Elie Appelbaum
Professor
Office: Vari Hall, 1064
Phone: (416) 736-2100 Ext: 20582
Email: elie@yorku.ca
Primary website: http://elie.info.yorku.ca/
Research areas: Microeconomics, Industrial Organization, International Trade, Political Economy, Finance.
Current Research Interests/Work in Progress :
1. Trade Agreements as Insurance Mechanisms
2. High-order stochastic dominance in medical decisions
3. Hazard Functions and high-order Stochastic Dominance
4. “Almost Stochastic Dominance” in Medical Decisions
5. Strategic Carbon Tax Policies
6. Implicit Trade in Risk and Risk Aversion, Gains from Trade and Trade Policy
7. Dynamic Conflict Models
Degrees
BA Economics and Statistics,MA Economics,
PhD Economics, UBC
Research Interests
Peace Economics, Peace Science and Public Policy, Forthcoming.
Abstract: This paper provides a simple dynamic model that explores the interdependence and dynamic properties of hate, violence and economic well-being. It shows that a time-dependent economic growth process that affects the evolution of hate can yield a long-run steady state, but this steady state will not be free of hate and violence. Moreover, we show that better (long-run) economic conditions do not necessarily result in lower equilibrium levels of hate and violence. We also show that, under reasonable conditions, cycles of hate and violence cannot occur. Consequently, the dynamic properties of hate and violence alone cannot result in cyclical (net) economic well-being patterns. While stable and unstable equilibria are possible, the most likely equilibrium is a saddle point. Given its nature, we can view the paper as an example of a formal model for the ideas of the "dynamical system" literature in psychology. Although the paper does not discuss policy decisions, it identifies potential instruments for policymakers to achieve better steady states and greater stability.
Finally, we provide two fully nonlinear multi-dimensional numerical examples (in an appendix) to demonstrate the implications of various psychological attributes, sensitivity to economic conditions, externalities, violence and small equilibria perturbations regarding the nature of the steady state and stability of the equilibria.
[go to paper]
Journal of International Money and Finance, October 2024.
Abstract: We investigate preferential trade agreement (PTA) formation when risk-averse countries face demand uncertainty and, hence, have an insurance motive for pursuing trade integration. In this environment, when deciding which type of PTA - if any - they wish to form, countries seek to maximise their net welfare; that is, their expected utility less a risk premium. The desire for insurance influences not just whether a particular PTA forms but also the preferred depth of integration. We analyze the insurance implications of free trade agreements (FTAs), customs unions (CUs), and countries choosing to stand alone. We further distinguish between shallow CUs and deep CUs; in the former, members maximise the sum of their individual net welfares, while in the latter they maximise the net value of the sum of their individual expected welfares. We show that differences in country risk attitudes and the levels of risk they face, as well as the degree to which these risks are correlated, influence the formation and design of TAs. When countries' demands are uncorrelated, they form a deep CU if their levels of risk aversion are sufficiently different. If, however, their risk attitudes are similar, countries opt for shallower trade integration - either a shallow CU or a FTA - if they face low levels of uncertainty and choose to stand alone if one country faces a sufficiently high level of uncertainty. When countries' demands are correlated, they tend to form a deep CU if their demands are strongly negatively correlated, a FTA if their demands are strongly positively correlated and a shallow CU when their demands are weakly correlated. Intuitively, differences in country risk attitudes (i.e., their degree of risk aversion) act as an additional source of comparative advantage. Deeper integration - particularly via a CU - permits less risk-averse members to essentially export their relative partiality for risk to more risk-averse partners, thereby effectively providing the latter with insurance.
[go to paper]
Journal of Behavioral and Experimental Economics, 2022
Abstract: This paper proposes an intuitive, guilt-based dynamic resolution of the prisoners’ dilemma with a finite horizon by viewing cooperation as generating a “stock of potential guilt” (SPG) that actuates upon defection, turning into realized guilt-cost. A player’s SPG is a state variable that increases with each cooperative interaction and moves according to a motion equation, converting the standard prisoners’ dilemma into one with a dynamic payoff matrix. We show that cooperation equilibria are possible for a wide range of parameter values within our guilt-based dynamic model, even if we do not exogenously assume that players necessarily cooperate in the first period of the game. We examine the likelihood of cooperation and find that higher guilt retention or discount factors, a longer time horizon, and greater SPG-responsiveness to cooperation in each period all increase the likelihood of equilibrium cooperation.
