We propose a simple model of optimal stopping where the economic environment changes as a result ... more We propose a simple model of optimal stopping where the economic environment changes as a result of learning. A primary application of our framework is an optimal job search problem when the worker's labour market opportunities are initially uncertain. We distinguish between two interpretations of the model. In the first, a worker learns about common market conditions, such as the number of potential employers, that affect all searchers. In the second, the worker learns about her idiosyncratic productivity distribution across firms. For the first model, we show that learning leads to higher wage demands by the workers. In the second model, we give sufficient conditions so that learning leads to higher wage demands for optimistic workers and lower demands for pessimistic workers due to learning.
This paper attempts to provide an economic framework for assessing why and how Internet telephony... more This paper attempts to provide an economic framework for assessing why and how Internet telephony may a ect the international accounting rate system in particular, and communication over circuit switched networks in general. It reviews the regulatory treatment of Internet telephony, and compares the costs and prices of making international calls over the Internet and the public switched telephone network PSTN. It argues that Internet telephony is unlikely to prove central to the downfall of the international system; other technologies, such as resale, will play a larger role. The paper also suggests a general framework in which t o analyse competition between networks such as the Internet and the PSTN. This framework indicates that di erences in the preferences of end users for congestion will drive networks to specialise.
This paper surveys theories of international environmental agreements. Central to the analysis is... more This paper surveys theories of international environmental agreements. Central to the analysis is the recognition that countries assess the costs and benefits of acting cooperatively in a game theoretic way. Two hypotheses emerge: (i) cooperation is easier to sustain than standard Prisoners' Dilemma models suggest; and (ii) significant cooperation is unlikely to be achieved, especially when the gains from doing so are largest. Discussion is confined (with little loss of generality) to the case study of acid rain. Comparison of the theoretical predictions with the Second Sulphur Protocol indicate qualitative support for the second hypothesis: the protocol, it seems, achieves little more than a codification of non-cooperative behaviour.
This paper develops a generalised model of network competition when consumers vary in their prefe... more This paper develops a generalised model of network competition when consumers vary in their preferences for network size and location, and networks are vertically and horizontally differentiated. The effect of compatibility on the degree of competition between the networks is analysed. Two effects are identified as central to determining networks' incentives towards compatibility. Compatibility decreases vertical differentiation (and hence increases competition); but it also decreases the importance of market share (and so decreases competition). Which effect dominates depends on the relative importance of horizontal and vertical aspects in consumers' utilities. When network size is a relatively important factor in consumers' utilities, neither the larger nor smaller network in the unique asymmetric equilibrium wishes to be compatible. When horizontal aspects are important, both networks wish to be compatible. For intermediate cases, the larger network does not wish to be compatible, in contrast to the smaller network. The model may explain the dynamics of network industries, particularly interconnection agreements between Internet service providers.
Discussion Paper Series in Economics and Econometrics, Jul 1, 2003
This paper provides a sufficient condition for existence and uniqueness of equilibrium, which is ... more This paper provides a sufficient condition for existence and uniqueness of equilibrium, which is in monotone pure strategies, in games of incomplete information. First, we show that if each player's incremental ex post payoff is uniformly increasing in its own action and type, and its type is sufficiently uninformative of the types of its opponents (independence), then its expected payoff satisfies a strict single crossing property in its own action and type, for any strategy profile played by its opponents. This ensures that a player's best response to any strategy profile is a monotone pure strategy. Secondly, we show that if, in addition, there is sufficient heterogeneity of the conditional density of types, then the best response correspondence is a contraction mapping. This ensures equilibrium existence and uniqueness. In contrast to existing results, our uniqueness result does not rely on strategic complementarities; this allows for a wider range of applications.
This paper extends and challenges Maler and de Zeeuw's (1996) acid rain linear-quadratic diff... more This paper extends and challenges Maler and de Zeeuw's (1996) acid rain linear-quadratic differential game.
