Robert Godby

Testing for asymmetric pricing in the Canadian retail gasoline market

This paper applies a Threshold Regression model to test for asymmetric pricing in the retail gasoline market in Canada, using weekly data for the period January, 1990 to december , 1996.

Crowding-out voluntary contributions to public goods

We test the null hypothesis that involuntary transfers for the provision of a public good will completely crowd out voluntary transfers against the warm-glow hypothesis that crowding-out will be incomplete because individuals care about giving. Our design differs from the related design used by Andreoni in considering two levels of the involuntary transfer and a wider range of contribution possibilities, and in mixing groups every period instead of every four periods. We analyse the data with careful attention to boundary effects. We retain the null hypothesis of complete crowding-out in two of three pairwise comparisions, but reject it in favour of incomplete crowding-out in the comparison most closely akin to Andreoni’s design. Thus we confirm the existence of incomplete crowding-out in some environments, but suggest that the warm-glow hypothesis is inadequate in explaining it.

Equity theory and the voluntary provision of public goods

Abstract A model incorporating aspects of a psychological theory of equity is presented as an alternative to the conventional economics model. Equity theory suggests that people may feel distress if they contribute either larger or smaller shares of their incomes to the public good than the average contribution of others, and that people will behave in a way to avoid this distress. The Nash equilibrium prediction for this model is for high-income individuals to undercontribute and for low-income individuals to overcontribute relative to the prediction of the conventional model. The data support the alternative model over the conventional model.

Market Power and Emissions Trading: Theory and Laboratory Results

Policymakers are concerned with market power being exploited by dominant firms in emission permit markets. Two types of market power may emerge: simple and exclusionary manipulation. Simple manipulation should result in reduced pollution-control cost relative to command-and-control regulation. Exclusionary manipulation may result in increased cost. The paper reports results of an economic experiment to determine whether (i) such opportunities are successfully exploited when a dominant firm has the opportunity to do so, and (ii) the resulting outcomes are serious enough to merit consideration by regulators. Market power outcomes emerge and market efficiency is far below predicted levels.

Market Power in Laboratory Emission Permit Markets

Many proposals suggesting the use of markets tocontrol pollution assume markets will becompetitive. When markets do not exhibitcompetitive characteristics, however, shouldthey still be expected to result in efficiencyimprovement relative to traditional approaches? This paper employs experimental economicmethods to examine the effect of marketstructure on the use of marketable emissionspermits. Results indicate that in a market withone dominant firm and a number of fringe firms,strategic manipulation occurs repeatedly in thelaboratory as predicted by market power models,undermining the allocative and dynamicefficiency benefits such markets offer. Whenfirms compete in a downstream product marketdominated by the same single firm, marketefficiency can actually be reduced with theimplementation of permit markets. Final marketefficiencies reflect initial endowments and areinfluenced by competitive conditions elsewherein the economy, indicating that policy-makersshould carefully consider whether markets areappropriate in such circumstances.

Estimating the Value of Additional Wind and Transmission Capacity in the Rocky Mountain West

The expansion of wind-generation in the United States poses significant challenges to policy-makers, particularly because winds intermittency and unpredictability can exacerbate problems of congestion on a transmission-constrained grid. Understanding these issues is necessary if optimal development of wind energy and transmission is to occur. This paper applies a model that integrates the special concerns of electricity generation to empirically consider the challenges of developing wind resources in the Rocky Mountain region of the United States. Given the lack the high frequency data needed to address the special problems of intermittency and congestion, our solution is to create a dispatch model of the region and to use simulations to generate the necessary data, then use this data to understand patterns that have occurred as wind resources have been developed.

An experimental examination of vertical control and cost predation

Abstract In recent years there has been renewed interest in, and concern about, firms’ use of vertical control as a way to exert market power. Such behavior could be used to gain a competitive advantage over rivals in input and/or output markets. This paper uses laboratory experimental methods to examine three questions: (i) Is anti-competitive behavior by a dominant firm in input markets an observable behavior? (ii) Is cost predation an observable laboratory phenomenon? and (iii) If such behaviors are observed, what are the efficiency consequences? Results of this dominant firm experiment indicate that all three questions can be answered in the affirmative, and the negative efficiency consequences can be profound.

Spite, Guilt and the Voluntary Provision of Public Goods When Income Is Not Distributed Equally

The effects of income distribution on voluntary contributions to public goods in laboratory environments have not been extensively studied. Warr (1983) derives unique predictions for individual voluntary contributions to public good provision which are extended by Bergstrom, Blume, and Varian (1986). Chan, Moir, Mestelman, and Muller (1994) provide laboratory evidence that the induced Nash equilibrium individual voluntary contributions of the Warr model are not supported by the data. This paper addresses the hypothesis that participants in voluntary contribution games bring notions of fairness into the laboratory which cannot be controlled by the experimenter. These home-grown or noninduced payoffs lead to decisions that are inconsistent with predictions based solely on the induced payoff schedules. The data from a new series of laboratory sessions support a behavioural hypothesis incorporating fairness better than the conventional model does.