[go to paper]
Journal of Government and Economics, 2021
Abstract: This paper examines the efficacy of carbon tax policies in view of the interactions between such policies and the firm’s carbon efficiency and financing decisions. We show that because the government, unlike capital markets, does not price its policy’s risk by taking into account default probabilities, the firm takes advantage of the government by using senior debt to minimize the carbon tax policy’s cost. The shift to debt financing, in turn, mitigates the carbon tax policy’s efficacy, resulting in lower carbon efficiency, thus higher carbon emissions. To remedy the government’s predicament, we propose a correct-pricing rule that mimics market equilibrium conditions, thereby forcing firms to consider government interests. Such a rule renders senior debt no longer useful for reducing the carbon tax policy’s cost. As a result, the tax policy’s efficacy increases, hence reducing carbon emissions. Finally, we briefly consider and comment on the case of a social-welfare maximizing government that strategically chooses its carbon tax.
[go to paper]
Journal of Corporate Finance, 2019
Abstract: We explore the impact of strategic behaviour of equity holders, debt holders and an opportunistic supplier of a critical input on the firm's capital structure, organizational design, and its outsourcing decision. We show that the supplier can trigger strategic bankruptcy even when the firm is solvent. Equity holders respond to this either by eliminating the supplier and producing the input in-house or by reducing their exposure to debt by using equity-financing. Both responses introduce inefficiency since in-house production costs of the input are higher, and debt is cheaper than equity. We show that the equilibrium debt-equity ratio varies positively with cash-flow profitability and the supplier's input marginal cost, but negatively with the riskiness of the cash flow and the equity holders' in-house input production costs.
[go to paper]
Economic Record, 2018.
Abstract: We show that generalized customs unions (CUs), in which members choose different external tariff rates while still maximizing total member welfare, are always welfare-superior to both standard CUs with common external tariffs and free trade areas (FTAs). Since generalized CUs are indistinguishable to FTAs in practice, our analysis implies that observed TAs that have the appearance of FTAs may, in fact, be CUs. This possibility offers one potential explanation for the design of the WTO's rules on regional trade agreements, in particular the WTO's specification of a CET as the defining feature of a CU. Our results also suggest that empirical estimates of the different impacts of FTAs and CUs may be subject to a trade-agreements-misclassification bias. [go to paper]
Economic Record, Volume 92, Issue 297, 2016
Abstract: This paper analyses how uncertainty influences the formation and design of regional trade agreements (TAs). Two sources of uncertainty – in demand and costs – are considered. Using a multi‐stage game, we show that, as long as some decisions are made after uncertainty is resolved, all TAs have option values. But, because TAs differ in their flexibility and degrees of coordination, these option values vary across TAs. Thus, under uncertainty, the usual cost–benefit analysis that underlies the formation and design of TAs is altered to reflect these option values. We also show that, due to the flexibility and coordination differences among TAs, their option values are affected differently by uncertainty. Consequently, the formation and design of TAs are also affected by the nature and degree of uncertainty. We demonstrate that the effects of an increase in uncertainty on the choice of TAs depend on the relative responsiveness of the TAs' option values with respect to the change in uncertainty, which in turn depend on the convexity properties of the countries' welfare functions under the different TAs. In particular, a TA whose option value is more responsive to a change in uncertainty becomes relatively more attractive when uncertainty increases. This enables us to predict which TAs are likely to emerge in an uncertain world. Using a specific example, we then show the effects of a change in both demand and cost uncertainty on the choice of TAs. We also examine the timing of the resolution of uncertainty and its effect on the choice of TAs and show that it can significantly impact the type of TA that countries wish to form. [go to paper]
Games and Economic Behavior , 2011, 71(2), pp.235-245
Abstract: This paper shows that a modified alternating offers Rubinstein model can provide a Pareto superior outcome in the context of the right-to-manage union-firm bargaining. Two examples of bargaining protocols that yield a superior outcome are provided. In the first example, the parties engage in a game in which the order of play is determined as part of the bargaining. We show that the game has a unique subgame perfect equilibrium in which the firm always moves first in the wage bargaining game. The equilibrium wage is, therefore, unique. In the second example, we examine a two-part-tariff alternating offers bargaining protocol, where the parties bargain over the wage and transfer payments. We show that this bargaining protocol has a Pareto efficient, unique subgame perfect equilibrium. Thus, although the parties do not bargain over the level of employment, the outcome under this protocol is, nevertheless, socially optimal.