In this paper, we analyse three factors that are crucial in determining whether equilibrium is un... more In this paper, we analyse three factors that are crucial in determining whether equilibrium is unique in coordination games with incomplete information. We show that a unique equilibrium exists if there is sufficiently (i) large uncertainty about the common component of agents' payoffs; (ii) small degree of strategic uncertainty; and (iii)large differences in agents' payoffs. We call these three factors fundamental uncertainty, strategic uncertainty and heterogeneity, respectively. To show the trade-offs among the three factors, we construct a dynamic model where information is released gradually and decisions are made sequentially. The dynamic model demonstrates that gradual release of information combined with sequential choice facilitates unique equilibrium selection. The dynamic model allows the agents to make decision subject to a greater degree of fundamental uncertainty while reducing the strategic uncertainty. Hence unique equilubrium selection obtains in the dynamic model for a set of parameters which yields multiple equilibria if the model is formulated as a static one.
This paper provides a sufficient condition for existence and uniqueness of equilibrium, which is ... more This paper provides a sufficient condition for existence and uniqueness of equilibrium, which is in monotone pure strategies, in a broad class of Bayesian games. The argument requires that the incremental interim payoff - the expected payoff difference between any two actions, conditional on a player's realised type - satisfies two conditions. The first is uniform strict single-crossing with respect to own type. The second condition is Lipschitz continuity with respect to opponents' strategies. Our main result shows that, if these two conditions are satisfied, and the bounding parameters satisfy a particular inequality, then the best response correspondence is a contraction, and hence there is a unique equilibrium of the Bayesian game. Furthermore, this equilibrium is in monotone pure strategies. We characterize the uniform monotonicity and Lipschitz continuity conditions in terms of the model primitives. We also consider a number of examples to illustrate how the approach c...
We analyse a simple model of dynamic moral hazard in which there is a clear and tractable trade-o... more We analyse a simple model of dynamic moral hazard in which there is a clear and tractable trade-off; between static and dynamic incentives. In our model, a principal wants an agent to complete a project. The agent undertakes unobservable effort, which affects in each period the probability that the project is completed. The principal pays only on completion of the project. We characterise the contracts that the principal sets, with and without commitment. We show that with full commitment, the contract involves the agent’s value and wage declining over time, in order to give the agent incentives to exert effort.
We introduce adaptive learning behavior into a general-equilibrium life-cycle economy with capita... more We introduce adaptive learning behavior into a general-equilibrium life-cycle economy with capital accumulation. Agents form forecasts of the rate of return to capital assets using least-squares autoregressions on past data. We show that, in contrast to the perfect-foresight dynamics, the dynamical system under learning possesses equilibria that are characterized by persistent excess volatility in returns to capital. We explore a quantitative case for theselearning equilibria. We use an evolutionary search algorithm to calibrate a version of the system under learning and show that this system can generate data that matches some features of the time-series data for U.S. stock returns and per-capita consumption. We argue that this finding provides support for the hypothesis that the observed excess volatility of asset returns can be explained by changes in investor expectations against a background of relatively small changes in fundamental factors.
There has been a recent economic literature arguing that international environmental agreements (... more There has been a recent economic literature arguing that international environmental agreements (IEAs) can have no real effect, on account of their voluntary and selfenforcing nature. This literature concludes that the terms of IEAs are the codification of the noncooperative equilibrium, and recent empirical work has supported this conclusion in the context of the Montreal Protocol. This paper reaches the opposite conclusion, by means of the comparison of the CFC emissions implicit within the cooperative and noncooperative management paths. The cooperative path is implicit within the terms of the Montreal Protocol. The noncooperative path is implicit in countries' behaviour during the period of unilateral management of CFC emissions. This study estimates the relationship between countries' propensities to produce CFCs and income per capita over the period 1976-1988 (prior to the entry into force of the Montreal Protocol). It then extrapolates this path of unilateral management beyond 1988, and compares it to the obligations adopted under the cooperative regime. This comparison of the projected noncooperative path with the obligations adopted under the Montreal Protocol allows a qualitative test of theories on the economic foundations of self-enforcing IEAs. We find that, in the absence of the Protocol, CFC production (and hence emissions) would have increased by a factor of three over the next fifty years. This study also supplements existing environmental Kuznets curve analyses by providing estimates for the unilateral management for a global externality. In this manner we are able to assess the distributive impacts of the Protocol, in addition to its effectiveness. Using dynamic estimation methods on a panel of around 30 countries over 13 years, the turning point in the relationship between CFC production and income is found to lie around (1986) US$16,000. This implies that developing countries bear the greatest costs in the implementation of the Montreal Protocol.
