Charles F. Mason

Optimal Institutional Arrangements for Transboundary Pollutants in a Second-Best World: Evidence from a Differential Game with Asymmetric Players

This paper uses a dynamic model with asymmetric players to explore the question: in a second-best world, should environmental regulations for transboundary pollutants be carried out locally or centrally? We find that combined payoffs are larger with decentralized control if payoffs are sufficiently heterogeneous and initial pollution stocks are sufficiently small. This result obtains because the central authority applies one shadow price to pollution (i.e., it uses uniform standards), whereas local authorities use different shadow prices, and therefore different standards.

The role of gender in a non-cooperative game

Abstract Markets are experimentally constructed to test for differences in choice behavior attributable to gender. Subjects participate in two-person, non-cooperative, repeated games. Choices are made simultaneously, opponents are anonymous, and no one knows how many periods are in an experiment. At the beginning of experiments women tend to be more cooperative than men and have a higher variance of choices. After 25 periods these differences vanish. For subject pairs, there is no statistically important relation between paired choice levels and the number of males in a pair. However we find the variance of choices larger for pairs with males.

Contracting for Impure Public Goods: Carbon Offsets and Additionality

Governments contracting with private agents for the provision of an impure public good must contend with agents who would potentially supply the good absent any payments. This additionality problem is centrally important in the use of carbon offsets as part of climate change mitigation. Analyzing optimal contracts for forest carbon sequestration, an important offset category, we conduct a national-scale simulation using results from an econometric model of land-use change. The results indicate that for an increase in forest area of 50 million acres, annual government expenditures with optimal contracts are about

Information and Cost Asymmetry in Experimental Duopoly Markets

4 billion lower compared than under a uniform subsidy.

The Optimal Number of Firms in the Commons: A Dynamic Approach

We analyze data from experimental duopoly markets to assess the role information plays in facilitating collusion. In these markets, profitability can be common knowledge or private information. Market outputs are estimated in structures with symmetric and asymmetric costs under the two information conditions. Symmetric markets are more cooperative when profitability is common knowledge; asymmetric market outputs are unaffected by information differences. However, common knowledge in asymmetric markets increases the share of the output produced by the low-cost producer, and therefore increases industry efficiency.

Imperfect Product Testing and Market Size

The authors consider a common-property resource sold in imperfectly competitive markets. There is a dynamic externality (current harvests lower future stocks, raising future harvest costs) and a static (crowding) externality. Increasing industry size raises costs but lowers prices; thus, it has ambiguous welfare effects. The optimal industry size typically changes over time, so that a first-best outcome cannot be obtained with a fixed number of firms. Single-firm exploitation is optimal only under special circumstances. The socially optimal open loop steady-state industry size corresponds to the static optimum; both generally differ from the closed-loop steady-state optimum.

Entry Deterrence in the Commons

The authors consider an imperfect test of product quality and ask how it interacts with adverse selection to affect market size. Although one might expect adverse selection to be mitigated, there are scenarios where it is exacerbated. Also, two counterintuitive comparative static results emerge. First, a small increase in the test cost can increase the equilibrium expected profits earned by sellers of higher quality units and so expand the market. Second, the equilibrium expected profits earned by sellers with lower quality units can be increased by a small improvement in the accuracy of an imperfect test. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Market Regulation and Multimarket Rivalry

The authors analyze a common property resource model with a single incumbent firm that faces future potential entry of a rival. The cost of harvest from the resource is a function of the stock size. By drawing down current stock sufficiently, which lowers future stock, the incumbent can make entry unprofitable. The authors analyze the conditions under which the incumbent firm would deter entry and when entry would be allowed. Further, they analyze the effect that potential entry has on the harvest rate both before and after the date of potential entry and whether or not potential entry is welfare improving. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Expectations, the commons, and optimal group size

Multimarket contact between duopolists in an X and Y market is modelled with a trigger strategy. We show that mildly restrictive price-cap regulation in the X market decreases Y market quantities; but restrictive caps in the X market have a positive impact on Y market outputs. Behavior in laboratory markets confirms these propositions. Regulation that lowers X market prices by a small amount results in a statistically significant reduction in Y outputs. When the regulated X market price is reduced to the Cournot/Nash level, Y market outputs rise to a point statistically indistinguishable from the unregulated quantities.

In Support of Trigger Strategies: Experimental Evidence from Two-Person Noncooperative Games

Abstract This article derives a formula for the optimal number of exploiters of a commons, whose output is sold in an imperfectly competitive market and whose exploiters hold nonzero or non-Nash conjectures. We express the optimal number of exploiters in terms of the conjecture, the elasticity of input productivity, and the price elasticity of market demand. Consistent conjectures—those that agree with reality—imply the full tragedy of the commons and zero profits for the exploiters.