Bayesian nash equilibrium in ''linear'' cournot models with private information about costs

Calculating explicit closed form solutions of Cournot models where firms have private information about their costs is, in general, very cumbersome. Most authors consider therefore linear demands and constant marginal costs. However, within this framework, the nonnegativity constraint on prices (and quantities) has been ignored or not properly dealt with and the correct calculation of all Bayesian Nash equilibria is more complicated than expected. Moreover, multiple symmetric and interior Bayesianf equilibria may exist for an open set of parameters. The reason for this is that linear demand is not really linear, since there is a kink at zero price: the general ''linear'' inverse demand function is P (Q) = max{a - bQ, 0} rather than P (Q) = a - bQ.

The hidden costs of hidden debt

We report evidence that salience may have economically signi.cant e¤ects on homeowners.borrowing behavior, through a bias in favour of less salient but more costly loans. Survey evidence corroborates the existence of such a bias. We outline a simple model in which some consumers are biased and show that under plausible assumptions this affects prices in equilibrium. Market data support the predictions of the model.

The Simple Economics of Conglomeration with Bankruptcy Costs: Separate or Joint Financing?

Which projects should be financed through separate non-recourse loans (or limited- liability companies) and which should be bundled into a single loan? In the pres- ence of bankruptcy costs, this conglomeration decision trades off the benefit of co- insurance with the cost of risk contamination. This paper characterize this tradeoff for projects with binary returns, depending on the mean, variability, and skewness of returns, the bankruptcy recovery rate, the correlation across projects, the number of projects, and their heterogeneous characteristics. In some cases, separate financing dominates joint financing, even though it increases the interest rate or the probability of bankruptcy.

Markups, Gaps, and the Welfare Costs of Business Fluctuations

In this paper we present a simple theory-based measure of the variations in aggregate economic efficiency: the gap between the marginal product of labor and the household s consumption/leisure tradeoff. We show that this indicator corresponds to the inverse of the markup of price over social marginal cost, and give some evidence in support of this interpretation. We then show that, with some auxilliary assumptions our gap variable may be used to measure the efficiency costs of business fluctuations. We find that the latter costs are modest on average. However, to the extent the flexible price equilibrium is distorted, the gross efficiency losses from recessions and gains from booms may be large. Indeed, we find that the major recessions involved large efficiency losses. These results hold for reasonable parameterizations of the Frisch elasticity of labor supply, the coefficient of relative risk aversion, and steady state distortions.

Adjustment to Target Capital, Finance, and Growth

Does financial development result in capital being reallocated more rapidly to industries where it is most productive? We argue that if this was the case, financially developed countries should see faster growth in industries with investment opportunities due to global demand and productivity shifts. Testing this cross-industry cross-country growth implication requires proxies for (latent) global industry investment opportunities. We show that tests relying only on data from specific (benchmark) countries may yield spurious evidence for or against the hypothesis. We therefore develop an alternative approach that combines benchmark-country proxies with a proxy that does not reflect opportunities specific to a country or level of financial development. Our empirical results yield clear support for the capital reallocation hypothesis.

Predictability of drug expenditures: An application using morbidity data

The growth of pharmaceutical expenditure and its prediction is a major concern for policy makers and health care managers. This paper explores different predictive models to estimate future drug expenses, using demographic and morbidity individual information from an integrated healthcare delivery organization in Catalonia for years 2002 and 2003. The morbidity information consists of codified health encounters grouped through the Clinical Risk Groups (CRGs). We estimate pharmaceutical costs using several model specifications, and CRGs as risk adjusters, providing an alternative way of obtaining high predictive power comparable to other estimations of drug expenditures in the literature. These results have clear implications for the use of risk adjustment and CRGs in setting the premiums for pharmaceutical benefits.

How important is the intensive margin of labor adjustment?

Using new quarterly data for hours worked in OECD countries, Ohanian and Raffo (2011) argue that in many OECD countries, particularly in Europe, hours per worker are quantitatively important as an intensive margin of labor adjustment, possibly because labor market frictions are higher than in the US. I argue that this conclusion is not supported by the data. Using the same data on hours worked, I find evidence that labor market frictions are higher in Europe than in the US, like Ohanian and Raffo, but also that these frictions seem to affect the intensive margin at least as much as the extensive margin of labor adjustment.

