Achintya Ray

Strategic Outsourcing and R&D in a Vertical Structure

It has been argued that a monopolist input supplier may find it profitable to create an outside source for its input if it reduces product price and attracts buyers (Farrell and Gallini, Quarterly Journal of Economics, Vol. 103 (1988), pp. 673–694). We consider a monopolist input suppliers incentive for outsourcing and R&D. We show that even if outsourcing can attract new buyers, it is not beneficial to the input supplier if either the existing final goods market is not very concentrated or cost reduction through R&D is sufficiently large. We further show that while R&D may be preferable to the input supplier, outsourcing may be socially desirable, and thus may create a conflict of interest between the input supplier and the society for R&D and outsourcing.

Patents, imitation and welfare

We consider the effects of product and process patents on profits and welfare. In a duopoly model, we show that if the cost of imitation is not very large, prisoners dilemma occurs under process patent, thus creating lower profit of each firm under process patent than under product patent. Welfare is higher under process (product) patent for very small (not very small) cost of imitation. Although the possibility of cross-licensing never makes lower welfare under process patent for all costs of imitation, welfare is never lower under product patent under infinitely repeated game.

A Class of Decomposable Poverty Measures With Public Transfers

This paper proposes a class of decomposable poverty measures. It incorporates ideas of flexible minimum basic requirement norms, relative deprivation and the presence of public transfer systems. Public transfers oftentimes take the form of implicit transfers and are not usually reflected in the reported income figures. Depending on the access and usage of public transfer systems, real consumption possibility can be very different for different individuals. This paper demonstrates that a poverty measure can be used in a straightforward manner to derive a metric to evaluate the efficiency of the public transfer systems to reach their intended targets. Some of the policy implications are also provided.

Stability of Housing Prices in Major US Cities: A Time Series Analysis of S&P/Case-Shiller Housing Price Indices

In this paper we explore the long term movement in the housing prices in select American cities. Using the monthly SP Ng and Perron 1995; Ng and Perron 2001). Optimal lag periods necessary to achieve stationarity differ widely across the cities. We also identify three distinct cycles of convergence-divergence in the housing prices across the US. Housing prices broadly converged between January, 1987 and January, 2000. At this point a rapid divergence in the prices set in and this trend continued until the middle of 2006. After about June of 2006, housing prices (probably) started correcting themselves resulting into a rapid convergence again. This trend continues according to the very latest data available.

The Nature of Healthcare: A Cross-National Time Series Perspective

Is healthcare a luxury? An answer to this question in the health economics literature mostly relied on the use of the level of healthcare spending as the explained variable. But by using the level of healthcare spending as the dependent variable, we may fail to identify pure income effects and therefore, may not be able to estimate the income elasticity properly. Employing standard welfare comparison methods widely used in the development economics literature, it is argued that budget-share of healthcare in national income is a more convenient and better policy-relavant variable than the level of spending on healthcare. Using panel data from 23 OECD countries for the years 1960-1998, it is showed that aggregate healthcare is strictly a necessary and not a luxury service. Similarly, publicly provided healthcare is a necessary service too. Results on the privately provided healthcare are ambiguous and depends in part on the inclusion of the US in the sample of countries. The policy implications of the results found are also discussed briefly.

Excess Capacity and the Economics of Public Transit Investment: A Study of a Growing American City

Declining ridership in public transport weakens the case for investments in expanded service or large investments in public transit infrastructures. Our study documents the decline in public transit ridership in Nashville, Tennessee, USA. Using data from Federal sources for 2002-2018 we document the influence of higher numbers of hours of bus service, employment, and, gasoline prices on public transit ridership. We find a surprising negative relationship between ridership and miles of bus service provided. Given the several control variables in the model, quadratic trend estimates inform us that peak ridership occurred in 2007 and the seasonally adjusted ridership might be falling since then. A second regression for the period after the great recession of 2008-09 gives a similar result regarding the declining ridership. Falling ridership in Nashville matches downward trends in other cities around the country. A major contribution of our study lies in the identification of separate roles for hours and miles of bus service. Using that insight, we decompose the time series while incorporating a quadratic trend to account for relative changes in the slope over time. Evidence of an underlying downward trend in ridership challenges the value of making large scale investments in transit capacity especially in the presence of increasing excess capacity.

Technology Adoption and Optimal R&D under Moral Hazard

Optimal R&D and technology adoption is modeled when an agency is present. Shareholders collectively acting as a board take decision about R&D investment. The outcome of R&D efforts is a new cost of production and it is a private information to the manager. Managers will have to expend some non-verifiable (and hence, non-contractible) costly effort to adopt a new technology. Whether or not agency problem is present, technologies having cost below a certain threshold are not adopted. Presence of the Moral Hazard problem reduces the range of technologies that is adopted. This in turn reduces the investment made in R&D.