[go to paper]
Journal of Economic Behavior & Organization , 2008, 68(2), 352-364
Abstract: This paper studies the strategic role of extremism within a two-country multi-stage game and shows that, in general, an equilibrium exists in which extremism is used by both rivals. We show that often changes in the environment affect the two countries differently. Specifically, as a country becomes wealthier, more powerful, or more democratic, its level of extremism decreases, but at the same time, its rival's level of extremism increases. Similarly, higher stakes in the conflict tend to increase the level of extremism in the relatively poorer, weaker, and less democratic country, but decrease the level of extremism in the other country. On the other hand, higher stakes in a conflict between similar countries and greater destructiveness vis-Ã -vis the contested asset will increase the levels of extremism in both countries. Since changes in the environment may affect the levels of extremism in the two countries in opposite ways, we calculate the probability of an extremist destructive episode as a possible measure of the "aggregate" level of extremism in the conflict. We find that the aggregate level of extremism decreases with wealth, power, and degree of democracy, but increases with the stakes in the conflict and with better access to destructive technology. Finally, we use the model to examine levels of extremism within the context of the Israeli-Palestinian conflict.
[go to paper]
(with E. Katz)
American Economic Review , 9(1), 2006, pp.116-142
[go to paper]
(with A. Ullah)
The Review of Economics and Statistics , 1997, 79(4), pp.631-637
Abstract: The purpose of this paper is to examine production decisions under output price uncertainty. Using a nonparametric estimation technique to estimate the first four moments of the unknown price distribution and applying duality, we provide a simple empirical framework for the analysis of supply and demand decisions under price uncertainty. The model is used to examine the importance of higher moments in the firm's production decisions and to investigate underlying attitudes toward risk.
[go to paper]
(with U. Kohli)
The Review of Economics and Statistics , 1997, 79(4), pp.620-630
Abstract: The effects of import-price uncertainty on factor income in Switzerland are estimated. The production-theory approach is used to derive the import demand function from an expected utility maximization problem, treating imports as an input to the technology. The model is also used to test for risk aversion and to assess the impact of uncertainty on the volume of imports and gross output. Evidence is found that, for most years. labor has been relatively more vulnerable to uncertainty than has capital.
[go to paper]
International Economic Review , 1992, 33(2), pp.399-412.
Abstract: This paper examines the role of capital structure as an instrument for shifting risk between real and financial markets. The author considers a firm whose contractual agreements involve both consumers and debtholders and shows that if consumers are risk averse, whereas equity and debtholders are risk neutral, the firm uses its capital structure to shift risk away from consumers. The optimal allocation of risk across real and financial markets leads the firm to be fully equity financed.
[go to paper]
(with J. Berechman)
Journal of Econometrics , 1991, 47(2-3), pp.379-400
Abstract: Most econometric studies of productivity use partial equilibrium analysis of cost models to estimate and measure productivity growth. In this paper we provide a market equilibrium model in which supply (cost), demand, and regulatory conditions are explicitly taken into account. The model is used to calculate the rate of growth in cost efficiency (productivity) in the Israeli bus transit sector and to explain this growth by the contributions of input prices, technical change, output scale, demand conditions, and government regulation.
[go to paper]
(with E. Katz)
Economic Journal , 1987, 97(387), pp.685-99
Abstract: In recent years, there has been a large number of papers on the subject of rent seeking. Most such works on rent seeking have taken the rent as exogenously determined by regulators. Regulators, howeve r, may also be expected (and indeed have been shown) to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are, themselves, rent se ekers. In this paper, the authors do this by presenting an analysis o f the interaction of regulators, firms, and consumers within a rent-s eeking framework where all three groups are assumed to be self-motiva ted. The analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants. Policy implications are drawn where appropriate.
