Benjamin Bental

Network Competition, Product Quality, and Market Coverage in the Presence of Network Externalities

The model identifies the quality of a network product with the number of consumers using it. Hence, the producer cannot unilaterally control the quality of his product. Using the preference specification of vertical quality differentiation, it is shown that the largest network produced will be the most expensive one and used by the richest consumers. Noncooperative industry structures result in a larger market coverage than cooperative. If producers can enter the market freely, market coverage with noncompatible networks will be larger. However, if there is no free entry, market coverage is larger with a single industry-wide standard. Copyright 1995 by Blackwell Publishing Ltd.

The old age security hypothesis and optimal population growth

The old age security approach is used to study the relationship between the rate of growth of the population and capital accumulation, within a Samuelson-Diamond overlapping generations framework. It is shown that a decentralized economy will fail, in general, to achieve the Pareto optimal path. However, a pay-as-you-go social security scheme in which the old get transfers which are proportional to the number of their children may restore optimality. On the other hand, child support systems or subsidies to capital can guarantee the optimal capital: labor ratio, but not the optimal population growth rate, while a lump sum social security system can guarantee the optimal population growth rate, but not the optimal capital: labor ratio. Finally, in a monetary economy any policy aimed at correcting the interest rate will restore full optimality.

Money and inventories in an economy with uncertain and sequential trade

Abstract We propose a model in which an unanticipated reduction in the money supply leads to a contemporaneous increase in inventories followed by periods with lower output. This persistent real effect does not require price rigidities or real shocks and confusion. It is obtained in a model of uncertain and sequential trade, in which markets are cleared and agents are price takers.

Macroeconomic Policy and the Shadow Economy

Previous studies on the underground economy have almost exclusively focused on conceptual questions and empirical research. Together with a few other articles in this volume this paper is a first and tentative approach to a theoretical analysis of an economy with a shadow sector. In the framework of a two-sector general equilibrium model we discuss the impact of government expenditure and of unemployment compensation on the employment in the two sectors, on the real wage, and on relative commodity prices. Furthermore, a welfare analysis of different policy options is carried out.

Horizontal product differentiation, prices and quantity selection of a multi-product monopolist

Abstract A monopolist which serves a market in which tastes are uniformly spread along a circumference of a circle selects an optimal set of product varieties. The cost of installing an additional variety increases with the difference from the ‘main product’. It is shown that variety prices decrease and the degree of differentiation between any two varieties increases as products get more differentiated.

Deregulation, competition, and the network size in the market for telecommunication services

This paper analyzes the networking aspect in telecommunication services and the recent divestiture and increased competitiveness of the industry. The product considered is the right to access the network. The utility of a consumer from having access to a network depends on the networks quality, defined by the number of other local and long-distance consumers which can be reached. Network services are provided in two layers; On the lower layer consumers within a local access and transport area (LATA) are connected to a central office which provides the basic switching facility for local telecommunication. On the upper layer, LATAs are connected together by an interLATA carrier, to enable long distance communication from different localities.It is shown that relative to the choices of an unconstrained monopolist, larger networks at both layers may be obtained by imposing quality controls, while price controls may have the opposite effect. A divestiture policy in which all local carriers are connected to a single long distance carrier is likely to reduce the quality of services at both layers. Introducing competition among long-distance carriers further reduces the quality of long distances services but may improve the local service.

Will all people become alike if they are alike

SummaryWe have examined the proposition that initial differences in per capita wealth are eliminated across generations if people face the same opportunities and behave alike. Although we may not rule out that this intrinsic identity of individuals is, indeed, an equalizing force under certain circumstances we have analysed a model in which this is not necessarily true. Apart from differences in initial endowments all agents in this model receive the same wage and the same rental, they have the same number of children, and they possess the same utility function. This function reflects the satisfaction agents derive from both life time consumption and the legacy they leave to their children. Even if this structure remains unchanged for a long sequence of generations the offsprings of the poor may stay poor relative to the offsprings of the rich. The society may end up with as many classes as it started with.We have identified a family of multi class societies which exhibit long run stability. This family is characterized by a large average per capita wealth and relatively small differences between rich and poor. On the other hand poor societies with large differences in individual wealth are dynamically unstable. They have a chance of eventually belonging to the former family of economies.

A Simple Model of Political Contributions

A microeconomic model of supply and demand for political contributions is developed. The supply is derived from the behavior of firms which want to maximize the expected gain from supporting political candidates in an election campaign. These firms allocate funds to opposing candidates, and equate the expected marginal return of a dollar contributed to each candidate. The maximizing conditions lead to a comparative statistics analysis. The demand for contributions is derived by positing that political candidates derive utility from their prospects of being elected and from some favored political stance. The latter may be traded for contributions, which enhance the candidates election probability. The implications of this simple theory are tested using the 1972 congressional elections results. Simultaneity problems are solved by using two-stage least-squares techniques. The results of the empirical analysis conform reasonably well with the predictions of the theoretical model.

Capital Accumulation and Population Growth in Two Sector Closed and Open Economies

An overlapping generations model with endogenous capital accumulation and population growth is explored. The rate of return on children is set exogenously, and dictates the required rate of return on capital. If that return is believed to be low, no capital is accumulated. In an international trade context it is shown that a fast population growth economy will have a high interest rate but may accumulate no capital. The policy conclusion is that high population growth countries may be justified in supporting capital accumulation in order to direct domestic investment away from children.