Empirical studies have found that takeover activity is positively related to the absolute size of... more Empirical studies have found that takeover activity is positively related to the absolute size of industry-level shocks. We develop a dynamic framework with competing bidders which explains this pattern. We model both hostile and agreed bids, determining the timing and terms of takeover in each case, and find that takeover occurs only when shocks are sufficiently large in either direction. We examine implications for the efficiency of the market for corporate control, finding that the direction of inefficiency depends on the form of takeover. We also analyze the dependence of takeover activity on the degree of uncertainty about industry conditions.
Empirical studies have found that takeover activity is positively related to the absolute size of... more Empirical studies have found that takeover activity is positively related to the absolute size of industry-level shocks. We develop a dynamic framework with competing bidders which explains this pattern. We model both hostile and agreed bids, determining the timing and terms of takeover in each case, and find that takeover occurs only when shocks are sufficiently large in either direction. We examine implications for the efficiency of the market for corporate control, finding that the direction of inefficiency depends on the form of takeover. We also analyze the dependence of takeover activity on the degree of uncertainty about industry conditions.
This paper provides a single broad model for the analysis of a range of issues underlying a marke... more This paper provides a single broad model for the analysis of a range of issues underlying a market for Grid services. The demand and the supply sides of such a market are being treated separately and the relation between the two sides is being studied. We provide numerical results in order to derive conclusions about the viability of a market for Grid services. Underlying our model are parameters such as the cost technologies, the random processes driving demand and supply and the size of the market. We study the effect of the model's parameters, such as risk aversion or the durability of resources, on the system's behavior, eg. on the clearing price or volume of trade.
A recent article by Murdoch and Sandler (1997) posited that there had been little, if any, impact... more A recent article by Murdoch and Sandler (1997) posited that there had been little, if any, impact on the emission of ozone-depleting substances by reason of the adoption of the Montreal Protocol. They reached this conclusion by examining the changes in a data set of CFC emissions between 1986 and 1989 in a sample of 61 countries. This paper reaches the opposite conclusion using a very different form of analysis and a different database. It examines the relationship between countries' propensities to emit chlorofluorocarbons (CFCs), the main chemicals responsible for ozone depletion, and income per capita over the periods 1951-1970 (prior to the discovery of the link between CFCs and ozone depletion) and the period 1971-1988 (prior to the entry into force of the Montreal Protocol). It extrapolates these paths of CFC emissions after 1988, and compares them to the obligations adopted under the Protocol. This comparison of forecast emissions with the obligations of the Montreal all...
Review of European Community and International Environmental Law, 1995
This article analyzes the role that joint implementation (JI) might play in reducing the costline... more This article analyzes the role that joint implementation (JI) might play in reducing the costliness of meeting the environmental objectives of the Second Sulphur Protocol (SSP). The experience of JI within two other major environmental agreements (the Framework Convention on Climate Change (FCCC), and the Allowance Trading Program (ATP) in the United States (US)) is reviewed to see what lessons might be learned for the SSP. The article argues that the structure of the sulphur protocol limits considerably the potential for cost savings through JI in the short term. In the long term, however, JI will play a large role in the restructuring of the European electricity-generating industry, as existing power plants are replaced with capital which is compatible with the standards of the SSP.