[go to paper]
(with C. Lim)
Rand Journal of Economics , 1985, 16(1), pp.28-40
Abstract: In this article we present a model of a market which is ex post contestable. We show that in a market characterized by uncertainty a firm will face a tradeoff between efficiency and flexibility and generally will make some precommitments to take advantage of ex ante technologies. We show that in the face of potential entry the incumbent will increase his precommitments and in so doing will affect the probability of entry. The degree of market contestability is therefore endogenously determined by the choice of precommitments. The extent to which precommitments will be used to affect entry probabilities is shown to depend on the efficiency of ex ante production, adjustment costs, and the degree of uncertainty. In particular, we show that the market becomes "more contestable" as the relative efficiency of ex post production increases and as market conditions become more uncertain.
[go to paper]
Journal of Econometrics , 1982, 19(2-3), pp.287-299.
Abstract: This paper extends the use of econometric production theory techniques to ageneral class of oligopolistic markets. We provide a framework which enables us to estimate the conjectural variation and test various hypotheses about non-competitive behavior. Furthermore, we provide a measure of the degree of oligopolistic power of a firm and a degree of oligopoly index for the whole industry that can be used to test for the underlying structure of the industry.
[go to paper]
(with E. Katz)
Journal of Political Economy , 1981, 89(4), pp.819-25
[go to paper]
International Economic Review , 1979, 20(2), pp.449-58.
[go to paper]
Journal of Econometrics , 1979, 9(3), pp.283-294.
Abstract: The purpose of this paper is to present an empirically implementable technique for the analysis of non-competitive behavior in production. We provide a statistical test for the price taking behavior hypothesis which can be used to distinguish among different market structures. We apply this approach to the U.S. crude petroleum and natural gas industry and find that the price taking behavior hypothesis is not appropriate for this industry.
[go to paper]
(with R. Harris)
International Economic Review , 1978, 19(1), pp.103-14
[go to paper]
Research areas: Microeconomics, Industrial Organization, International Trade, Political Economy, Finance.
Current Research Interests/Work in Progress :
1. Trade Agreements as Insurance Mechanisms
2. High-order stochastic dominance in medical decisions
3. Hazard Functions and high-order Stochastic Dominance
4. “Almost Stochastic Dominance” in Medical Decisions
5. Strategic Carbon Tax Policies
6. Implicit Trade in Risk and Risk Aversion, Gains from Trade and Trade Policy
7. Dynamic Conflict Models
Degrees
BA Economics and Statistics,MA Economics,
PhD Economics, UBC
Research Interests
All Publications
Peace Economics, Peace Science and Public Policy, Forthcoming.
Abstract: This paper provides a simple dynamic model that explores the interdependence and dynamic properties of hate, violence and economic well-being. It shows that a time-dependent economic growth process that affects the evolution of hate can yield a long-run steady state, but this steady state will not be free of hate and violence. Moreover, we show that better (long-run) economic conditions do not necessarily result in lower equilibrium levels of hate and violence. We also show that, under reasonable conditions, cycles of hate and violence cannot occur. Consequently, the dynamic properties of hate and violence alone cannot result in cyclical (net) economic well-being patterns. While stable and unstable equilibria are possible, the most likely equilibrium is a saddle point. Given its nature, we can view the paper as an example of a formal model for the ideas of the "dynamical system" literature in psychology. Although the paper does not discuss policy decisions, it identifies potential instruments for policymakers to achieve better steady states and greater stability.
Finally, we provide two fully nonlinear multi-dimensional numerical examples (in an appendix) to demonstrate the implications of various psychological attributes, sensitivity to economic conditions, externalities, violence and small equilibria perturbations regarding the nature of the steady state and stability of the equilibria.
[go to paper]
Journal of International Money and Finance, October 2024.
