Barry Nalebuff
- Published in print:
- 2000
- Published Online:
- September 2007
- ISBN:
- 9780199240692
- eISBN:
- 9780191714269
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199240692.003.0002
- Subject:
- Economics and Finance, Development, Growth, and Environmental
The Coase theorem states that with zero transaction costs, private and social costs will be equal and the value of production will be maximized. Absence of transaction costs means the world is a ...
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The Coase theorem states that with zero transaction costs, private and social costs will be equal and the value of production will be maximized. Absence of transaction costs means the world is a single economic unit. The Coase theorem gives us a good insight into local level problems. Assigning property rights to one of the parties (it does not matter whether it is to the polluter or the pollutee) results in efficient allocation. However, some problems may arise when the theorem is applied on a grander scale, such as in the cases of water pollution, acid rain, even depletion of the ozone layer. When applied on a global scale, although assigning property rights leads to a socially efficient outcome in the absence of transaction costs, the transaction costs at this scale could be so enormous as to outweigh the original externality problem. Some implications are considered.Less
The Coase theorem states that with zero transaction costs, private and social costs will be equal and the value of production will be maximized. Absence of transaction costs means the world is a single economic unit. The Coase theorem gives us a good insight into local level problems. Assigning property rights to one of the parties (it does not matter whether it is to the polluter or the pollutee) results in efficient allocation. However, some problems may arise when the theorem is applied on a grander scale, such as in the cases of water pollution, acid rain, even depletion of the ozone layer. When applied on a global scale, although assigning property rights leads to a socially efficient outcome in the absence of transaction costs, the transaction costs at this scale could be so enormous as to outweigh the original externality problem. Some implications are considered.
Martine Quinzii
- Published in print:
- 1993
- Published Online:
- October 2011
- ISBN:
- 9780195065534
- eISBN:
- 9780199855063
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195065534.003.0003
- Subject:
- Economics and Finance, Financial Economics
This chapter shows how first order-conditions for optimality lead naturally to a concept of equilibrium, which has come to be known as a marginal cost pricing equilibrium. Two conceptual difficulties ...
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This chapter shows how first order-conditions for optimality lead naturally to a concept of equilibrium, which has come to be known as a marginal cost pricing equilibrium. Two conceptual difficulties emerge. The first concerns the practical issue of how firms with non-convex technology sets should be administered so that the prices of their outputs are set equal to their marginal costs. The second concerns the appropriate specification of a rule by which income is assigned to consumers. Such a rule needs to be defined in order to close the model and any such rule necessarily carries with it an explicit or implicit specification of the way the deficits of firms with increasing returns technologies are covered. In principle, an efficient allocation could be obtained in a totally planned economy if the planning board, perfectly informed of the characteristics of all consumers and firms, decides on the production plans of firms and the consumptions of the agents.Less
This chapter shows how first order-conditions for optimality lead naturally to a concept of equilibrium, which has come to be known as a marginal cost pricing equilibrium. Two conceptual difficulties emerge. The first concerns the practical issue of how firms with non-convex technology sets should be administered so that the prices of their outputs are set equal to their marginal costs. The second concerns the appropriate specification of a rule by which income is assigned to consumers. Such a rule needs to be defined in order to close the model and any such rule necessarily carries with it an explicit or implicit specification of the way the deficits of firms with increasing returns technologies are covered. In principle, an efficient allocation could be obtained in a totally planned economy if the planning board, perfectly informed of the characteristics of all consumers and firms, decides on the production plans of firms and the consumptions of the agents.
Alex Gershkov and Benny Moldovanu
- Published in print:
- 2015
- Published Online:
- May 2016
- ISBN:
- 9780262028400
- eISBN:
- 9780262327732
- Item type:
- book
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262028400.001.0001
- Subject:
- Economics and Finance, Financial Economics
Dynamic allocation and pricing problems appear in numerous frameworks such as the retail of seasonal/style goods, the allocation of fixed capacities in the travel and leisure industries (e.g., ...
