Mondays, from 12h30 to 13h30
28 June: Jean-Pierre Ponssard
A Sectoral Approach Balancing Global Efficiency and Equity
(in collaboration with Guy Meunier, Ecole Polytecyhnique)
This paper explores the idea that a properly designed sectoral approach could be the answer to two sets of constraints that hinder international agreement on climate change: a genuine concern for economic growth from developing countries and competitiveness issues from industrialized countries. Our sectoral approach builds on three premises: (i) cap and trade systems in industrialized countries and intensity targets in developing countries, (ii) sectors subject to international trade abide to the rules of the countries in which they trade, (iii) a fraction of the revenues from permits in industrialized countries goes to improve efficiency targets in domestic production in the developing countries. We design an economic model that features the interactions in three sectors (more or less exposed to international trade) and two countries (industrialized and developing). Two scenarios are constructed: Sectoral Approach, which refers to our proposal, and Global Cap, which implements a uniform CO2 price. We compare the two scenarios in terms of total welfare and equity. It is shown that Sectoral Approach ranks high in terms of equity for a minor welfare loss. It also eliminates competitiveness and leakage issues.
The CSR-Firm Performance Missing Link:
Complementarity between Environmental, Social and Business Practices?
(in collaboration with Sandra Cavaco, Université Panthéon-Assas Paris 2)
This article analyzes the relationship between corporate social responsibility (CSR) and firm performance by proposing a theoretical model and by testing empirically its main predictions on a matched panel database for the biggest European listed firms over the 2002-2007 period. Our dataset gathers two sources of information: environmental, social and governance (ESG) ratings from the Vigeo database and economic and financial performance data from the Orbis database. We explicitly test the complementarity and substitutability between various corporate social responsibility practices, and its impact on firm performance. We do observe that there exists a complementarity premium on specific CSR dimensions (human resources and clients and suppliers) but also that some combinations are relative substitutes (environment and clients and suppliers).
31 May (at 11h00): Marie-Laure Allain
The timing of Licensing: Theory and Empirics
(in collaboration with Emeric Henry, London Business School, and Margaret Kyle, London Business School)
Abstract: Markets for technology licenses are thought to create efficiency gains by allowing for division of labor in research and development of innovations. However, these gains depend on the timing of technology transfer: the licensee should take over development at the stage at which he has an efficiency advantage. We show that in an environment with asymmetric information about the value of the innovation and where information becomes available over time, deviations from the optimal timing of technology transfer will occur. Competition between potential licensees has an ambiguous effect on this timing. For concentrated markets, in which there are few potential licensees, an increase in the number of potential licensees may delay licensing. The opposite is true for very competitive markets. We test these predictions with data on contracts signed between biotechnology firms and large pharmaceutical firms, and find evidence consistent with our theory.
Habit Formation and Fiscal Transmission in Open Economies
Abstract: We construct an open economy version of the Baxter and King's (1993, AER) with habit formation to highlight the role of consumption inertia in reconciling theory with our VAR evidence on the effects of fiscal shocks. After highly persistent fiscal shocks, investment is crowded out, the current account enters in deficit due to the fall in private savings, and output multipliers display small values as long as habit persistence is large enough. The sensitivity analysis shows that the effectiveness of the fiscal policy (1) decreases as habit persistence gets stronger, (2) increases with labor supply responsiveness, (3) falls with trade integration. In addition, we find that habit persistence weakens the connection between government spending multipliers and both the elasticity of labor supply and exports-to-GDP ratio. Finally, following weakly persistent fiscal shocks, consumption inertia yields a current account deficit, and more so in countries with greater trade openness, in line with empirical evidence.
The Demand for Currency Versus Debitable Accounts: A Reconsideration
Abstract: Modeling the demand for currency and deposits is a primary concern for central banks. Within a wide range of academic contributions, payment choice models based on transaction sizes (TS models) have been recently promoted. However, TS models induce strong predictions about the use of payment instruments. Especially, all equal-sized transactions should be paid with the same payment instrument. Hence, for each individual, one should observe strict domains of transaction for every payment instruments. Using micro-level payment data from a representative sample of the French population, we show that TS models are bad at replicating individual and aggregate payment patterns. First, we show that the predictions of TS models are not empirically validated on an individual level. Second, we develop and test three models to explain the observed aggregate payment patterns. The first two models are aggregate versions of TS models and the third one is an alternative model based on a payment decision rule depending on cash holding (CH model). We find that the third model gives predictions between 2 and 6 times more precise than the first two with notably less demanding information on individuals.