It is no surprise, then, that the communication sector has attracted the attention of policymaker... more It is no surprise, then, that the communication sector has attracted the attention of policymakers and economists. But there are further reasons, beyond just the size of the sector, that single out communications as an area of particular interest. These reasons relate to the characteristics of the networks that deliver communication services. The characteristics are not individually unique to communication networks, as the discussion will make clear. The combination of all four factors is, however, unique to networks. We argue in this paper that the combination represents a particular challenge to the study and regulation of communication networks. The first characteristic is the cost structure of networks. Typically, there is a large fixed cost to building a network-digging up pavements to lay cables for a communication network, laying track or asphalt for rail or road travel, gathering all the information for the first edition of an encyclopaedia. For example, the estimated fixed cost of the British Telecom (BT) network in the U.K. accounts for approximately two-thirds of the total cost of the network (Oftel, 1999). Moreover, these costs are often sunk, i.e., irrecoverable, even if production stops. In contrast, the marginal cost of operating the network is low. On a standard telephone network, the marginal cost of making a local telephone call is of the order of 0.2-0.4 pence per minute. The marginal cost of producing an encyclopaedia is the cost of writing and shipping a set of CDs-a couple of pounds. The economies of scale that result from this cost structure often lead to "natural monopoly"-a dominant firm that captures the entire market. There are two observations to make at this point. First, this cost structure occurs in many, non-network industries. On its own, then, this factor does not raise any issues that are not familiar to any economist who has taken an introductory micro course. Secondly, there is often considerable debate about whether fixed costs are all that important in communication networks. In the past, it has been thought that the access part of telephone networks (the last segment of the network, from the last switch to the customer's premises, called the local loop) was such a significant cost that provision of access should be monopolized. Recently, this view has been brought into question. The next section considers this issue in some detail. Suppose that you want to send an e-mail. For most of us, we would first access the Internet by calling an Internet Service Provider (ISP) over a telephone line. The average email message is broken into around 20 pieces, or packets, by the sending computer. These packets are sent over a standard telephone line to the ISP, using a modem to convert the computer's digital information to the analog waves that telephone lines transmit. Each packet is transmitted to the nearest 'router': a special computer, dedicated to receiving and forwarding packets, that is the Internet equivalent of a telephone switch. The router consults a database to decide where to send the packet; it passes each packet onto another router, or to the destination if it is close enough. Once all the packets arrive at their destination, they are reassembled into the original e-mail and read. This seems pretty involved just for a message like "I'll be home in half an hour". Of course, each user does not care about which routers have handled the individual packets in an e-mail. What matters is the joint function of all of the components that go in to sending an email. In the language of economics, the different parts of the network are called complements-items that are worth more together than separately. This is the second factor that distinguishes networks. Again, complementarity is not unique to networks. I do not value particularly the individual components of the starter unit in my car; I care only about whether it starts when I turn the key. Taken with two other factors, however, complementarity is particularly marked in networks. First, positive externalities (about which, see below) mean that there are large gains to connecting two networks. Secondly, the cost structure means that some network segments are owned by a small number of firms, leading to a bottleneck problem. This is the case with the "last mile" of telephone wires running into houses, which typically is owned by an incumbent telephone company. Any telephone company offering services have to gain
We propose a simple model of optimal stopping where the economic environment changes as a result ... more We propose a simple model of optimal stopping where the economic environment changes as a result of learning. A primary application of our framework is an optimal job search problem when the worker's labour market opportunities are initially uncertain. We distinguish between two interpretations of the model. In the first, a worker learns about common market conditions, such as the number of potential employers, that affect all searchers. In the second, the worker learns about her idiosyncratic productivity distribution across firms. For the first model, we show that learning leads to higher wage demands by the workers. In the second model, we give sufficient conditions so that learning leads to higher wage demands for optimistic workers and lower demands for pessimistic workers due to learning.
This paper attempts to provide an economic framework for assessing why and how Internet telephony... more This paper attempts to provide an economic framework for assessing why and how Internet telephony may a ect the international accounting rate system in particular, and communication over circuit switched networks in general. It reviews the regulatory treatment of Internet telephony, and compares the costs and prices of making international calls over the Internet and the public switched telephone network PSTN. It argues that Internet telephony is unlikely to prove central to the downfall of the international system; other technologies, such as resale, will play a larger role. The paper also suggests a general framework in which t o analyse competition between networks such as the Internet and the PSTN. This framework indicates that di erences in the preferences of end users for congestion will drive networks to specialise.
This paper surveys theories of international environmental agreements. Central to the analysis is... more This paper surveys theories of international environmental agreements. Central to the analysis is the recognition that countries assess the costs and benefits of acting cooperatively in a game theoretic way. Two hypotheses emerge: (i) cooperation is easier to sustain than standard Prisoners' Dilemma models suggest; and (ii) significant cooperation is unlikely to be achieved, especially when the gains from doing so are largest. Discussion is confined (with little loss of generality) to the case study of acid rain. Comparison of the theoretical predictions with the Second Sulphur Protocol indicate qualitative support for the second hypothesis: the protocol, it seems, achieves little more than a codification of non-cooperative behaviour.