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Dynamic allocation and pricing problems appear in numerous frameworks such as the retail of seasonal/style goods, the allocation of fixed capacities in the travel and leisure industries (e.g., airlines, hotels, rental cars, holiday resorts), the allocation of a fixed inventory of equipment in a given period of time (e.g. equipment for medical procedures, bandwidth or advertising space in online applications), and the assignment of personnel to incoming tasks. Although dynamic pricing is a very old, modern Revenue Management (RM) techniques started with US Airline Deregulation Act of 1978. The basic RM issues are: 1) Quantity decisions: How to allocate capacity/output to different segments, products or channels? When to withhold products from the market? 2) Structural decisions: Which selling format to choose (posted prices, negotiations, auctions, etc..)? Which features to use for a particular format (segmentation, volume discounts, bundling, etc..)? 3) Pricing decisions: How to set posted prices, reserve prices? How to price differentiate? How to price over time? How to markdown over life time? Broadly speaking, all above questions deal in fact with issues treated in the Auction/Mechanism Design. Nevertheless, mechanism design has not been the tool of choice in RM: instead, most papers have focused on analyzing properties of restricted classes of allocation/pricing schemes. Recently, this challenge has been addressed by a more or less systematic body of work appearing under the heading of Dynamic Mechanism Design. This book illustrates some results of this strand of research, as reflected in the authors’ recent work.Less
Dynamic allocation and pricing problems appear in numerous frameworks such as the retail of seasonal/style goods, the allocation of fixed capacities in the travel and leisure industries (e.g., airlines, hotels, rental cars, holiday resorts), the allocation of a fixed inventory of equipment in a given period of time (e.g. equipment for medical procedures, bandwidth or advertising space in online applications), and the assignment of personnel to incoming tasks. Although dynamic pricing is a very old, modern Revenue Management (RM) techniques started with US Airline Deregulation Act of 1978. The basic RM issues are: 1) Quantity decisions: How to allocate capacity/output to different segments, products or channels? When to withhold products from the market? 2) Structural decisions: Which selling format to choose (posted prices, negotiations, auctions, etc..)? Which features to use for a particular format (segmentation, volume discounts, bundling, etc..)? 3) Pricing decisions: How to set posted prices, reserve prices? How to price differentiate? How to price over time? How to markdown over life time? Broadly speaking, all above questions deal in fact with issues treated in the Auction/Mechanism Design. Nevertheless, mechanism design has not been the tool of choice in RM: instead, most papers have focused on analyzing properties of restricted classes of allocation/pricing schemes. Recently, this challenge has been addressed by a more or less systematic body of work appearing under the heading of Dynamic Mechanism Design. This book illustrates some results of this strand of research, as reflected in the authors’ recent work.
James Bergin
- Published in print:
- 2005
- Published Online:
- July 2005
- ISBN:
- 9780199280292
- eISBN:
- 9780191602498
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199280290.003.0013
- Subject:
- Economics and Finance, Microeconomics
The principal-agent problem is considered. The full information case is taken as the benchmark and efficient risk allocation with a risk averse principal and risk averse agent is considered, again ...
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The principal-agent problem is considered. The full information case is taken as the benchmark and efficient risk allocation with a risk averse principal and risk averse agent is considered, again with full information. Turning to the incomplete information case, unobservable effort raises the key incentive problem. The first order approach is discussed at length and key conditions for sufficiency of the approach examined.Less
The principal-agent problem is considered. The full information case is taken as the benchmark and efficient risk allocation with a risk averse principal and risk averse agent is considered, again with full information. Turning to the incomplete information case, unobservable effort raises the key incentive problem. The first order approach is discussed at length and key conditions for sufficiency of the approach examined.
Andrew Ang
- Published in print:
- 2014
- Published Online:
- August 2014
- ISBN:
- 9780199959327
- eISBN:
- 9780199382323
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199959327.003.0012
- Subject:
- Economics and Finance, Financial Economics
Tax-efficient asset management confronts investors with a traditional asset allocation problem—how much of each asset to hold—and also an asset location problem. The traditional asset allocation ...
