elie


Elie Appelbaum

Department of Economics

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. The economics of uncertainty
2. Application of high-order stochastic dominance in medical decisions
3. Capital structure and corporate bankruptcy
4. Trade agreements
5. Psychological aspects of dynamic prisoners' dilemma problems
6. Dynamic models of conflicts

More...

Degrees

BA, Economics and Statistics,
MA, Economics,
PhD, Economics, UBC

Research Interests

Economics
Books

Publication
Year

Social Regulation in Markets for Goods and Services, with D. Scheffman, University of Toronto Press, 1982.

1982

Book Chapters

Publication
Year

Transfer Seeking and Avoidance: On the Full Social Costs of Rent Seeking, with E. Katz. In Forty Years of Rent-Seeking Research. R. D. Congleton, A. L Hillman and K. Konrad, eds. Heidelberg: Springer, 2008.

2008

Seeking Rents by Setting Rents: The Political Economy of Rent Seeking, with E. Katz. In Forty Years of Rent-Seeking Research. R. D. Congleton, A. L Hillman and K. Konrad, eds. Heidelberg: Springer, 2008.

2008

Journal Articles

Publication
Year

Preferential Trade Agreements as Insurance

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]

2024

Bonding by Guilt: A Resolution of the Finite Horizon Prisoners’ Dilemma

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]

2022

Improving the efficacy of carbon tax policies

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]

2021

Firm boundaries and financing with opportunistic stakeholder behaviour

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]

2019

Are Customs Unions Really so Scarce?

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]

2018

How Can Uncertainty Affect the Choice of Trade Agreements?

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]

2016

Union-firm bargaining: Order of play and efficiency
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]

2011

The Effects of Foreign Price Uncertainty on Australian Production and Trade, with Alan Woodland, Economic Record, 2010.

2010

A New Methodology for Studying the Equity Premium, with P. Basu, Annals of Operations Research, 2010.

2010

Extremism as a strategic tool in conflicts
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]

2008

Strategic Militancy and the Probability of Strikes in Union-Firm Bargaining, Labour Economics, 2008.

2008

Political Extremism in the Presence of a Free Rider Problem, with E. Katz, Public Choice, 2007.

2007

Measures of Risk Aversion and Comparative Statics of Industry Equilibrium
(with E. Katz)
American Economic Review , 9(1), 2006, pp.116-142
[go to paper]

2006

A Framework for Empirical Applications of Production Theory without Expected Utility, Journal of Economics and Business, 2006.

2006

Terms of Trade Uncertainty and the Distribution of Income, with U. Kohli, Review of International Economics, 1999.

1999

Estimation Of Moments And Production Decisions Under Uncertainty
(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]

1997

Import Price Uncertainty And The Distribution Of Income
(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]

1997

Corporate Taxation, Incumbency Advantage and Entry, with E. Katz, European Economic Review, 1996.

1996

Equilibrium Entry Patterns under Uncertainty, with S. Weber, European Economic Review, 1994.

1994

The Free Rider Problem in Oligopoly, with S. Weber, Economics Letters, 1993.

1993

Government Policy and the Firm's Capital Structure, European Economic Review, 1993.

1993

Bankruptcy, Warranties and the Firm's Capital Structure
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]

1992

Demand conditions, regulation, and the measurement of productivity
(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]

1991

Uncertainty and the Measurement of Productivity, Journal of Productivity Analysis, 1991.

1991

The Demand for Children in the Absence of Capital and Risk Markets: A Portfolio Approach, with E. Katz, Oxford Economic Papers, 1991.

1991

Market Uncertainty and Competitive Equilibrium Entry", with C. Lim, European Economic Review, 1991.

1991

Monopoly and Ex-post Contestable Markets”, with C. Lim, Australian Economic Papers, 128-140, 1990.

1990

Portfolio Diversification and Taxation, with E. Katz, Economics Letters, 1988.

1988

Seeking Rents by Setting Rents: The Political Economy of Rent Seeking
(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]

1987

Asymmetric Taxation and the Theory of the Competitive Firm under Uncertainty, with E. Katz, Canadian Journal of Economics, 1987.