Abstract: We investigate preferential trade agreement (PTA) formation when risk-averse countries face demand uncertainty and, hence, have an insurance motive for pursuing trade integration. In this environment, when deciding which type of PTA - if any - they wish to form, countries seek to maximise their net welfare; that is, their expected utility less a risk premium. The desire for insurance influences not just whether a particular PTA forms but also the preferred depth of integration. We analyze the insurance implications of free trade agreements (FTAs), customs unions (CUs), and countries choosing to stand alone. We further distinguish between shallow CUs and deep CUs; in the former, members maximise the sum of their individual net welfares, while in the latter they maximise the net value of the sum of their individual expected welfares. We show that differences in country risk attitudes and the levels of risk they face, as well as the degree to which these risks are correlated, influence the formation and design of TAs. When countries' demands are uncorrelated, they form a deep CU if their levels of risk aversion are sufficiently different. If, however, their risk attitudes are similar, countries opt for shallower trade integration - either a shallow CU or a FTA - if they face low levels of uncertainty and choose to stand alone if one country faces a sufficiently high level of uncertainty. When countries' demands are correlated, they tend to form a deep CU if their demands are strongly negatively correlated, a FTA if their demands are strongly positively correlated and a shallow CU when their demands are weakly correlated. Intuitively, differences in country risk attitudes (i.e., their degree of risk aversion) act as an additional source of comparative advantage. Deeper integration - particularly via a CU - permits less risk-averse members to essentially export their relative partiality for risk to more risk-averse partners, thereby effectively providing the latter with insurance.
[go to paper]
Journal of Behavioral and Experimental Economics, 2022
Abstract: This paper proposes an intuitive, guilt-based dynamic resolution of the prisoners’ dilemma with a finite horizon by viewing cooperation as generating a “stock of potential guilt” (SPG) that actuates upon defection, turning into realized guilt-cost. A player’s SPG is a state variable that increases with each cooperative interaction and moves according to a motion equation, converting the standard prisoners’ dilemma into one with a dynamic payoff matrix. We show that cooperation equilibria are possible for a wide range of parameter values within our guilt-based dynamic model, even if we do not exogenously assume that players necessarily cooperate in the first period of the game. We examine the likelihood of cooperation and find that higher guilt retention or discount factors, a longer time horizon, and greater SPG-responsiveness to cooperation in each period all increase the likelihood of equilibrium cooperation.
[go to paper]
Journal of Government and Economics, 2021
Abstract: This paper examines the efficacy of carbon tax policies in view of the interactions between such policies and the firm’s carbon efficiency and financing decisions. We show that because the government, unlike capital markets, does not price its policy’s risk by taking into account default probabilities, the firm takes advantage of the government by using senior debt to minimize the carbon tax policy’s cost. The shift to debt financing, in turn, mitigates the carbon tax policy’s efficacy, resulting in lower carbon efficiency, thus higher carbon emissions. To remedy the government’s predicament, we propose a correct-pricing rule that mimics market equilibrium conditions, thereby forcing firms to consider government interests. Such a rule renders senior debt no longer useful for reducing the carbon tax policy’s cost. As a result, the tax policy’s efficacy increases, hence reducing carbon emissions. Finally, we briefly consider and comment on the case of a social-welfare maximizing government that strategically chooses its carbon tax.
[go to paper]
Journal of Corporate Finance, 2019
Abstract: We explore the impact of strategic behaviour of equity holders, debt holders and an opportunistic supplier of a critical input on the firm's capital structure, organizational design, and its outsourcing decision. We show that the supplier can trigger strategic bankruptcy even when the firm is solvent. Equity holders respond to this either by eliminating the supplier and producing the input in-house or by reducing their exposure to debt by using equity-financing. Both responses introduce inefficiency since in-house production costs of the input are higher, and debt is cheaper than equity. We show that the equilibrium debt-equity ratio varies positively with cash-flow profitability and the supplier's input marginal cost, but negatively with the riskiness of the cash flow and the equity holders' in-house input production costs.
[go to paper]
Economic Record, 2018.