This paper develops a generalised model of network competition when consumers vary in their prefe... more This paper develops a generalised model of network competition when consumers vary in their preferences for network size and location, and networks are vertically and horizontally differentiated. The effect of compatibility on the degree of competition between the networks is analysed. Two effects are identified as central to determining networks' incentives towards compatibility. Compatibility decreases vertical differentiation (and hence increases competition); but it also decreases the importance of market share (and so decreases competition). Which effect dominates depends on the relative importance of horizontal and vertical aspects in consumers' utilities. When network size is a relatively important factor in consumers' utilities, neither the larger nor smaller network in the unique asymmetric equilibrium wishes to be compatible. When horizontal aspects are important, both networks wish to be compatible. For intermediate cases, the larger network does not wish to be compatible, in contrast to the smaller network. The model may explain the dynamics of network industries, particularly interconnection agreements between Internet service providers.
Discussion Paper Series in Economics and Econometrics, Jul 1, 2003
This paper provides a sufficient condition for existence and uniqueness of equilibrium, which is ... more This paper provides a sufficient condition for existence and uniqueness of equilibrium, which is in monotone pure strategies, in games of incomplete information. First, we show that if each player's incremental ex post payoff is uniformly increasing in its own action and type, and its type is sufficiently uninformative of the types of its opponents (independence), then its expected payoff satisfies a strict single crossing property in its own action and type, for any strategy profile played by its opponents. This ensures that a player's best response to any strategy profile is a monotone pure strategy. Secondly, we show that if, in addition, there is sufficient heterogeneity of the conditional density of types, then the best response correspondence is a contraction mapping. This ensures equilibrium existence and uniqueness. In contrast to existing results, our uniqueness result does not rely on strategic complementarities; this allows for a wider range of applications.
This paper extends and challenges Maler and de Zeeuw's (1996) acid rain linear-quadratic diff... more This paper extends and challenges Maler and de Zeeuw's (1996) acid rain linear-quadratic differential game.
In this paper, we analyse three factors that are crucial in determining whether equilibrium is un... more In this paper, we analyse three factors that are crucial in determining whether equilibrium is unique in coordination games with incomplete information. We show that a unique equilibrium exists if there is sufficiently (i) large uncertainty about the common component of agents' payoffs; (ii) small degree of strategic uncertainty; and (iii)large differences in agents' payoffs. We call these three factors fundamental uncertainty, strategic uncertainty and heterogeneity, respectively. To show the trade-offs among the three factors, we construct a dynamic model where information is released gradually and decisions are made sequentially. The dynamic model demonstrates that gradual release of information combined with sequential choice facilitates unique equilibrium selection. The dynamic model allows the agents to make decision subject to a greater degree of fundamental uncertainty while reducing the strategic uncertainty. Hence unique equilubrium selection obtains in the dynamic model for a set of parameters which yields multiple equilibria if the model is formulated as a static one.
This paper provides a sufficient condition for existence and uniqueness of equilibrium, which is ... more This paper provides a sufficient condition for existence and uniqueness of equilibrium, which is in monotone pure strategies, in a broad class of Bayesian games. The argument requires that the incremental interim payoff - the expected payoff difference between any two actions, conditional on a player's realised type - satisfies two conditions. The first is uniform strict single-crossing with respect to own type. The second condition is Lipschitz continuity with respect to opponents' strategies. Our main result shows that, if these two conditions are satisfied, and the bounding parameters satisfy a particular inequality, then the best response correspondence is a contraction, and hence there is a unique equilibrium of the Bayesian game. Furthermore, this equilibrium is in monotone pure strategies. We characterize the uniform monotonicity and Lipschitz continuity conditions in terms of the model primitives. We also consider a number of examples to illustrate how the approach c...
We analyse a simple model of dynamic moral hazard in which there is a clear and tractable trade-o... more We analyse a simple model of dynamic moral hazard in which there is a clear and tractable trade-off; between static and dynamic incentives. In our model, a principal wants an agent to complete a project. The agent undertakes unobservable effort, which affects in each period the probability that the project is completed. The principal pays only on completion of the project. We characterise the contracts that the principal sets, with and without commitment. We show that with full commitment, the contract involves the agent’s value and wage declining over time, in order to give the agent incentives to exert effort.
