http://www.rasmusen.org/papers/jpnbar.nakazato.ramseyer.rasmusen.doc).
"The Parking Lot Problem." (with Maria Arbatskaya and Kaushik Mukhopadhaya).If there is queueing for an
underpriced good, the queueing can eat up the entire surplus,
eliminating the social value of the good. An implication is that there
is a discontinuity in social welfare between ``enough'' and ``not
enough'' for certain goods such as parking spaces. This implies that if
there is uncertainty in the number of demanders, the amount of the good
should be set well in excess of the mean demand.
http://www.rasmusen.org/papers/parking-rasmusen.pdf or in tex.
"Economic Regulation and Social Regulation." A long-
standing book project, in the style of my JLS Desecration paper.
``Health, safety, morals, and the general welfare,'' are the traditional
subjects of the police power of the state. When we think of government
regulation, we usually think of economic regulation. This is generally
efficient only for a narrow range of activities and is subject to abuse
by private parties who can profit from it. Social regulation is another
area of government regulation, however, and one where the presumptive
efficiency of laissez faire disappears, because market imperfections are
more common and capture by special interests is less profitable. This
does not immediately imply that the government should engage in social
engineering, because our current knowledge of social processes is
primitive. It does imply that courts should be reluctant to strike down
social regulation on the grounds that it is irrational. My working files
are at
Http://www.rasmusen.org/social/social.htm. The old draft is
available at tex and pdf (
Http://www.rasmusen.org/papers/social.pdf).
"Public and Private Firm Compensation Compared: Evidence from Japanese Tax Returns,"
(with Minoru Nakazato and J. Mark Ramseyer). Forthcoming, Korean Economic
Review. Most studies of executive compensation focus on publicly traded companies.
The high levels of compensation there are often attributed to agency slack due to ownership
by diffused shareholders. If so, pay at private companies more closely held should be much
lower. Governments in the United States and elsewhere do not require the pay of executives
in private companies to be publicly disclosed, but until 2004 the tax office of Japan published
the name and tax liability of any individual paying over about $100,000 in tax. We match
this tax data with rosters of some 1,400 presidents of public and 4,100 presidents of private
corporations. We find that public and private company presidents have similar incomes.
Both groups earn incomes that rise with the size and profitability of the firm, but the
presidents’ incomes are more sensitive to profitability at public firms than at private ones.
In Japan, at least, public firms pay their presidents no more than private firms do, and tie
that compensation more closely to observable performance benchmarks. *.doc and *.pdf (
http://www.rasmusen.org/papers/exec/nak-ram-rasmusen.unlisted.pdf) .
"Prosecutors' Choices of Prosecution and Conviction
Rates; Theory and Evidence" (with Manu Raghav and J. Mark
Ramseyer). Forthcoming in the American Law and Economics Review. It is
natural to
suppose that a prosecutor's conviction rate-- the ratio of convictions to cases
prosecuted-- is a sign of his competence. Prosecutors, however, choose which
cases to prosecute. If they prosecute only the strongest cases, they will have
high conviction rates. Any system which pays attention to conviction rates, as
opposed to the number of convictions, is liable to abuse. As a prosecutor's
budget increases, he allocates it between prosecuting more cases and putting
more effort into existing cases. Either can be socially desirable, depending on
particular circumstances. We model the tradeoffs theoretically in two models,
one of a benevolent social planner and one of a prosecutor rewarded directly for
his conviction rate as well as caring about convictions and personal goals and
apply the model to U.S. data drawn from county-level crime statistics and a
survey of all state prosecutors by district. Conviction rates do have a small
negative correlation with prosecutorial budgets, but conditioning on other
variables in regression analysis, higher budgets are associated both with more
prosecutions and higher conviction rates.
tex and pdf (
http://www.rasmusen.org/papers/prosecutors-raghav-ramseyer-rasmusen.pdf)
.
Notes on ``The Rubinstein (1982) Model with Both Discounting
and Per-Period Costs''
Combining those two things results in a model like the standard
one with just discounting.
http://rasmusen.org/papers/fixedcost.tex.
Notes on ``Biased Experts in a Sender-Receiver Model.''
If someone biased is using an intermediary to collect and convey
information,
he does best by not being able to secretly convey his bias to the
intermediary. He may do just as badly if there is a chance he might be
caught imposing the bias, and he does best if he is caught with probability
one.
http://www.rasmusen.org/papers/bias-rasmusen.tex.