Rent Control
Keeping Up with the Neighbors: Social Interaction in a Market Economy
Christian Ghiglino & Sanjeev Goyal
Journal of the European Economic Association, March 2010, Pages 90-119
Abstract:
We consider a world in which individuals have private endowments and trade in markets while their utility is negatively affected by the consumption of their neighbors. Our interest is in understanding how the social structure of comparisons, taken together with the familiar fundamentals of the economy (endowments, technology, and preferences), shapes equilibrium prices, allocations, and welfare. We show that equilibrium prices and consumption are a function of a single network statistic: centrality. An individual's "centrality" is given by the weighted sum of paths of different lengths to all others in a social network. In particular, prices are proportional to the sum of centralities, and an individual's consumption depends on how central she is relative to others in the network. Inequalities in wealth and connections reinforce each other in markets: A transfer of resources from less to more central agents raises prices. As segregated communities become integrated, the poor lose while the rich gain in utility.
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Why Do Management Practices Differ across Firms and Countries?
Nicholas Bloom & John Van Reenen
Journal of Economic Perspectives, Winter 2010, Pages 203-224
Abstract:
Economists have long puzzled over the astounding differences in productivity between firms and countries. In this paper, we present evidence on a possible explanation for persistent differences in productivity at the firm and the national level -- namely, that such differences largely reflect variations in management practices. We have, over the last decade, undertaken a large survey research program to systematically measure management practices across firms, industries, and countries. Our survey approach focuses on aspects of management like systematic performance monitoring, setting appropriate targets, and providing incentives for good performance. We explain how we measure management; identify some basic patterns in our data; then turn to the question of why management practices vary so much across firms and nations. What we find is a combination of imperfectly competitive markets, family ownership of firms, regulations restricting management practices, and informational barriers allow bad management to persist.
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Can Uslay, Ayca Altintig & Robert Winsor
Journal of Marketing, March 2010, Pages 20-39
Abstract:
This study represents the first empirical examination of the "Rule of Three," a theory at odds with several popular notions regarding industry structure and business performance, including the positive linear market share-performance relationship. In general, the findings from more than 160 industries support the Rule of Three and provide five main insights: First, there appears to be a prevalent competitive structure for mature industries in which three "generalist" firms control the market. Second, industries that conform to this structure tend to perform better than industries with a fewer or greater number of generalists. Third, both "specialists" and generalists outperform firms that are "stuck in the middle." Fourth, the performance benefits of market leadership appear to diminish with excessive market share. Fifth, the Rule of Three industry structure and its influence over firm profitability do not appear to be priced appropriately by financial markets. The authors discuss the implications for multiple stakeholders.
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Intellectual property rights and innovation: Evidence from the human genome
Heidi Williams
Harvard Working Paper, December 2009
Abstract:
This paper provides empirical evidence on how intellectual property (IP) on a given technology affects subsequent innovation. To shed light on this question, I analyze the sequencing of the human genome by the public Human Genome Project and the private firm Celera, and estimate the impact of Celera's gene-level IP on subsequent scientific research and product development outcomes. Celera's IP applied to genes sequenced first by Celera, and was removed when the public effort re-sequenced those genes. I test whether genes that ever had Celera's IP differ in subsequent innovation, as of 2009, from genes sequenced by the public effort over the same time period, a comparison group that appears balanced on ex ante gene-level observables. A complementary panel analysis traces the effects of removal of Celera's IP on within-gene flow measures of subsequent innovation. Both analyses suggest Celera's IP led to reductions in subsequent scientific research and product development outcomes on the order of 30 percent. Celera's short-term IP thus appears to have had persistent negative effects on subsequent innovation relative to a counterfactual of Celera genes having always been in the public domain.