15 March: Alfred Galichon
From Risk Measures to Local Utility Functions
Abstract: In this talk I shall explain how firms maximizing objective functions which are not necessarily Expected Utility yet behave for small risks like Expected Utility maximizers: this is the essence of Machina's theory of "Local Utility". I review usual objective functions of the firm such as risk measures and compute the associated Local Utility Functions. This is particularly interesting in the case of the class of multivariate risk measures recently proposed by Ekeland, Galichon and Henry (2009) and Galichon and Henry (2010).
Optimal Minimum WagePolicy in Competitive Labor Markets with Tax Evasion
Abstract: This paper provides a theoretical analysis of optimal minimum wagepolicy in perfectly competitive labor markets with tax evasion andimperfect compliance with the minimum wage. The goal of thegovernment is to redistribute income from high skilled workers towardlow skilled workers. But the ability of the government to levy taxesis limited by the presence of an informal sector, where incomes arenot observable. It is shown that the minimum wage, combined within-work benefits, is optimal if the government values redistributiontoward low wage workers and if the sensitivity of low skilled labordemand with respect to the minimum wage is small. The minimum wage isnever desirable when the government is Rawlsian.
15 February: Delphine Prady
Abstract: When the dangerousness of a product materializes in harmful ways, regulators are often keen on strengthening the regulation in place. We argue that stricter safety standards do not always translate into safer products. The perverse effect we underline is the following: If a public agency runs its own testing of a firm's output, it de facto decreases the firm's exposure to hazards. The agency prunes out the unsafe products to allow the firm to market only the good quality ones. We show that regulation alters the firm's equilibrium incentive to care for safety through two opposite effects. First, regulation increases the probability that the firm's products fail the test ex ante. Second, regulation decreases the firm's exposure to the hazard ex post. Intuitively, the regulation can be compared to a tax on the firm's production. As expected, such a tax has a downward impact on the firm's level of output because the opportunity costs of marginally safe yet recalled units increase. Less expectedly however, such a tax also weakens the firm's incentive to care for safety. Indeed, ex post gains of a marginal product that passes the test are now shared with the agency.
Is bioenergy trade good for the environment?
(in collaboration with Hélène Ollivier, Ecole Polytechnique)
Abstract: This paper analyzes the impacts of bioenergy trade on greenhouse gas emissions using a two-good, three-factor model. Bioenergy is an intermediate good produced by the agricultural sector and used by the industry as a substitute for fossil fuels. Countries impose Pigovian taxes on pollution emitted by both sectors without international coordination. We assume that northern countries have a larger labor endowment than southern ones and that agriculture is less pollution intensive than industry (after taxation). We show that compared to autarky, trade liberalization either increases or decreases worldwide emissions depending on regional comparative advantages.
Optimal Allocation of Tradable Emission Permits under Upstream-Downstream Strategic Interaction
(in collaboration with Joana Resende, CORE)
Abstract: In this paper we account for the fact that Cournot equilibrium strategies in the sector under environmental regulation depend on firms' interaction in the permits market (and vice versa). In this context, we show that the cost-effective allocation of permits between firms must compensate the cost-rising strategies exercised by the stronger firm (in the output market). Then, taking into account the previous result, we use a simulation to obtain the optimal allocation of permits between firms as a function of output market characteristics, in particular as a function of goods substitutability that serves as an indicator for the degree of price competition. The simulation allows us to determine how output market characteristics affect differently optimal permit allocation depending on the regulator's objective.
Choosing Choices: Agenda Setting with Uncertain Issues
(in collaboration with Rapphael Godefroy, Paris School of Economics)
Abstract: This paper studies selection rules i.e. the procedures by which a committee chooses the issues to include on its agenda. The main ingredient of the model is that, at the selection stage, committee members are uncertain about their final preferences: they only know the probability that they will eventually prefer the proposal to the status quo. This probability is private information. Surprisingly, we find that the more stringent the voting rule at the selection stage, the less voters are inclined to select an issue. The driving force is that when an agent conditions on being pivotal for selection, stiffening the selection rule causes the likelihood that the proposal will eventually pass when she prefers the status quo to increase relatively to when she doesn't. The voting rule in the final stage has the opposite effect on voters' behavior. Our basic model fits the procedure of the U.S. Supreme Court. The results extend to non-simultaneous selection procedures such as petitions and ballot initiatives, as well as to selection by subcommittees as in the U.S. Congress. We describe optimal rules when there is a fixed cost of organizing the final election.
Are Antitrust Fines Friendly to Competition?