Abstract: We show that generalized customs unions (CUs), in which members choose different external tariff rates while still maximizing total member welfare, are always welfare-superior to both standard CUs with common external tariffs and free trade areas (FTAs). Since generalized CUs are indistinguishable to FTAs in practice, our analysis implies that observed TAs that have the appearance of FTAs may, in fact, be CUs. This possibility offers one potential explanation for the design of the WTO's rules on regional trade agreements, in particular the WTO's specification of a CET as the defining feature of a CU. Our results also suggest that empirical estimates of the different impacts of FTAs and CUs may be subject to a trade-agreements-misclassification bias. [go to paper]
Economic Record, Volume 92, Issue 297, 2016
Abstract: This paper analyses how uncertainty influences the formation and design of regional trade agreements (TAs). Two sources of uncertainty – in demand and costs – are considered. Using a multi‐stage game, we show that, as long as some decisions are made after uncertainty is resolved, all TAs have option values. But, because TAs differ in their flexibility and degrees of coordination, these option values vary across TAs. Thus, under uncertainty, the usual cost–benefit analysis that underlies the formation and design of TAs is altered to reflect these option values. We also show that, due to the flexibility and coordination differences among TAs, their option values are affected differently by uncertainty. Consequently, the formation and design of TAs are also affected by the nature and degree of uncertainty. We demonstrate that the effects of an increase in uncertainty on the choice of TAs depend on the relative responsiveness of the TAs' option values with respect to the change in uncertainty, which in turn depend on the convexity properties of the countries' welfare functions under the different TAs. In particular, a TA whose option value is more responsive to a change in uncertainty becomes relatively more attractive when uncertainty increases. This enables us to predict which TAs are likely to emerge in an uncertain world. Using a specific example, we then show the effects of a change in both demand and cost uncertainty on the choice of TAs. We also examine the timing of the resolution of uncertainty and its effect on the choice of TAs and show that it can significantly impact the type of TA that countries wish to form. [go to paper]
Games and Economic Behavior , 2011, 71(2), pp.235-245
Abstract: This paper shows that a modified alternating offers Rubinstein model can provide a Pareto superior outcome in the context of the right-to-manage union-firm bargaining. Two examples of bargaining protocols that yield a superior outcome are provided. In the first example, the parties engage in a game in which the order of play is determined as part of the bargaining. We show that the game has a unique subgame perfect equilibrium in which the firm always moves first in the wage bargaining game. The equilibrium wage is, therefore, unique. In the second example, we examine a two-part-tariff alternating offers bargaining protocol, where the parties bargain over the wage and transfer payments. We show that this bargaining protocol has a Pareto efficient, unique subgame perfect equilibrium. Thus, although the parties do not bargain over the level of employment, the outcome under this protocol is, nevertheless, socially optimal.
[go to paper]
Journal of Economic Behavior & Organization , 2008, 68(2), 352-364
Abstract: This paper studies the strategic role of extremism within a two-country multi-stage game and shows that, in general, an equilibrium exists in which extremism is used by both rivals. We show that often changes in the environment affect the two countries differently. Specifically, as a country becomes wealthier, more powerful, or more democratic, its level of extremism decreases, but at the same time, its rival's level of extremism increases. Similarly, higher stakes in the conflict tend to increase the level of extremism in the relatively poorer, weaker, and less democratic country, but decrease the level of extremism in the other country. On the other hand, higher stakes in a conflict between similar countries and greater destructiveness vis-Ã -vis the contested asset will increase the levels of extremism in both countries. Since changes in the environment may affect the levels of extremism in the two countries in opposite ways, we calculate the probability of an extremist destructive episode as a possible measure of the "aggregate" level of extremism in the conflict. We find that the aggregate level of extremism decreases with wealth, power, and degree of democracy, but increases with the stakes in the conflict and with better access to destructive technology. Finally, we use the model to examine levels of extremism within the context of the Israeli-Palestinian conflict.
[go to paper]
(with E. Katz)
American Economic Review , 9(1), 2006, pp.116-142
[go to paper]
(with A. Ullah)
The Review of Economics and Statistics , 1997, 79(4), pp.631-637
Abstract: The purpose of this paper is to examine production decisions under output price uncertainty. Using a nonparametric estimation technique to estimate the first four moments of the unknown price distribution and applying duality, we provide a simple empirical framework for the analysis of supply and demand decisions under price uncertainty. The model is used to examine the importance of higher moments in the firm's production decisions and to investigate underlying attitudes toward risk.
