Barbara G. Katz

On the existence of franchise contracts and some of their implications

Abstract We characterize the franchising problem as a contractual agreement between a principal and multiple agents. The contract contains a revenue-sharing rule, the level of national expenditures by the franchisor and the number of units to be enfranchised. The franchisor offers the contract to a group of potential agents whose attitudes toward risk and effort differ. The revenue of a franchise unit is determined by decisions of both parties as well as a random perturbation. Under certain conditions, we establish the existence and uniqueness of an expected utility maximizing franchise contract with the property that the royalty payment to the franchisor never exceeds one-half the revenue. We provide an explanation for the use of a common contract and argue that, in reality, it is non-linear. We show that this common, non-linear contract attracts agents deemed desirable by the franchisor.

Disequilibrium theory, waiting costs, and saving behavior in centrally planned economies: A queueing-theoretic approach

Abstract An expected-utility maximizer, obliged to make a single purchase from two alternatives, finds that a queue forms for the good that would have been selected had both goods been available. An M/M/ 1 queue is posited and for each period of delay the maximum additional payment b ∗ that the consumer would incur to join the queue is determined. This has implications for saving. Not only the availability of the good, but also the delay in obtaining it, the alteration in its arrival rate, and the “stampede effect” determine saving behavior.

Are property rights enough? Re‐evaluating a big‐bang claim1

We investigate the claim made by proponents of the big-bang strategy that the establishment of property rights in an economy in transition creates its own demand for the enforcement of laws to protect those rights. Our model contains a government engaging in activities to accomplish objectives that depend on public support for the enforcement of the rule of law and agents who interpret the level of activities of the government as indications of the governments intent to enforce the rule of law. Agents, using the level of government activities as an input to their decisions, choose whether to support the governments objectives. We establish conditions under which the level of activities chosen by the government maximizes its benefits, and simultaneously induces the constituency to support enforcement of the rule of law. These conditions provide a basis for the argument for the implementation of the big-bang policy. When these conditions do not hold, however, we show that the level of activities that maximizes the governments benefits may have only a minor impact on support for the enforcement of the rule of law. Two characteristics play an important role in these conditions: the initial level of crime and the types of activities the government chooses to undertake. We present examples showing that the initial level of crime has the more dramatic effect on subsequent support for the rule of law.

Product availabilty as a strategic variable: The implications of regulating retailer stockouts

We study product availability as a strategic variable in a sequential game between consumers and a monopolist. We use a perfect Bayesian equilibrium concept to solve the game under different regulatory regimes. We show that under certain assumptions about the regulatory environment, a two-price equilibrium in which the quantity of the lower-priced good is limited may exist even when a single retailer sells two brands that are perfect substitutes. The FTC Guides Against Bait Advertising are shown to be potentially welfare enhancing as they facilitate commitment on the part of a monopolist credibly to plan for stockouts. Paradoxically, our analysis suggests that the more stringent FTC regulation prohibiting stockouts by retail food stores from 1971 to 1988 was Pareto worsening, as it removed the monopolists commitment mechanism.

Rationed and walrasian markets for the same good : A rational expectations determination of the relative prices

Abstract Consumers purchase a good on either a rationed or an equilibrating market. On the former, for price p1 the good is obtained instantly or with delay τ with probabilities Π and (1 − Π) respectively. On the latter the good is obtained instantly for p2. W define and derive the conditions for a rational expectations equilibrium for this problem.

Stochastic rationing by waiting list

Abstract In a stochastic queueing environment in which participants maximize expected utility, changes in queueing parameters have predictable impacts on waiting list size. For example, a decrease in mean service time cannot produce a decrease in waiting list size when arrival rate and mean service time are functionally independent.

Crime and Uncertain Punishment

We consider agents in a country in an early stage of transition from a planned to a market economy. As the transition is in progress, the nature of the governments policies are unknown to the agents. Property rights once held by the state have already been transferred to the agents, with each agent owning one firm. However, the agents are uncertain of the level of law enforcement the government will provide. Specifically, they are unsure of the tax and confiscation consequences of both legal and illegal acts. Each agent, having a different cost of stealing, must decide how much of the firm to divert to himself. The agents believe the government may become either a traditional democratic government that supplies law enforcement as well as infrastructure leading to positive firm growth, or a corrupt government that may or may not provide law enforcement, does not provide a climate for firm growth, and may be confiscatory. All agents presume the government will choose its behavior as a function of the tax revenue it will collect under each scenario; however, the tax revenue results from the collective decisions of the agents. This interaction between tax revenue and agents decisions, together with the uncertainty of law enforcement and tax policy, forms the framework within which the agent chooses his level of honesty. By calculating the percentage of agents who steal some amount from the firm, we investigate the relationship between the level of criminality and the various uncertainties facing the agents. We show how expectations of the agents about the future behavior of their government induce the degree of criminality in society.

The Crime of Tax Evasion in Transition Economies

Frequent government changes, often bringing reversals in ideological orientations, forced agents in economies in transition to make economic decisions without knowing whether their next government would be more or less benevolent, democratic, corrupt, or able and willing to pursue economic growth. We present a model of agents facing the uncertainty of two future forms of government, who are able to insure against this uncertainty by opting out of the legal part of the economy. They opt out through a criminal act, specifically, hiding funds from taxation. In order to choose whether or not to steal, agents need to know what each government would do should it come to power. But each government, before it could make its decision, would need to know the choices of the agents who would, for example, produce tax revenues. This informational tension is resolved endogenously. We derive the resulting crime level in society and the optimal choices made by the potential governments. We examine how changes in governmental structure would affect the crime level, and how that, in turn, would affect capital flight.

Political Uncertainty and Crime in Transition Economies

Political Uncertainty and Crime in Transition Economies Two stylized facts are often used to characterize the economies in transition: an increase in the crime level and frequent government changes, where the party in power is replaced by another party with a different, and often opposite, ideologicalorientation. We investigate the impact on agents honesty when agents perceive thefuture form of government as uncertain, and also know that their own collective decisions will effect the government s choice of type. Furthermore, we assume that the form that the government will take depends, in part, on the collective behavior of the agents. By endogenizing the joint decisions made by the agents, as well as the government, we derive the social consequences of these choices, the induced level of crime. Using the level of crime permits us to investigate comparative statics for possible policy implications. We show that the complex interactions between the government and the agents leads to some non-intuitive results.