An Endogenous Coalition Formation Approach to Collusive Cartels
(in collaboration with Alberto Zazzaro, Università Politecnica delle Marche)
Abstract: Few doubts are cast on the common opinion by which stricter enforcement of antitrust laws definitely makes market structure more competitive and prices lower. In this paper we challenge this presumption of effectiveness and show that the introduction of an antitrust fine may drive firms from partial cartels to a monopolistic cartel. Moreover, introducing uncertainty on market demand, we show that the socially optimal competition policy can call for a finite or even zero antitrust penalty even if there are no enforcement costs. We first show our results in a Cournot industry with five symmetric firms and a specific rule of cartel formation. Then we extend the analysis to the case of N symmetric firms and a generic rule of coalition formation. Finally, we consider the case of asymmetric firms and show that our results still hold for an industry populated by one Stackelberg leader and two followers.
Choice with Incomparable Alternatives
Kinship, Incentives and Evolution
(in collaboration with Ingela Alger, Carleton University, Canada)
Abstract: We analyze how family ties affect incentives, with focus on the strategic interaction between two mutually altruistic siblings. The siblings exert effort to produce output under uncertainty, and they may transfer output to each other. With equally altruistic siblings, their equilibrium effort is non-monotonic in the common degree of altruism, and it depends on the harshness of the environment. We define a notion of local evolutionary stability of degrees of sibling altruism, and show that this degree is lower than the kinship-relatedness factor. Numerical simulations show how family ties vary with the environment, and how this affects economic outcomes.
Vertical Integration, Foreclosure, and Upstream Competition
(in collaboration with Johan Hombert and Jérôme Pouyet)
Abstract: We develop a model, in which two vertically integrated firms compete, first, on an upstream market to supply an intermediate input to a downstream firm, and second, on a downstream market with the same downstream firm. We show that, even if firms compete in prices with homogenous products on the upstream market, the input may be priced above marginal cost in equilibrium. These partial foreclosure outcomes are more likely to arise when final products are close substitutes, when the downstream firm is relatively inefficient, or when integrated firms offer two-part tariffs on the upstream market. We show that these equilibria degrade both social welfare and consumers' surplus, relative to the Bertrand outcome, and we derive conditions under which an input price cap can restore the competitiveness of the upstream market. Performing comparative statics on the market structure, we find that an increase in the number of integrated or downstream firms can actually increase the scope for partial foreclosure equilibria. We then wonder whether situations, in which the downstream firm does not receive the input at all, can emerge in equilibrium. We show that such complete foreclosure equilibria are more likely to arise when downstream products are close substitutes, the downstream firm is relatively inefficient, and the input is poorly differentiated. Again, an increase in the number of integrated firms can make complete foreclosure more likely. Finally, we derive several results on the profitability and social desirability of horizontal and vertical mergers, with and without efficiency gains.
Environmental Regulation and Technology Adoption
(in collaboration with Thierry Bréchet, CORE)
Abstract: An important effect of an environmental policy is to promote the adoption of new and cleaner technologies. We analyze the influence of an environmental regulation on the adoption of a cleaner technology by producers of a pollutant output, and we compare tax with a system of tradable quotas.
Most previous analysis of technology adoption and environmental policy ignore the output markets and make assumptions on a reduce form of abatement cost. These assumptions are not robust to the explicit representation of the output market.
We show that total emissions can be higher with the clean technology than without and that the tax has not a monotonous effect on the number of clean firms: for a sufficiently high tax, an increase of the tax decreases the equilibrium share of clean firms. These two results explains that the comparisons of instruments is more complex than previously established.
Price competition in the Market for Lemons
19 October: Christian Belzil
An Economic Analysis of Dictatorial and Incentive Policy Interventions in IV Estimation
(in collaboration with Jörgen Hansen, Concordia University, Montréal)
Pricing Payment Cards
(in collaboration with Emilio Calvano, Harvard University)
Abstract: In a payment card association such as Visa, each time a consumer pays by card, the bank of the merchant (acquirer) pays an interchange fee (IF) to the bank of the cardholder (issuer) to carry out the transaction. This paper studies the determinants of socially and privately optimal IFs in a card scheme where services are provided by a monopoly issuer and perfectly competitive acquirers to heterogeneous consumers and merchants. Different from the literature, we distinguish card membership from card usage decisions (and fees). In doing so, we reveal the implications of an asymmetry between consumers and merchants: the card usage decision at a point of sale is delegated to cardholders since merchants are not allowed to turn down cards once they are affiliated with a card network. We show that this asymmetry is sufficient to induce the card association to set a higher IF than the socially optimal IF, and thus to distort the structure of user fees by leading to too low card usage fees at the expense of too high merchant fees. Hence, cap regulations on IFs can improve the welfare. These qualitative results are robust to imperfect issuer competition and to other factors affecting final demands, such as elastic consumer participation or strategic card acceptance to attract consumers.