Menahem Spiegel

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.

MUNICIPAL WASTE DISPOSAL. UNIT PRICING AND RECYCLING OPPORTUNITIES

This article examines, theoretically and empirically, the impact of municipal waste management policies such as unit pricing and recycling on the demand for residential municipal solid waste disposal. Using a unique cross-sectional data set for 149 municipalities from five New Jersey counties, the empirical analysis estimates the demand for household municipal waste disposal. In the presence of recycling opportunities, the estimated demand elasticity is higher than that found in previous studies. This suggests that bag or tag unit pricing programs, combined with curb-side recycling, will improve social welfare and reduce municipal expenditures on waste disposal services. Mandatory government-supported recycling programs throughout New Jersey afford an opportunity to consider both the direct impact of recycling and the interaction between unit pricing and such recycling programs on municipal waste disposal.

The effects of lump-sum subsidies on the structure of production and productivity in regulated industries

Abstract The theoretical model developed in this paper indicates that a lump-sum subsidy granted to a monopolist facing a binding rate of return constraint will result in a higher level of capital employed and output produced. Furthermore, production costs at any level of output will be higher compared to the pre-subsidy situation. The empirical results emanating from the application of the model to the bus transport sector indicate that lump-sum subsidies have been factor-biased and have led to higher costs as predicted by the model. The average rate of productivity growth has been reduced by 0.60 percentage points per year as a direct result of the lump-sum subsidy.

An Ordinary Economic Rationale for Extraordinary Legal Sanctions

Legal scholars have typically viewed the set of extraordinary legal sanctions (that is, remedies that systematically overor undercompensate plaintiffs) as logically independent and often inefficient. In this Article, the authors offer a single, generally applicable model that predicts and explains the role extraordinary sanctions play in an efficient legal system. Starting with punitive damages, the authors show that extraordinary sanctions are necessary in those situations in which the expected imposition of liability rules, which seek to make the plaintiff whole, would encourage a defendant wrongly to take a plaintiffs property rather that negotiate for it. The authors distinguish their model from two others, the court-error model and the illicit-benefits model. They then extend their model to account for many other controversial and seemingly unrelated extraordinary legal remedies: injunctions, stipulated damages, collateral source recoveries, wrongful death awards, and criminal sanctions.

Stable Provision vs. Cournot-Nash Equilibria in Pure Public Good Economies

Shitovitz and Spiegel (1998) demonstrated that in pure public good economies, for some consumers the Lindahl consumption bundles can be inferior (utility-wise) to their Cournot-Nash allocation. In this paper, we prove that in any finite pure public good economy there exists a core allocation that is unanimously preferred, utility-wise, by all consumers over their Cournot-Nash consumption bundles. Copyright 2001 by Blackwell Publishing Inc.

Universal Service Obligation

The Universal Service Obligation (USO) is a regulation often imposed on the providers of network services. In the case of the telephone network, the Universal Service Obligation regulation can be traced back to the Communication Act of 1934. Where this act charged the FCC to provide all people of the United State a rapid and efficient telecommunication network facility. As stated, the main principle of this regulation is the requirement that the provider of the network services will make available the basic telecommunication services to all the customers residing within its exclusive territory. The practical meaning (profit wise) of this policy is that the provider of network services is not allowed to select his customers just according to their contribution to his profits but must serve all customers even if some of them are generating negative profits. That is, some customers must be served at a price “bellow” cost.1

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.

'Top of the line' quality as an optimal solution for a multi-quality monopolist

Abstract In this paper we consider a finite variant of the Mussa-Rosen model of vertical differentiation. There is a multiquality monopolist and a finite number of buyers each purchasing at most one unit of the good. We are concerned here with the question when it is optimal for the monopolist to offer the ‘top of the line’ quality only. We use a simple Lagrange multipliers technique in order to derive sufficient conditions for optimality of this policy for a wide class of utility functions, including those of a Cobb-Douglas type. We also demonstrate that the offer of the ‘top of the line’ quality only, is always an optimal policy whenever buyers have linear utility functions.

Efficiency and compensation of public officials

ConclusionThis paper recommends a system of rewards for public officials which is linearly related to the performance of the official. The main advantage of such a system of compensation is that it serves as a regular ‘self checking’ of the performance of an official and it reduces the need for a process of direct supervision. This is an important characteristic, since direct supervision by an ‘uninformed government’ is quite difficult, at least on a regular basis. On the other hand, judgement by result seems to be much easier to carry out. Furthermore, we suggest that the system of linear compensation could be improved with an ‘entrance fee’ which is determined in an auction among qualified candidates competing for the right to work for the Government.We have also shown that the dismissal practice on the basis of realized results will lead to an inappropriate choice of policy and inefficiency. We suggest, therefore, that this practice (of dismissal) should be limited only to a screening mechanism, where official can be dismissed for bad decision but not for bad ‘luck’.Bad decision is a choice of a non optimal policy by an incompetent official (i.e AinotAk). While bad ‘luck’ is an occurrence of an undesired outcome (Xij) eventhough the optimal policy Ak was selected.This view of the role of dismissal suggests a need for a more detailed examination of the decision process before a dismissal takes place. As suggested by G. Tullock one can reduce the errors of dismissal by using a detailed survey of the actual choices facing the official for a sample of cases. Such a sample will include the non-random cases which otherwise require dismissal, as well as a random sample of other decisions.Another advantage of the random sample is that it may reveal some cases in which a ‘good outcome’ is a result of poor decision and good luck. In such cases an official may be dismissed for his poor decision despite his realized good performance. This procedure improves the automatic mechanism of screening suggested in our model. Finally, we have shown, that an incentive wage scheme can be used to insure the optimal level effort by an official on the job.Our compensation scheme may reduce the number of dismissals and it will lead to an increase in the use of wage reduction as well as wage increase as a function of observed performance. Under this proposal the official is more directly involved with his work and acts as a partner to the Government in the particular aspect of the job.