Andrzej Baniak

The volatility of prices in the English and Welsh electricity pool

The volatility of spot prices has been a notable feature of the English and Welsh Electricity Pool since its formation in 1990. This study investigates the possibility that the volatility of spot prices is strongly affected by the functioning of the contract market for electricity. This paper suggest that generators with market power may have an incentive to create volatility in the spot market in order to benefit from higher risk premia in the contract market. A simple theoretical model is used to illustrate this argument. Nonparametric techniques are used to test for changes in volatility after the expiry of the coal contracts in 1993 and during the price cap of 1994–1996. Strongly significant increases in volatility are found in the latter period.

Innovation analysis and game theory: A review

In this paper we review game theory and innovation related papers published in the period of 1985–2010. We divide our review into three levels of innovation games: 1) intra-organizational games, which are played within the firm and main players are an innovator, a project manager and/or resource administrator; 2) inter-organizational games, where main players are a firm and its competitors, partners and customers; 3) meta-organizational games, where main players are a social planner and an innovative entrepreneur. Compared with the previous periods, one can observe a significant increase in the number of papers which use game theory models to analyze the innovation processes. Moreover, there is a tendency to move from abstract and formal models towards practically applicable and empirically tested studies.

Interjurisdictional Linkages and the Scope for Interventionist Legal Harmonization

We study the desirability of interventionist harmonization of legal standards across multiple, mutually interdependent jurisdictions which strive to adapt law to their local conditions as well as to synchronize it with other jurisdictions. In a setting where jurisdictions are privately informed about their local conditions, we contrast the regime of decentralized standard-setting with two means of interventionist harmonization: through centralization and through allocation of lawmaking authority to a particular jurisdiction. Our analysis illuminates the importance of patterns of interjurisdictional linkages in delineating the scope for, and the appropriate means of, interventionist harmonization. We find that greater jurisdictional interdependence - the hallmark of globalization - per se does not justify interventionist harmonization unless increased interdependence results in notable asymmetries in the pattern of jurisdictional interdependence. We also show that, in the presence of cross-jurisdictional externalities, harmonization is, contrary to conventional predictions, not desirable when local preferences are homogeneous across jurisdictions.

Equilibrium and Welfare in a Model of Torts with Industry Reputation Effects

We study the problem of torts in a framework where a firms accident adversely impacts all firms in the industry because of the presence of industry reputation effects. Industry reputation effects lead to interdependence among firms and give rise to strategic firm behavior. We characterize the industry equilibrium and the socially optimal industry configuration in such a setting. We then elucidate how the presence of industry reputation effects and the introduction of a liability regime in the form of a strict liability rule determine whether industry equilibrium is aligned or misaligned with the socially optimal industry configuration. Our results show that both the impact of industry reputation effects and the impact of the strict liability rule are in general contingent on the specifics of the tort problem at hand. In particular, we find that the presence of industry reputation effects can substitute for a suboptimal liability regime and that, in the presence of industry reputation effects, the introduction of the strict liability rule may be detrimental by steering the industry equilibrium away from the socially optimal industry configuration.

Producer Liability and Competition Policy When Firms are Bound by a Common Industry Reputation

We contrast the laissez-faire regime with the regime of strict producer liability and draw the implications for competition policy in a setting where oligopolistic firms cannot differentiate themselves from rivals but rather are bound by a common industry reputation for product safety. We show that, first, unlike in the traditional products liability model, firms’ incentives to invest in precaution depend on market structure. Second, depending on the magnitude of expected damages awarded by the courts, laissez-faire can welfare dominate strict producer liability. Third, the relationship between social welfare and industry size, and hence the role for competition policy, depends on the institutional regime governing the industry. Under some circumstances, restricting industry size is unambiguously welfare-enhancing.

Mandating Behavioral Conformity in Social Groups with Conformist Members

Social interaction among individuals with a preference for conformity gives rise to coordination externalities which are not internalized in a non-cooperative setting. Mandating behavioral conformity, by centrally imposing a common, group-wide action, internalizes these coordination externalities, but also comes at a cost of restraining individuals’ self-regarding goals. We explore a framework of social interaction among privately informed individuals with conformist preferences to examine when mandating behavioral conformity improves group welfare. Our analysis elucidates how the desirability of mandating behavioral conformity is shaped by the groups socio-economic structure. We find that mandating behavioral conformity is not desirable in social groups that are ex ante homogeneous—either with respect to members’ contribution to group welfare or their innate conformist tendency. In contrast, mandating behavioral conformity can be beneficial in those ex ante heterogeneous social groups where the individuals who contribute most to group welfare also exhibit the strongest preference for conformity.

Industry Self-Regulation, Subversion of Justice, and Social Control of Torts

We characterize the comparative efficiency of industry self-regulation as means of social control of torts. Industry self-regulation is, unlike liability, which is imposed by courts ex post, similar to government regulation in that self-regulation acts before the harm is done. However, the industry, as compared to government regulators, possesses better information about the regulatory issue at stake. Furthermore, a pro-industry bias inherent to self-regulation will also arise under alternative legal arrangements when adjudicators are vulnerable to pressure by industry members. We show how social desirability of delegating regulatory authority to the industry varies with ease of subversion of courts and regulators, tightness of extralegal constraints under self-regulation, status quo legal regime, and industry hazardness. Our findings clarify when industry self-regulation could be an attractive institutional arrangement for developing and transition countries.

Private Enforcement, Corruption, and Antitrust Design

Recent adoption of competition laws across the globe has highlighted the importance of institutional considerations for antitrust effectiveness and the need for comparative institutional analyses of antitrust that extend beyond matters of substantive law. Contributing to the resulting nascent research agenda, we examine how the rationale for enabling versus precluding private antitrust enforcement as one salient choice in antitrust design depends on whether antitrust enforcement is corruption-free or plagued by corruption. Contingent on the nature of adjudicatory bias, bribery either discourages private antitrust lawsuits or incentivizes firms to engage in frivolous litigation. Corruption expectedly reduces the effectiveness of antitrust enforcement at deterring antitrust violations. Yet private antitrust enforcement as a complement to public enforcement can be social welfare-enhancing even in the presence of corruption. Under some circumstances, corruption actually increases the relative social desirability of private antitrust enforcement. Our analysis highlights that the appropriate design of antitrust institutions is context-specific.

Controlling Product Risks When Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation

Contributing to the literature on the consequences of behavioral biases for market outcomes and institutional design, we contrast producer liability and minimum quality standard regulation as alternative means of social control of product-related torts when consumers are heterogeneously overconfident about the risk of harm. We elucidate the role of factors shaping the relative desirability of strict liability vis-a-vis minimum quality standard regulation from a social welfare standpoint. We also clarify when and why joint use of strict liability and minimum quality standard regulation welfare dominates the exclusive use of either mode of social control of torts.

Unilateral Spillovers between East and West and Quality Competition

We model a two-stage duopolistic competition in a vertically differentiated ekstern market between the eastern and western firms. In the first stage firms compete in RD the eastern firm increases the quality of its product solely through imitation. We show that under assumptions (1).(3) listed above and for absorption rate close to 1, the welfare level in the eastern country is higher when the eastern firm imitates only compared to the welfare level in the leader-follower equilibrium.