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Jolian McHardy

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CESRAN | Centre for Strategic Research & Analysis

Vsevolod Samokhvalov

University of Liege

Juraj Marušiak

Slovak Academy of Sciences

Heriot-Watt University

Priyodorshi Banerjee

Indian Statistical Institute

Marcelo Olarreaga

Université de Genève

Rheinische Friedrich-Wilhelms-Universität Bonn

The University of Manchester

Alessandro Arrighetti

Università degli Studi di Parma (Italy)

Tiziano Bellini

University of Parma

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Papers by Jolian McHardy

The Importance of Demand Complementarities in the Calculation of Dead-Weight Welfare Losses

Papers, 2000

Miscalculations of Monopoly and Oligopoly Welfare Losses with Linear Demand

Papers, 2000

This paper extends a model of symmetric oligopoly with linear demand and constant long-run margin... more

Complementary Monopoly and Welfare: Is Splitting Up So Bad?*

The Manchester School, 2006

We derive an original measure of dead-weight loss (DWL) in an m-sector complementary monopoly and... more We derive an original measure of dead-weight loss (DWL) in an m-sector complementary monopoly and show that with non-collusive pricing DWL may be seriously understated if demand complementarities are ignored, even when m is small. Since DWL generally increases with m and with less collusive pricing, separating monopoly into complementary monopoly (risking reduced price collusion) may be a bad static move. To illustrate, separating Microsoft into two non-collusive complementary monopolies may increase DWL from $4 billion to $7 billion (for 2002-3). However, we show that such a policy may be welfare improving with even relatively modest post-separation entry and Cournot quantity competition.

Miscalculations of monopoly and oligopoly welfare losses with linear demand

Papers, 2000

This paper extends a model of symmetric oligopoly with linear demand and constant long-run margin... more

Network regulation using an agent

ABSTRACT The general complexity of demand interrelationships including the co-existence of comple... more ABSTRACT The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.

Strategic Behavious of Firms in a Duopoly and the Impact of Extending the Patenting Period

On the incentives to increase input efficiency under monopoly trade unions

Review of Economic Analysis, May 22, 2012

ABSTRACT We examine the effects of and the incentives for increasing input efficiency within a sp... more ABSTRACT We examine the effects of and the incentives for increasing input efficiency within a spatially segregated Cournot duopoly with monopoly trade unions whose utility functions depend on both wages and employment. We show that with neoclassical as well as Leontief technology, unions raise wages to appropriate fully the gains from labor-saving technological (or organisational) improvements, leaving the firm with no incentive to invest in increasing the efficiency of workers. However, capital-saving technological improvement may be profitable depending on the elasticity of substitution. Finally, we examine the implication of a fixed minimum wage (or competitive labor market) in one country.

Measuring the balance of intra-regional migration

Http Dx Doi Org 10 1080 00036840500330532, Feb 2, 2007

ABSTRACT An original index is introduced for measuring the extent of the overall bilateral balanc... more ABSTRACT An original index is introduced for measuring the extent of the overall bilateral balance of migration among countries within a region which allows comparisons of the balance over time as well as between regions and various possible sub-regions. It is shown that having constructed the index it is also possible to establish a weighting of the contribution of each country to the overall degree of migration balance within a region. The new index is applied to three sub-groupings of the European Union (EU): (a) a mix of nine northern and southern EU15 countries; (b) seven northern EU15 countries; and, (c) four southern EU15 countries. It is shown that in each case migration in the 1990s was highly balanced and improving significantly over time. However, there was a substantial difference between the northern and southern countries with the former enjoying significantly higher overall balance in migration than the latter, although the rate of improvement in balance was much higher amongst the southern countries. Finally, whilst the UK and Portugal were persistently low contributors to the overall balance in EU migration, Germany&#39;s contribution was the highest.

Aspects of international labour mobility in southern EU countries

Airport Deregulation and Airline Competition

Liberalisation has affected all parts of the air travel industry, with airports as well as airlin... more Liberalisation has affected all parts of the air travel industry, with airports as well as airlines increasingly run on commercial lines. This paper models interactions between airports and airlines to show that, for example, the potential benefits to passengers of increased competition between airlines may be (more than) absorbed by the unregulated airports through which they travel, and that effecting airport competition in one country may lead to the majority of the gains going abroad. The policy conclusion is that the (de)regulation of airlines and associated services should be fully co-ordinated and internationally coherent.