Beyond Smith's rule: An optimal dynamic index, rule for single machine stochastic scheduling with convex holding costs

Most research on single machine scheduling has assumedthe linearity of job holding costs, which is arguablynot appropriate in some applications. This motivates ourstudy of a model for scheduling $n$ classes of stochasticjobs on a single machine, with the objective of minimizingthe total expected holding cost (discounted or undiscounted). We allow general holding cost rates that are separable,nondecreasing and convex on the number of jobs in eachclass. We formulate the problem as a linear program overa certain greedoid polytope, and establish that it issolved optimally by a dynamic (priority) index rule,whichextends the classical Smith's rule (1956) for the linearcase. Unlike Smith's indices, defined for each class, ournew indices are defined for each extended class, consistingof a class and a number of jobs in that class, and yieldan optimal dynamic index rule: work at each time on a jobwhose current extended class has larger index. We furthershow that the indices possess a decomposition property,as they are computed separately for each class, andinterpret them in economic terms as marginal expected cost rate reductions per unit of expected processing time.We establish the results by deploying a methodology recentlyintroduced by us [J. Niño-Mora (1999). "Restless bandits,partial conservation laws, and indexability. "Forthcomingin Advances in Applied Probability Vol. 33 No. 1, 2001],based on the satisfaction by performance measures of partialconservation laws (PCL) (which extend the generalizedconservation laws of Bertsimas and Niño-Mora (1996)):PCL provide a polyhedral framework for establishing theoptimality of index policies with special structure inscheduling problems under admissible objectives, which weapply to the model of concern.

Determinants of organizational form: Transaction costs and institutions in the European trucking industry

We explain why European trucking carriers are much smaller and rely more heavily on owner-operators(as opposed to employee drivers) than their US counterparts. Our analysis begins by ruling outdifferences in technology as the source of those disparities and confirms that standard hypothesesin organizational economics, which have been shown to explain the choice of organizational form inUS industry, also apply in Europe. We then argue that the preference for subcontracting oververtical integration in Europe is the result of European institutions particularly, labor regulationand tax laws that increase the costs of vertical integration.

Start-up costs and pecuniary externalities as barriers to economic development

We use a dynamic monopolistic competition model to show that an economythat inherits a small range of specialized inputs can be trapped into alower stage of development. The limited availability of specialized inputsforces the final goods producers to use a labor intensive technology, whichin turn implies a small inducement to introduce new intermediate inputs. Thestart--up costs, which make the intermediate inputs producers subject todynamic increasing returns, and pecuniary externalities that result from thefactor substitution in the final goods sector, play essential roles in themodel.

Relative price riddles in international business cycle theory: Are transport costs the explanation?

We study relative price behavior in an international business cyclemodel with specialization in production, in which a goods marketfriction is introduced through transport costs. The transporttechnology allows for flexible transport costs. We analyze whetherthis extension can account for the striking differences betweentheory and data as far as the moments of terms of trade and realexchange rates are concerned. We find that transport costs increaseboth the volatility of the terms of trade and the volatility of thereal exchange rate. However, unless the transport technology isspecified by a Leontief technology, transport costs do not resolvethe quantitative discrepancies between theory and data. Asurprising result is that transport costs may actually lower thepersistence of the real exchange rate, a finding that is in contrastto much of the emphasis of the empirical literature.

Population based resource allocation: The use of hybrid risk adjustment

The emphasis on integrated care implies new incentives that promote coordinationbetween levels of care. Considering a population as a whole, the resource allocation systemhas to adapt to this environment. This research is aimed to design a model that allows formorbidity related prospective and concurrent capitation payment. The model can be applied inpublicly funded health systems and managed competition settings.Methods: We analyze the application of hybrid risk adjustment versus either prospective orconcurrent risk adjustment formulae in the context of funding total health expenditures for thepopulation of an integrated healthcare delivery organization in Catalonia during years 2004 and2005.Results: The hybrid model reimburses integrated care organizations avoiding excessive risktransfer and maximizing incentives for efficiency in the provision. At the same time, it eliminatesincentives for risk selection for a specific set of high risk individuals through the use ofconcurrent reimbursement in order to assure a proper classification of patients.Conclusion: Prospective Risk Adjustment is used to transfer the financial risk to the healthprovider and therefore provide incentives for efficiency. Within the context of a National HealthSystem, such transfer of financial risk is illusory, and the government has to cover the deficits.Hybrid risk adjustment is useful to provide the right combination of incentive for efficiency andappropriate level of risk transfer for integrated care organizations.