Arthur De Vany

Motion picture profit, the stable Paretian hypothesis, and the curse of the superstar

Abstract This paper investigates the stable distribution as a model of profit in motion pictures. The skew of this distribution and its Paretian tails capture with great fidelity the statistics of the movies. Features of the business such as the “nobody knows principle,” the “curse of the superstar,” the “angels nightmare,” the instability of profit, and the form of artist contracts follow from the properties of the stable distribution.

Cointegration analysis of spot electricity prices: insights on transmission efficiency in the western US

Abstract The US Energy Policy Act of 1992 promoted the development of spot markets for electric power by requiring utilities to open their transmission systems to wholesale power sales. In this paper, we specify and estimate a vector error correction model using peak and off-peak electricity spot prices during 1994–1996 covering 11 regional markets in the western United States and test these prices for evidence of market integration. The results show evidence of an efficient and stable wholesale power market.

The Economics of Quality

This paper develops a model of quality determination where the usual competitive equilibrium conditions hold. The explicit form of quality considered is the wait required to obtain the product. The analysis, however, is much more general, being valid for products that have a characteristic, z, such that (1) demand is a function of price and a measure defined on z, (2) costs are a function of output and the measure on z, and (3) z is a function of output and capacity. Expected profit-maximizing firms, in equilibrium, look like monopolistic competitors. Once constant quality is imposed, however, the perfect competitive results obtain.

Quality signals in information cascades and the dynamics of the distribution of motion picture box office revenues

Abstract The movies are an ideal testing ground for information cascade models. One can observe the dynamics of box office revenues from the `opening’ to the end of the run. To study the possibility that information cascades occur in the movies one has to incorporate the fact that agents can observe box office revenues (as reported on the evening news) and communicate `word of mouth’ information about the quality of the movies they have seen. One must consider many movies rather than the mere two choices assumed in information cascade models. We develop an agent-based model of information cascades with these extensions. Our objective is to see if the conclusions of information cascade models hold with these extensions (they do not) and to see if the agent-based model can capture the features of the motion picture box office revenues (it does).

Zoning, Returns to Scale, and the Value of Undeveloped Land

When land markets are incomplete, parcels can be scaled to make control compatible with use and to internalize externalities. The authors show that an arbitrage-proof equilibrium implies an increasing and strictly concave relationship between the value and size of land parcels. Undeveloped land sales in southern California strongly confirm the theoretical relationship. The authors find that zoning primarily restricts the conversion of land from agriculture to residential and industrial uses relative to the competitive equilibrium. The scale of land units is an effective private instrument for providing compatible land use even in the presence of strong zoning. Copyright 1991 by MIT Press.

COMPETITION AND HIGHWAY PRICING FOR STOCHASTIC TRAFFIC

This paper models the competitive supply and pricing of highways with random traffic. It adds the missing theory, of the firm to Knights highway problem and shows that competition delivers efficient prices. The classic efficient-pricing results of Knight and Walters are shown to be valid in a world with uncertain traffic flows. Competitive prices exceed marginal cost by an amount equal to expected marginal congestion cost. The mean throughput of each highway firm is less than maximum throughput. Even though the expectation of excess capacity is positive, random traffic jams will occur on an efficiently priced highway. Pricing of mixed traffic is also analyzed. (Authors)

Price Dynamics in a Network of Decentralized Power Markets

In this paper, we model the dynamic behavior of prices in a network of interconnected, but decentralized, electric power markets—an architecture very different from the centralized exchanges and power pools currently being implemented by many state regulators. We estimate dynamic equations of unregulated, wholesale power prices at spot markets scattered over an eleven-state trading region. The results indicate that this decentralized system of power and transmission trading produces prices that are efficient and dynamically stable over this vast network. Price convergence in the power market is similar to what has been observed in the recently deregulated natural gas market.

Implementing a Market-Based Spectrum Policy

The spectrum auctions were a step toward the Herzel‐Coase vision of a flexible and efficient market for spectrum. This article examines what remains to be done. Spectrum must be unbundled from broadcast and transmission facilities. The “commoditization” of spectrum will facilitate standardization, price discovery, and open access to diverse users. A liquid secondary spectrum market will lower transactions and entry cost, making telecommunications markets contestable. Auctions should be used to elicit a supply of spectrum from licensees as well as to allocate it to new users. In closing the spectrum commons, Congress granted use to a privileged few. Unbundled spectrum property rights, commoditization, and open markets will give the public access to this public resource.

Natural gas industry transformation, competitive institutions and the role of regulation: Lessons from open access in US natural gas markets

Abstract Open access pipeline transport transformed the US natural gas industry. In this paper we examine the role that transport rights played in the industrys transformation. We document the convergence of gas field prices, pooling area prices and city gate prices that has occurred since the adoption of open access. Our analysis suggests the most important reasons for this convergence to be the fact that direct dealing between gas suppliers and users has replaced the pipeline merchant; that gas transactions are made within a competitive market institution; and that transport trading has created an interconnected grid of pipelines in place of the closed and disconnected grid that preceded open access. This open and interconnected grid supplied the means for price arbitrage. These changes have made natural gas markets contestable. We draw general conclusions about the type of transmission rights that would complete the transition to a competitive gas industry. Our conclusions about the role of regulation in an industry organized around transferable transport rights extend to natural gas markets beyond those in North America.

Land Tenure Structures and Fertility in Mexico

The nature of the relationship between land tenure and fertility in an important contemporary setting is examined. Examination of the institutional structure of the Mexican land tenure system reveals some features that could have a positive impact on fertility. The possible pronatalist bias of the system is identified and discussed and the hypothesis that the population in the land reform sector exhibits higher fertility than other comparable populations in Mexico is tested. Tests are performed over 2 data sets using various measures of fertility; results more or less uniformly reject the null hypothesis that the fertility of the land reform sector families does not differ from other families. The empirical evidence strongly suggests that the percentage of ejidatarios (people belonging to an agrarian community that has received and continues to hold land in accordance with the agrarian laws growing out of the Revolution of 1910; this structure embodies several possible pronatalist incentives because of attenuated property rights) in a given population affects both the number of children ever born to women and the stock of children per woman of prime bearing age. While this statistical evidence can be explained by many alternate hypotheses it does support an economic interpretation of the decision to bear children. The constant competition for better land within the ejido together with a desire to secure a legal renter or inheritor for the land may be factors that induce ejidatarios to have larger families than private farmers or paid agricultural workers. It is significant that the very rapid population growth in Mexico has coincided with extensive reallocations of land to the ejidos from the private sector.