Secrecy Versus Patents: Process Innovations and the Role of Uncertainty

Whilst firms often prefer secrecy to patents and process innovations particularly lend themselves... more Whilst firms often prefer secrecy to patents and process innovations particularly lend themselves to secrecy, we establish a rationale for process innovators who patent. Using a simple two-period model, we show that under myopic optimisation, the incentive to patent rather than pursue secrecy increases as the probability that the rival firm attaches to it being low-cost falls and as the proportion of the cost reduction due to the innovation, secured by the rival firm in the period after the patent has expired, falls. However, the gain to the innovating firm from patenting rather than secrecy strictly increases if the cost reduction due to the innovation is sufficiently small that the high-cost firm could profitably bluff that it is low-cost. Finally, allowing the low-cost firm the option of using an output signal in such cases, may make the patent strategy more or less attractive relative to the case of myopic optimisation.

An Elasticity Measure of Welfare Loss in Symmetric Oligopoly

We derive a measure of welfare loss as a proportion of the value of sales under quantity-setting ... more We derive a measure of welfare loss as a proportion of the value of sales under quantity-setting symmetric oligopoly in terms of the equilibrium industry price elasticity of demand, the number of firms in the industry and a conjectural variation term in the context of the standard linear model. This generalises the monopoly measure in James and McHardy (1997).

Firm corruption in the presence of an auditor

This paper develops a framework to explore firm corruption taking account of interaction with an ... more This paper develops a framework to explore firm corruption taking account of interaction with an auditor. The basic idea is that an auditor can provide auditing and other (consultancy) services. The extent of the other services depends on firm profitability. Hence auditor profitability can increase with firm corruption that may provide an incentive to collude in corrupt practices. This basic idea is developed using a game theoretic framework. It is shown that a multiplicity of equilibria exist from stable corruption, through auditor controlled corruption, via multiple equilibria to honesty on behalf of both actors. Following the development of the model various policy options are highlighted that show the difficulty of completely removing corrupt practices.

On the Economics of Integrated Ticketing

by Michael Reynolds and Jolian McHardy

In this paper we explore alternative pricing and regulatory strategies within a simple transport ... more In this paper we explore alternative pricing and regulatory strategies within a simple transport network with Cournot duopoly and differentiated demands. We show that whilst firms always prefer to offer integrated ticketing, a social planner will not. With integrated ticketing, the firms always prefer complete collusion but there is not a uniform ranking of some of the less collusive regimes. Society generally prefers the less collusive regimes to complete collusion but prefers some collusion to independent pricing.

Jolian McHardy, Michael Reynolds and Stephen Trotter

The general complexity of demand interrelationships including the co-existence of complements and... more The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.

SERP Number: 2005006

Employee trust and workplace performance

Journal of Economic Behavior & Organization, 2015

We explore the relationship between employee trust of managers and workplace performance. We pres... more We explore the relationship between employee trust of managers and workplace performance. We present a theoretical framework which serves to establish a link between employee trust and firm performance as well as to identify possible mechanisms through which the relationship may operate. We then analyse matched workplace and employee data in order to ascertain whether the average level of employee trust within the workplace influences workplace performance. We exploit the 2004 and 2011 Workplace Employment Relations Surveys (WERS) to analyse the role of average employee trust in influencing workplace performance in both pre and post recessionary periods. Our empirical findings support a positive relationship between three measures of workplace performance (financial performance, labour productivity and product or service quality) and average employee trust at both points in time. Moreover, this relationship holds when we jointly model average employee trust and firm performance in an instrumental variable framework in order to take into account the potential endogeneity of employee trust. We then exploit employee level data from the WERS to ascertain how individual level trust of the employee (rather than the average within the workplace) is influenced by measures taken by employers to deal with the recent recession. Our findings suggest that restricting paid overtime and access to training potentially erode employee trust. In addition, we find that job or work reorganisation experienced at either the employee or organisation level are associated with lower employee trust.

Network regulation using an agent

The general complexity of demand interrelationships including the co-existence of complements and... more The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.

On modelling the social interaction of couples

In this paper we contribute to the existing microeconomic literature on social interaction, which... more In this paper we contribute to the existing microeconomic literature on social interaction, which has generally focused on social interaction from an individual's perspective. Given that decisions regarding social interaction are often made within the context of a couple or family, we explore the potential interdependence between the social interaction of husbands and wives from both a theoretical and an empirical perspective. We develop a theoretical framework based on an extension of Becker (1974) to include factors which characterise aspects of a couple's decision-making in relation to social interaction and show that these factors support a tendency towards a positive correlation between the husband's and wife's levels of social interaction. Indeed, our empirical findings suggest such a positive association between the social interaction of husbands and wives as measured by active club membership and the frequency of the social interaction activities. In addition, we find that this positive association is particularly pronounced across the same types of club membership or social activities. We are grateful to the Data Archive at the University of Essex for supplying the British Household Panel Survey waves 1 to 18. We are very grateful to Andy Dickerson, Anita Ratcliffe and Jenny Roberts for excellent comments and advice. The normal disclaimer applies.