[go to paper]
(with U. Kohli)
The Review of Economics and Statistics , 1997, 79(4), pp.620-630
Abstract: The effects of import-price uncertainty on factor income in Switzerland are estimated. The production-theory approach is used to derive the import demand function from an expected utility maximization problem, treating imports as an input to the technology. The model is also used to test for risk aversion and to assess the impact of uncertainty on the volume of imports and gross output. Evidence is found that, for most years. labor has been relatively more vulnerable to uncertainty than has capital.
[go to paper]
International Economic Review , 1992, 33(2), pp.399-412.
Abstract: This paper examines the role of capital structure as an instrument for shifting risk between real and financial markets. The author considers a firm whose contractual agreements involve both consumers and debtholders and shows that if consumers are risk averse, whereas equity and debtholders are risk neutral, the firm uses its capital structure to shift risk away from consumers. The optimal allocation of risk across real and financial markets leads the firm to be fully equity financed.
[go to paper]
(with J. Berechman)
Journal of Econometrics , 1991, 47(2-3), pp.379-400
Abstract: Most econometric studies of productivity use partial equilibrium analysis of cost models to estimate and measure productivity growth. In this paper we provide a market equilibrium model in which supply (cost), demand, and regulatory conditions are explicitly taken into account. The model is used to calculate the rate of growth in cost efficiency (productivity) in the Israeli bus transit sector and to explain this growth by the contributions of input prices, technical change, output scale, demand conditions, and government regulation.
[go to paper]
(with E. Katz)
Economic Journal , 1987, 97(387), pp.685-99
Abstract: In recent years, there has been a large number of papers on the subject of rent seeking. Most such works on rent seeking have taken the rent as exogenously determined by regulators. Regulators, howeve r, may also be expected (and indeed have been shown) to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are, themselves, rent se ekers. In this paper, the authors do this by presenting an analysis o f the interaction of regulators, firms, and consumers within a rent-s eeking framework where all three groups are assumed to be self-motiva ted. The analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants. Policy implications are drawn where appropriate.
[go to paper]
(with C. Lim)
Rand Journal of Economics , 1985, 16(1), pp.28-40
Abstract: In this article we present a model of a market which is ex post contestable. We show that in a market characterized by uncertainty a firm will face a tradeoff between efficiency and flexibility and generally will make some precommitments to take advantage of ex ante technologies. We show that in the face of potential entry the incumbent will increase his precommitments and in so doing will affect the probability of entry. The degree of market contestability is therefore endogenously determined by the choice of precommitments. The extent to which precommitments will be used to affect entry probabilities is shown to depend on the efficiency of ex ante production, adjustment costs, and the degree of uncertainty. In particular, we show that the market becomes "more contestable" as the relative efficiency of ex post production increases and as market conditions become more uncertain.
[go to paper]
Journal of Econometrics , 1982, 19(2-3), pp.287-299.
Abstract: This paper extends the use of econometric production theory techniques to ageneral class of oligopolistic markets. We provide a framework which enables us to estimate the conjectural variation and test various hypotheses about non-competitive behavior. Furthermore, we provide a measure of the degree of oligopolistic power of a firm and a degree of oligopoly index for the whole industry that can be used to test for the underlying structure of the industry.
[go to paper]
(with E. Katz)
Journal of Political Economy , 1981, 89(4), pp.819-25
[go to paper]
International Economic Review , 1979, 20(2), pp.449-58.
[go to paper]
Journal of Econometrics , 1979, 9(3), pp.283-294.
Abstract: The purpose of this paper is to present an empirically implementable technique for the analysis of non-competitive behavior in production. We provide a statistical test for the price taking behavior hypothesis which can be used to distinguish among different market structures. We apply this approach to the U.S. crude petroleum and natural gas industry and find that the price taking behavior hypothesis is not appropriate for this industry.
[go to paper]
(with R. Harris)
International Economic Review , 1978, 19(1), pp.103-14
[go to paper]