1987

Transfer Seeking and Avoidance: On the Full Social Costs of Rent Seeking, with E. Katz, Public Choice, 1986.

1986

Rent Seeking and Entry, with E. Katz, Economics Letters, 1986.

1986

Contestable Markets under Uncertainty
(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]

1985

The Effects of Precision of Sentencing Information on Crime Rates, with E. Erez, Journal of Criminal Justice, 1983.

1983

The estimation of the degree of oligopoly power
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]

1982

Long Run Industry Equilibrium with Uncertainty, with C. Lim, Economics Letters, 1982.

1982

Monopoly vs. Competition under Uncertainty, with C. Lim, Canadian Journal of Economics, 1982.

1982

Market Constraints as a Rationale for the Friedman-Savage Utility Function
(with E. Katz)
Journal of Political Economy , 1981, 89(4), pp.819-25
[go to paper]

1981

On the Choice of Functional Forms
International Economic Review , 1979, 20(2), pp.449-58.
[go to paper]

1979

Testing price taking behavior
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]

1979

Canada U.S. Trade: Tests for the Small Open Economy Hypothesis, Canadian Journal of Economics, with U. Kohli, 1979.

1979

Optimal Capital Policy with Bounded Investment Plans
(with R. Harris)
International Economic Review , 1978, 19(1), pp.103-14
[go to paper]

1978

Imperfect Capital Markets and Life Cycle Saving, with R. Harris, Canadian Journal of Economics, 1978.

1978

Testing Neoclassical Production Theory, Journal of Econometrics, 1978.

1978

Estimating Technology in an Intertemporal Framework: A Neo Austrian Approach, with R. Harris, Review of Economics and Statistics, 1977.

1977

Duality in Optimal Growth, International Economic Review, 1975.

1975

---



Current Courses

Term Course Number Section Title Type
Fall 2024 AP/ECON4010 3.0 A Advanced Microeconomic Theory ONCA



Research areas: Microeconomics, Industrial Organization, International Trade, Political Economy, Finance.

Current Research Interests/Work in Progress :
1. The economics of uncertainty
2. Application of high-order stochastic dominance in medical decisions
3. Capital structure and corporate bankruptcy
4. Trade agreements
5. Psychological aspects of dynamic prisoners' dilemma problems
6. Dynamic models of conflicts

Degrees

BA, Economics and Statistics,
MA, Economics,
PhD, Economics, UBC

Research Interests

Economics

All Publications


Book Chapters

Publication
Year

Transfer Seeking and Avoidance: On the Full Social Costs of Rent Seeking, with E. Katz. In Forty Years of Rent-Seeking Research. R. D. Congleton, A. L Hillman and K. Konrad, eds. Heidelberg: Springer, 2008.

2008

Seeking Rents by Setting Rents: The Political Economy of Rent Seeking, with E. Katz. In Forty Years of Rent-Seeking Research. R. D. Congleton, A. L Hillman and K. Konrad, eds. Heidelberg: Springer, 2008.

2008

Books

Publication
Year

Social Regulation in Markets for Goods and Services, with D. Scheffman, University of Toronto Press, 1982.

1982

Journal Articles

Publication
Year

Preferential Trade Agreements as Insurance

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]

2024

Bonding by Guilt: A Resolution of the Finite Horizon Prisoners’ Dilemma

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]

2022

Improving the efficacy of carbon tax policies

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]

2021

Firm boundaries and financing with opportunistic stakeholder behaviour

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]

2019

Are Customs Unions Really so Scarce?

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]

2018

How Can Uncertainty Affect the Choice of Trade Agreements?

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]

2016

Union-firm bargaining: Order of play and efficiency
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]

2011

The Effects of Foreign Price Uncertainty on Australian Production and Trade, with Alan Woodland, Economic Record, 2010.

2010

A New Methodology for Studying the Equity Premium, with P. Basu, Annals of Operations Research, 2010.