Interlocking directorships and patenting coordination

by Jolian McHardy, G. Efthyvoulou, and A. Navas

The aim of this paper is to investigate the role interlocking directorships play in the patenting... more The aim of this paper is to investigate the role interlocking directorships play in the patenting activities of UK companies and provide further insights into the channels through which this relationship emerges. Our empirical analysis produces three main results: first, interlocking leads to a higher number of successful patent applications; second, interlocked firms are more likely to cite each other's patents, especially around the moment of interlocking; and, third, interlocked companies tend to increase the technological similarity of their patent portfolio in the immediate period following their first interlock. To rationalise these results, we develop a theoretical model that identifies interlocking directorships as a practice that prevents property right conflicts that often arise between firms that are technologically close to each other. JEL classification: O31 O32 D85 G30 J49

${Aj, Ao, B, C1, C2, D, E, F} Proof to Lemma A First, that E (apr) > mp implies V > A, follows from straightforward manipula- tion of Eq. (9) and ap in Table 10] By hypothesis E(ay) > myx, hence by Lemma | in the case of both firms patenting, litigation ensues. Hence Table 8{a) is the relevant matrix for this game. Under the hypothesis of (i) E(mpy,) > mr. Given tz > E(mpz), it follows that this game has a unique asym- metric pure strategy Nash equilibria with both firms patenting and earning expected profit E(mpz). Under the hypothesis of (ii) E(mp_) < mp. Since tg > wp it follows that this game has a mixed strategy Nash equilibria. The expected profit for firm 7 playing patent with probability 7; is given by E(mlyi)) = uvyL (at) + uC -— y)te + 1 — u%)ar. Differentiating with respect to %, setting equal$

The Importance of Demand Complementarities in the Calculation of Dead-Weight Welfare Losses

Papers, 2000

Miscalculations of Monopoly and Oligopoly Welfare Losses with Linear Demand

Papers, 2000

This paper extends a model of symmetric oligopoly with linear demand and constant long-run margin... more

Complementary Monopoly and Welfare: Is Splitting Up So Bad?*

The Manchester School, 2006

We derive an original measure of dead-weight loss (DWL) in an m-sector complementary monopoly and... more We derive an original measure of dead-weight loss (DWL) in an m-sector complementary monopoly and show that with non-collusive pricing DWL may be seriously understated if demand complementarities are ignored, even when m is small. Since DWL generally increases with m and with less collusive pricing, separating monopoly into complementary monopoly (risking reduced price collusion) may be a bad static move. To illustrate, separating Microsoft into two non-collusive complementary monopolies may increase DWL from $4 billion to $7 billion (for 2002-3). However, we show that such a policy may be welfare improving with even relatively modest post-separation entry and Cournot quantity competition.

Miscalculations of monopoly and oligopoly welfare losses with linear demand

Papers, 2000

This paper extends a model of symmetric oligopoly with linear demand and constant long-run margin... more

Network regulation using an agent

ABSTRACT The general complexity of demand interrelationships including the co-existence of comple... more ABSTRACT The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.

Strategic Behavious of Firms in a Duopoly and the Impact of Extending the Patenting Period

On the incentives to increase input efficiency under monopoly trade unions

Review of Economic Analysis, May 22, 2012

ABSTRACT We examine the effects of and the incentives for increasing input efficiency within a sp... more ABSTRACT We examine the effects of and the incentives for increasing input efficiency within a spatially segregated Cournot duopoly with monopoly trade unions whose utility functions depend on both wages and employment. We show that with neoclassical as well as Leontief technology, unions raise wages to appropriate fully the gains from labor-saving technological (or organisational) improvements, leaving the firm with no incentive to invest in increasing the efficiency of workers. However, capital-saving technological improvement may be profitable depending on the elasticity of substitution. Finally, we examine the implication of a fixed minimum wage (or competitive labor market) in one country.