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Entrepreneurship and Team Participation: An Experimental Study
David Cooper & Krista Jabs Saral
Kauffman Foundation Working Paper, February 2010
Abstract:
Entrepreneurs are surprisingly unlikely to have partners. In spite of the obvious advantages to forming partnerships, only a small minority of entrepreneurs (less than 10%, excluding family businesses) have partners. A number of possible explanations exist for this puzzling phenomenon, including an inability to locate suitable partners, fear of moral hazard, and a preference for not working in groups. Utilizing a diverse subject population with a high proportion of active entrepreneurs, we use a team production experiment to study whether entrepreneurs prefer to work alone or in a team. The data indicate that entrepreneurs, while no less likely to be good teammates, are substantially less interested in joining teams. This suggests that efforts to encourage partnership among entrepreneurs may run contrary to the preferences of this group.
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Does Wal-Mart Sell Inferior Goods?
Emek Basker
Economic Inquiry, forthcoming
Abstract:
I estimate the aggregate income elasticity of Wal-Mart's and Target's revenues using quarterly data for 1997-2006. I find that Wal-Mart's revenues increase during bad times, whereas Target's revenues decrease, consistent with Wal-Mart selling "inferior goods" in the technical sense of the term. An upper bound on the aggregate income elasticity of demand for Wal-Mart's wares is -0.5.
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Non-Profits are Seen as Warm and For-Profits as Competent: Firm Stereotypes Matter
Jennifer Aaker, Kathleen Vohs & Cassie Mogilner
Stanford Working Paper, January 2010
Abstract:
Consumers use warmth and competence, two fundamental dimensions that govern social judgments of people, to form perceptions of firms. Three experiments showed that consumers perceive non-profits as being warmer than for-profits, but as less competent. Further, consumers are less willing to buy a product made by a non-profit than a for-profit because of their perceptions that the firm lacks competence. Consequently, when perceived competence of a non-profit is boosted through subtle cues that connote credibility, discrepancies in willingness to buy disappear. In fact, when consumers perceive high levels of competence and warmth, they feel admiration for the firm - which translates to consumers' increased desire to buy. This work highlights the importance of consumer stereotypes about non-profit and for-profit companies that, at baseline, come with opposing advantages and disadvantages but that can be altered.
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The Effects Of Competition On The Price For Cable Modem Internet Access
Yongmin Chen & Scott Savage
Review of Economics and Statistics, forthcoming
Abstract:
An important issue in economics is how market structure affects prices. While the standard view is that competition lowers prices, Chen and Riordan (2006) argued that with product differentiation it is not exceptional for prices to be higher under duopoly than monopoly. This paper empirically investigates one implication from Chen and Riordan, namely, that prices are lower under duopoly when consumer preferences for the two products are similar, and they are more likely to be higher under duopoly if consumer preferences for the two products are more diverse. Focusing on the price for cable modem Internet access, with or without competition from a digital subscriber line provider, and using education dispersion as a proxy for consumer preference diversity, we find empirical support for this implication. In markets where education dispersion is low, competition reduces prices. As education dispersion increases, the negative effect of competition on prices diminishes; and when the dispersion is high enough, competition increases prices.
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Consumer Options: Theory and an Empirical Application to a Sports Market
Preethika Sainam, Sridhar Balasubramanian & Barry Bayus
Journal of Marketing Research, forthcoming
Abstract:
The authors introduce the concept of consumer options and empirically validate it in the context of event ticket pricing. They demonstrate that consumer options can protect consumers from the downside related to uncertain outcomes, and enhance seller profits by enabling superior market segmentation and increasing consumer willingness to pay. The newly proposed ticket pricing mechanism is examined in sports markets where there is uncertainty about the teams that will play in a final event (e.g., the NCAA Final Four basketball tournament). Fans who want to attend the game after knowing which teams will play are often disappointed because tickets typically sell out in advance. The authors propose that a fan can buy an option on a ticket before this uncertainty is resolved. Later she can decide about exercising the option. A simple analytical model of consumer options in this setting is presented. It is then empirically demonstrated that profits under option pricing can exceed those from (a) advance selling, and (b) pricing after uncertainty is resolved. The analysis and findings of this paper lay a foundation for future work on consumer options in marketing.