We introduce adaptive learning behavior into a general-equilibrium life-cycle economy with capita... more We introduce adaptive learning behavior into a general-equilibrium life-cycle economy with capital accumulation. Agents form forecasts of the rate of return to capital assets using least-squares autoregressions on past data. We show that, in contrast to the perfect-foresight dynamics, the dynamical system under learning possesses equilibria that are characterized by persistent excess volatility in returns to capital. We explore a quantitative case for theselearning equilibria. We use an evolutionary search algorithm to calibrate a version of the system under learning and show that this system can generate data that matches some features of the time-series data for U.S. stock returns and per-capita consumption. We argue that this finding provides support for the hypothesis that the observed excess volatility of asset returns can be explained by changes in investor expectations against a background of relatively small changes in fundamental factors.
There has been a recent economic literature arguing that international environmental agreements (... more There has been a recent economic literature arguing that international environmental agreements (IEAs) can have no real effect, on account of their voluntary and selfenforcing nature. This literature concludes that the terms of IEAs are the codification of the noncooperative equilibrium, and recent empirical work has supported this conclusion in the context of the Montreal Protocol. This paper reaches the opposite conclusion, by means of the comparison of the CFC emissions implicit within the cooperative and noncooperative management paths. The cooperative path is implicit within the terms of the Montreal Protocol. The noncooperative path is implicit in countries' behaviour during the period of unilateral management of CFC emissions. This study estimates the relationship between countries' propensities to produce CFCs and income per capita over the period 1976-1988 (prior to the entry into force of the Montreal Protocol). It then extrapolates this path of unilateral management beyond 1988, and compares it to the obligations adopted under the cooperative regime. This comparison of the projected noncooperative path with the obligations adopted under the Montreal Protocol allows a qualitative test of theories on the economic foundations of self-enforcing IEAs. We find that, in the absence of the Protocol, CFC production (and hence emissions) would have increased by a factor of three over the next fifty years. This study also supplements existing environmental Kuznets curve analyses by providing estimates for the unilateral management for a global externality. In this manner we are able to assess the distributive impacts of the Protocol, in addition to its effectiveness. Using dynamic estimation methods on a panel of around 30 countries over 13 years, the turning point in the relationship between CFC production and income is found to lie around (1986) US$16,000. This implies that developing countries bear the greatest costs in the implementation of the Montreal Protocol.
Empirical studies have found that takeover activity is positively related to the absolute size of... more Empirical studies have found that takeover activity is positively related to the absolute size of industry-level shocks. We develop a dynamic framework with competing bidders which explains this pattern. We model both hostile and agreed bids, determining the timing and terms of takeover in each case, and find that takeover occurs only when shocks are sufficiently large in either direction. We examine implications for the efficiency of the market for corporate control, finding that the direction of inefficiency depends on the form of takeover. We also analyze the dependence of takeover activity on the degree of uncertainty about industry conditions.
Empirical studies have found that takeover activity is positively related to the absolute size of... more Empirical studies have found that takeover activity is positively related to the absolute size of industry-level shocks. We develop a dynamic framework with competing bidders which explains this pattern. We model both hostile and agreed bids, determining the timing and terms of takeover in each case, and find that takeover occurs only when shocks are sufficiently large in either direction. We examine implications for the efficiency of the market for corporate control, finding that the direction of inefficiency depends on the form of takeover. We also analyze the dependence of takeover activity on the degree of uncertainty about industry conditions.
This paper provides a single broad model for the analysis of a range of issues underlying a marke... more This paper provides a single broad model for the analysis of a range of issues underlying a market for Grid services. The demand and the supply sides of such a market are being treated separately and the relation between the two sides is being studied. We provide numerical results in order to derive conclusions about the viability of a market for Grid services. Underlying our model are parameters such as the cost technologies, the random processes driving demand and supply and the size of the market. We study the effect of the model's parameters, such as risk aversion or the durability of resources, on the system's behavior, eg. on the clearing price or volume of trade.
A recent article by Murdoch and Sandler (1997) posited that there had been little, if any, impact... more A recent article by Murdoch and Sandler (1997) posited that there had been little, if any, impact on the emission of ozone-depleting substances by reason of the adoption of the Montreal Protocol. They reached this conclusion by examining the changes in a data set of CFC emissions between 1986 and 1989 in a sample of 61 countries. This paper reaches the opposite conclusion using a very different form of analysis and a different database. It examines the relationship between countries' propensities to emit chlorofluorocarbons (CFCs), the main chemicals responsible for ozone depletion, and income per capita over the periods 1951-1970 (prior to the discovery of the link between CFCs and ozone depletion) and the period 1971-1988 (prior to the entry into force of the Montreal Protocol). It extrapolates these paths of CFC emissions after 1988, and compares them to the obligations adopted under the Protocol. This comparison of forecast emissions with the obligations of the Montreal all...