2010

Extremism as a strategic tool in conflicts
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]

2008

Strategic Militancy and the Probability of Strikes in Union-Firm Bargaining, Labour Economics, 2008.

2008

Political Extremism in the Presence of a Free Rider Problem, with E. Katz, Public Choice, 2007.

2007

Measures of Risk Aversion and Comparative Statics of Industry Equilibrium
(with E. Katz)
American Economic Review , 9(1), 2006, pp.116-142
[go to paper]

2006

A Framework for Empirical Applications of Production Theory without Expected Utility, Journal of Economics and Business, 2006.

2006

Terms of Trade Uncertainty and the Distribution of Income, with U. Kohli, Review of International Economics, 1999.

1999

Estimation Of Moments And Production Decisions Under Uncertainty
(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]

1997

Import Price Uncertainty And The Distribution Of Income
(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]

1997

Corporate Taxation, Incumbency Advantage and Entry, with E. Katz, European Economic Review, 1996.

1996

Equilibrium Entry Patterns under Uncertainty, with S. Weber, European Economic Review, 1994.

1994

The Free Rider Problem in Oligopoly, with S. Weber, Economics Letters, 1993.

1993

Government Policy and the Firm's Capital Structure, European Economic Review, 1993.

1993

Bankruptcy, Warranties and the Firm's Capital Structure
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]

1992

Demand conditions, regulation, and the measurement of productivity
(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]

1991

Uncertainty and the Measurement of Productivity, Journal of Productivity Analysis, 1991.

1991

The Demand for Children in the Absence of Capital and Risk Markets: A Portfolio Approach, with E. Katz, Oxford Economic Papers, 1991.

1991

Market Uncertainty and Competitive Equilibrium Entry", with C. Lim, European Economic Review, 1991.

1991

Monopoly and Ex-post Contestable Markets”, with C. Lim, Australian Economic Papers, 128-140, 1990.

1990

Portfolio Diversification and Taxation, with E. Katz, Economics Letters, 1988.

1988

Seeking Rents by Setting Rents: The Political Economy of Rent Seeking
(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.
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1987

Asymmetric Taxation and the Theory of the Competitive Firm under Uncertainty, with E. Katz, Canadian Journal of Economics, 1987.

1987

Transfer Seeking and Avoidance: On the Full Social Costs of Rent Seeking, with E. Katz, Public Choice, 1986.

1986

Rent Seeking and Entry, with E. Katz, Economics Letters, 1986.

1986

Contestable Markets under Uncertainty
(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.
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1985

The Effects of Precision of Sentencing Information on Crime Rates, with E. Erez, Journal of Criminal Justice, 1983.

1983

The estimation of the degree of oligopoly power
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.
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1982

Long Run Industry Equilibrium with Uncertainty, with C. Lim, Economics Letters, 1982.

1982

Monopoly vs. Competition under Uncertainty, with C. Lim, Canadian Journal of Economics, 1982.

1982

Market Constraints as a Rationale for the Friedman-Savage Utility Function
(with E. Katz)
Journal of Political Economy , 1981, 89(4), pp.819-25
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1981

On the Choice of Functional Forms
International Economic Review , 1979, 20(2), pp.449-58.
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1979

Testing price taking behavior
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.
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1979

Canada U.S. Trade: Tests for the Small Open Economy Hypothesis, Canadian Journal of Economics, with U. Kohli, 1979.

1979

Optimal Capital Policy with Bounded Investment Plans
(with R. Harris)
International Economic Review , 1978, 19(1), pp.103-14
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1978

Imperfect Capital Markets and Life Cycle Saving, with R. Harris, Canadian Journal of Economics, 1978.

1978

Testing Neoclassical Production Theory, Journal of Econometrics, 1978.

1978

Estimating Technology in an Intertemporal Framework: A Neo Austrian Approach, with R. Harris, Review of Economics and Statistics, 1977.

1977

Duality in Optimal Growth, International Economic Review, 1975.

1975

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Term Course Number Section Title Type
Fall 2024 AP/ECON4010 3.0 A Advanced Microeconomic Theory ONCA