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Tax-efficient asset management confronts investors with a traditional asset allocation problem—how much of each asset to hold—and also an asset location problem. The traditional asset allocation problem concerns how much you should put into bonds. But taking account of taxes means having to figure out how much of your bonds you put in tax-deferred accounts versus taxable ones. Taxes also affect asset prices, a fact that can be exploited by a savvy tax-exempt investor.Less
Tax-efficient asset management confronts investors with a traditional asset allocation problem—how much of each asset to hold—and also an asset location problem. The traditional asset allocation problem concerns how much you should put into bonds. But taking account of taxes means having to figure out how much of your bonds you put in tax-deferred accounts versus taxable ones. Taxes also affect asset prices, a fact that can be exploited by a savvy tax-exempt investor.
Richard Adelstein
- Published in print:
- 2017
- Published Online:
- September 2017
- ISBN:
- 9780190694272
- eISBN:
- 9780190694302
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780190694272.003.0003
- Subject:
- Economics and Finance, Economic Systems
This chapter articulates the Coase Theorem, which describes how voluntary exchange works when it works perfectly, and considers its implications for both efficient and equitable allocation when ...
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This chapter articulates the Coase Theorem, which describes how voluntary exchange works when it works perfectly, and considers its implications for both efficient and equitable allocation when conditions are perfect and when they’re not. Distinctions between utility, wealth, and value are developed in relation to the problem of distributional fairness, and transaction costs are introduced as impediments to voluntary exchange, and thus to efficient allocation in markets. Posner extends Coase’s logic to a corollary, that when transaction costs are high, efficiency can only be achieved if rights are granted initially to their highest-valuing owner, and proposes a provocative theory of the judicial role in light of the rule of law and the inevitable subjectivity of justice. This is tested in two cases: a hypothetical case where transaction costs are high, and a real one, involving rights to a significant moment in American history in which they’re low.Less
This chapter articulates the Coase Theorem, which describes how voluntary exchange works when it works perfectly, and considers its implications for both efficient and equitable allocation when conditions are perfect and when they’re not. Distinctions between utility, wealth, and value are developed in relation to the problem of distributional fairness, and transaction costs are introduced as impediments to voluntary exchange, and thus to efficient allocation in markets. Posner extends Coase’s logic to a corollary, that when transaction costs are high, efficiency can only be achieved if rights are granted initially to their highest-valuing owner, and proposes a provocative theory of the judicial role in light of the rule of law and the inevitable subjectivity of justice. This is tested in two cases: a hypothetical case where transaction costs are high, and a real one, involving rights to a significant moment in American history in which they’re low.
Malcolm Torry
- Published in print:
- 2013
- Published Online:
- January 2014
- ISBN:
- 9781447311249
- eISBN:
- 9781447311287
- Item type:
- chapter
- Publisher:
- Policy Press
- DOI:
- 10.1332/policypress/9781447311249.003.0008
- Subject:
- Sociology, Politics, Social Movements and Social Change
This chapter evaluates both the current system and a system based on a Citizen's Income against three further criteria The tax and benefits structure should not disincentivise public goods such as ...