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A Theory of Government Regulation and Self-Regulation with the Specter of Nonmarket Threats
Craig Volden & Alan Wiseman
Ohio State University Working Paper, October 2009
Abstract:
We develop a game-theoretic model wherein a government establishes a mandate for product quality without possessing effective enforcement abilities, and a firm chooses whether to ignore, comply with, or exceed the government quality standard. After bringing a product to market, the firm faces the possibility of nonmarket reactions by interests such as trial attorneys and consumer activists, who might sue in the case of product-induced damages or reveal the firm's quality choice to consumers through investigatory and publicity activities. Equilibrium results identify conditions under which firms will engage in meaningful self-regulation, either by voluntarily selecting a high-quality standard for their product absent a government mandate, or by complying with a government mandate for high quality even though government lacks enforcement power. Our results have direct implications for how political actors choose to regulate certain industries based on the market value of different products, on the danger associated with various products, and on the nature of the nonmarket environment.
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Werner Troesken
NBER Working Paper, January 2010
Abstract:
Between 1810 and 1939, real per capita spending on patent medicines grew by a factor of 114; real per capita GDP by a factor of 5. The long-term growth and survival this industry is puzzling when juxtaposed with standard historical accounts, which typically portray patent medicines as quack medicines. This paper argues that patent medicines were distinguished from other products by an unusually low elasticity of demand with respect to product failure. While consumers in other markets stopped searching for a viable product after a few failed attempts, consumers of patent medicines kept trying different products, irrespective of the number of failed medicines they observed. The market expanded as the stock of people buying potential cures accumulated over time. Because no one was ever cured and consumers possessed a highly inelastic demand with respect to product failures, demand was unrelenting. In short, patent medicines flourished not despite their dubious medicinal qualities, but because of them. There is also evidence that genuine medical advances, such as the rise of the germ theory of disease and new therapeutic interventions, helped expand the market for quack medicines.
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Sources of power and infrastructural conditions in medieval governmental accounting
Michael John Jones
Accounting, Organizations and Society, January 2010, Pages 81-94
Abstract:
The role which accounting plays in power and governance is a key issue in accounting history. This study looks at a crucial development in accounting history, the emergence in the 12th century of Exchequer accounting. Exchequer accounting played a significant part in the rise of the European administrative state. This paper uses Mann's Model of the sources of power to study the nature and role that accounting played in medieval governance. The ideological, economic, military and political sources of power are shown to be underpinned by key infrastructures such as accounting. The interrelationships between accounting, other medieval infrastructures (such as the feudal system, administrative and territorial organisation, logistics, coinage, and literacy and numerical technologies) and the sources of power are explored.
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Modularity in Property, Intellectual Property, and Organizations
Henry Smith
Harvard Working Paper, October 2009
Abstract:
This paper argues that property, intellectual property, and organizations all employ modular structures in order to manage complex interactions between economic actors, and draws out the implications of a modular architecture for the measurement of institutions in the New Institutional Economics. Modularization involves breaking complex systems of interactions among actors into constituent parts, within which interactions are intense but between which defined interfaces constrain the flow of information. The right to exclude in the law of trespass is the most basic and familiar example. This paper combines and extends an information-cost theory of property and a modularity-based theory of the firm to explain the property-like aspects of organizations - asset partitioning, legal personality, stability and flexibility over time, team production and the residual claim - as stemming from modular structures that go beyond the familiar "nexus of-contracts." Similarly, intellectual property can achieve information-cost savings through the indirectness and simplicity of basic exclusion rules. Especially with a nonrival resource like information, the right mixture of exclusion, governance, and open access remains an empirical question, but intellectual property, like property and organizational law, can be seen as a second-best solution of a complex coordination problem of attributing outputs to inputs. The paper concludes with a discussion of some measurement issues in testing propositions derived from a modular theory of property. Rather than an exclusive focus on the economic effects of individual rules, the modular architecture of property and related systems requires an assessment of their contribution to emergent properties such as stability and promotion of innovation.