Review of European Community and International Environmental Law, 1995
This article analyzes the role that joint implementation (JI) might play in reducing the costline... more This article analyzes the role that joint implementation (JI) might play in reducing the costliness of meeting the environmental objectives of the Second Sulphur Protocol (SSP). The experience of JI within two other major environmental agreements (the Framework Convention on Climate Change (FCCC), and the Allowance Trading Program (ATP) in the United States (US)) is reviewed to see what lessons might be learned for the SSP. The article argues that the structure of the sulphur protocol limits considerably the potential for cost savings through JI in the short term. In the long term, however, JI will play a large role in the restructuring of the European electricity-generating industry, as existing power plants are replaced with capital which is compatible with the standards of the SSP.
It is no surprise, then, that the communication sector has attracted the attention of policymaker... more It is no surprise, then, that the communication sector has attracted the attention of policymakers and economists. But there are further reasons, beyond just the size of the sector, that single out communications as an area of particular interest. These reasons relate to the characteristics of the networks that deliver communication services. The characteristics are not individually unique to communication networks, as the discussion will make clear. The combination of all four factors is, however, unique to networks. We argue in this paper that the combination represents a particular challenge to the study and regulation of communication networks. The first characteristic is the cost structure of networks. Typically, there is a large fixed cost to building a network-digging up pavements to lay cables for a communication network, laying track or asphalt for rail or road travel, gathering all the information for the first edition of an encyclopaedia. For example, the estimated fixed cost of the British Telecom (BT) network in the U.K. accounts for approximately two-thirds of the total cost of the network (Oftel, 1999). Moreover, these costs are often sunk, i.e., irrecoverable, even if production stops. In contrast, the marginal cost of operating the network is low. On a standard telephone network, the marginal cost of making a local telephone call is of the order of 0.2-0.4 pence per minute. The marginal cost of producing an encyclopaedia is the cost of writing and shipping a set of CDs-a couple of pounds. The economies of scale that result from this cost structure often lead to "natural monopoly"-a dominant firm that captures the entire market. There are two observations to make at this point. First, this cost structure occurs in many, non-network industries. On its own, then, this factor does not raise any issues that are not familiar to any economist who has taken an introductory micro course. Secondly, there is often considerable debate about whether fixed costs are all that important in communication networks. In the past, it has been thought that the access part of telephone networks (the last segment of the network, from the last switch to the customer's premises, called the local loop) was such a significant cost that provision of access should be monopolized. Recently, this view has been brought into question. The next section considers this issue in some detail. Suppose that you want to send an e-mail. For most of us, we would first access the Internet by calling an Internet Service Provider (ISP) over a telephone line. The average email message is broken into around 20 pieces, or packets, by the sending computer. These packets are sent over a standard telephone line to the ISP, using a modem to convert the computer's digital information to the analog waves that telephone lines transmit. Each packet is transmitted to the nearest 'router': a special computer, dedicated to receiving and forwarding packets, that is the Internet equivalent of a telephone switch. The router consults a database to decide where to send the packet; it passes each packet onto another router, or to the destination if it is close enough. Once all the packets arrive at their destination, they are reassembled into the original e-mail and read. This seems pretty involved just for a message like "I'll be home in half an hour". Of course, each user does not care about which routers have handled the individual packets in an e-mail. What matters is the joint function of all of the components that go in to sending an email. In the language of economics, the different parts of the network are called complements-items that are worth more together than separately. This is the second factor that distinguishes networks. Again, complementarity is not unique to networks. I do not value particularly the individual components of the starter unit in my car; I care only about whether it starts when I turn the key. Taken with two other factors, however, complementarity is particularly marked in networks. First, positive externalities (about which, see below) mean that there are large gains to connecting two networks. Secondly, the cost structure means that some network segments are owned by a small number of firms, leading to a bottleneck problem. This is the case with the "last mile" of telephone wires running into houses, which typically is owned by an incumbent telephone company. Any telephone company offering services have to gain
Uploads
Papers by Robin Mason