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This chapter evaluates both the current system and a system based on a Citizen's Income against three further criteria The tax and benefits structure should not disincentivise public goods such as enterprise, training, long-term relationships between the parents of children, and the ability to provide financially for oneself and one's dependents. The tax and benefits structure should incentivise the efficient allocation of resources, and so contribute to an efficient economy. Our tax and benefits structure should treat people with dignity, and not stigmatise individuals involved in any part of the system. The chapter finds that a Citizen's Income ameliorates a number of traps: the unemployment, invalidity, poverty, lone parent, part-time, lack of skills, and savings traps; and so imposes fewer disincentives than the current system on skill acquisition, self-employment, long-term relationships, and the ability to climb out of poverty. It finds that in a number of respects a Citizen's Income would give us a more efficient economy, and that it would enhance individuals’ dignity, because everyone would receive a Citizen's Income, thus reducing stigma.Less
This chapter evaluates both the current system and a system based on a Citizen's Income against three further criteria The tax and benefits structure should not disincentivise public goods such as enterprise, training, long-term relationships between the parents of children, and the ability to provide financially for oneself and one's dependents. The tax and benefits structure should incentivise the efficient allocation of resources, and so contribute to an efficient economy. Our tax and benefits structure should treat people with dignity, and not stigmatise individuals involved in any part of the system. The chapter finds that a Citizen's Income ameliorates a number of traps: the unemployment, invalidity, poverty, lone parent, part-time, lack of skills, and savings traps; and so imposes fewer disincentives than the current system on skill acquisition, self-employment, long-term relationships, and the ability to climb out of poverty. It finds that in a number of respects a Citizen's Income would give us a more efficient economy, and that it would enhance individuals’ dignity, because everyone would receive a Citizen's Income, thus reducing stigma.
James Stent
- Published in print:
- 2017
- Published Online:
- December 2016
- ISBN:
- 9780190497033
- eISBN:
- 9780190497064
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780190497033.003.0001
- Subject:
- Economics and Finance, Financial Economics
China’s banks reflect the culture in which they are embedded, extensive borrowing of governance and operating models from West, and the pervasive role of the Communist Party. This accords with the ...
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China’s banks reflect the culture in which they are embedded, extensive borrowing of governance and operating models from West, and the pervasive role of the Communist Party. This accords with the findings of institutional economics approaches to understanding economic and financial institutions. The chapter sets forth the “fragile and facing collapse” thesis of skeptics and counters that the banks have transformed “night and day” from being cashiers of a planned economy to modern and professional banks. They are hybrid in nature, reflecting the market socialist economy they support. Banking system structure is described, with focus on the predominantly state-owned tier 1 banks, which comprise the main subject of the book. The success of China’s banking system must be measured by how well it performs financial intermediation, with systemic stability and sustainability, efficient capital allocation, and provision of financial access.Less
China’s banks reflect the culture in which they are embedded, extensive borrowing of governance and operating models from West, and the pervasive role of the Communist Party. This accords with the findings of institutional economics approaches to understanding economic and financial institutions. The chapter sets forth the “fragile and facing collapse” thesis of skeptics and counters that the banks have transformed “night and day” from being cashiers of a planned economy to modern and professional banks. They are hybrid in nature, reflecting the market socialist economy they support. Banking system structure is described, with focus on the predominantly state-owned tier 1 banks, which comprise the main subject of the book. The success of China’s banking system must be measured by how well it performs financial intermediation, with systemic stability and sustainability, efficient capital allocation, and provision of financial access.
Ed Nosal and Guillaume Rocheteau
- Published in print:
- 2011
- Published Online:
- August 2013
- ISBN:
- 9780262016285
- eISBN:
- 9780262298285
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262016285.003.0001
- Subject:
- Economics and Finance, Econometrics
This chapter first explores the basic environment for society’s need for a media of exchange. It defines the standard Arrow–Debreu model economy and suggests that such a study of media exchange ...
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This chapter first explores the basic environment for society’s need for a media of exchange. It defines the standard Arrow–Debreu model economy and suggests that such a study of media exchange requires a departure from this model, which implies that the economy can achieve a Pareto-efficient allocation without needing factors like money or other financial institutions. The chapter then outlines the ingredients needed in developing a good model of media of exchange. Finally, it lays out the characteristics of the benchmark model that will be used throughout the book.Less
This chapter first explores the basic environment for society’s need for a media of exchange. It defines the standard Arrow–Debreu model economy and suggests that such a study of media exchange requires a departure from this model, which implies that the economy can achieve a Pareto-efficient allocation without needing factors like money or other financial institutions. The chapter then outlines the ingredients needed in developing a good model of media of exchange. Finally, it lays out the characteristics of the benchmark model that will be used throughout the book.