Measuring the balance of intra-regional migration

Http Dx Doi Org 10 1080 00036840500330532, Feb 2, 2007

ABSTRACT An original index is introduced for measuring the extent of the overall bilateral balanc... more ABSTRACT An original index is introduced for measuring the extent of the overall bilateral balance of migration among countries within a region which allows comparisons of the balance over time as well as between regions and various possible sub-regions. It is shown that having constructed the index it is also possible to establish a weighting of the contribution of each country to the overall degree of migration balance within a region. The new index is applied to three sub-groupings of the European Union (EU): (a) a mix of nine northern and southern EU15 countries; (b) seven northern EU15 countries; and, (c) four southern EU15 countries. It is shown that in each case migration in the 1990s was highly balanced and improving significantly over time. However, there was a substantial difference between the northern and southern countries with the former enjoying significantly higher overall balance in migration than the latter, although the rate of improvement in balance was much higher amongst the southern countries. Finally, whilst the UK and Portugal were persistently low contributors to the overall balance in EU migration, Germany&#39;s contribution was the highest.

Aspects of international labour mobility in southern EU countries

Airport Deregulation and Airline Competition

Liberalisation has affected all parts of the air travel industry, with airports as well as airlin... more Liberalisation has affected all parts of the air travel industry, with airports as well as airlines increasingly run on commercial lines. This paper models interactions between airports and airlines to show that, for example, the potential benefits to passengers of increased competition between airlines may be (more than) absorbed by the unregulated airports through which they travel, and that effecting airport competition in one country may lead to the majority of the gains going abroad. The policy conclusion is that the (de)regulation of airlines and associated services should be fully co-ordinated and internationally coherent.

Secrecy Versus Patents: Process Innovations and the Role of Uncertainty

Whilst firms often prefer secrecy to patents and process innovations particularly lend themselves... more Whilst firms often prefer secrecy to patents and process innovations particularly lend themselves to secrecy, we establish a rationale for process innovators who patent. Using a simple two-period model, we show that under myopic optimisation, the incentive to patent rather than pursue secrecy increases as the probability that the rival firm attaches to it being low-cost falls and as the proportion of the cost reduction due to the innovation, secured by the rival firm in the period after the patent has expired, falls. However, the gain to the innovating firm from patenting rather than secrecy strictly increases if the cost reduction due to the innovation is sufficiently small that the high-cost firm could profitably bluff that it is low-cost. Finally, allowing the low-cost firm the option of using an output signal in such cases, may make the patent strategy more or less attractive relative to the case of myopic optimisation.

An Elasticity Measure of Welfare Loss in Symmetric Oligopoly

We derive a measure of welfare loss as a proportion of the value of sales under quantity-setting ... more We derive a measure of welfare loss as a proportion of the value of sales under quantity-setting symmetric oligopoly in terms of the equilibrium industry price elasticity of demand, the number of firms in the industry and a conjectural variation term in the context of the standard linear model. This generalises the monopoly measure in James and McHardy (1997).

Firm corruption in the presence of an auditor

This paper develops a framework to explore firm corruption taking account of interaction with an ... more This paper develops a framework to explore firm corruption taking account of interaction with an auditor. The basic idea is that an auditor can provide auditing and other (consultancy) services. The extent of the other services depends on firm profitability. Hence auditor profitability can increase with firm corruption that may provide an incentive to collude in corrupt practices. This basic idea is developed using a game theoretic framework. It is shown that a multiplicity of equilibria exist from stable corruption, through auditor controlled corruption, via multiple equilibria to honesty on behalf of both actors. Following the development of the model various policy options are highlighted that show the difficulty of completely removing corrupt practices.

On the Economics of Integrated Ticketing

by Michael Reynolds and Jolian McHardy

In this paper we explore alternative pricing and regulatory strategies within a simple transport ... more In this paper we explore alternative pricing and regulatory strategies within a simple transport network with Cournot duopoly and differentiated demands. We show that whilst firms always prefer to offer integrated ticketing, a social planner will not. With integrated ticketing, the firms always prefer complete collusion but there is not a uniform ranking of some of the less collusive regimes. Society generally prefers the less collusive regimes to complete collusion but prefers some collusion to independent pricing.

Jolian McHardy, Michael Reynolds and Stephen Trotter

The general complexity of demand interrelationships including the co-existence of complements and... more The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.

SERP Number: 2005006

Employee trust and workplace performance

Journal of Economic Behavior & Organization, 2015

We explore the relationship between employee trust of managers and workplace performance. We pres... more We explore the relationship between employee trust of managers and workplace performance. We present a theoretical framework which serves to establish a link between employee trust and firm performance as well as to identify possible mechanisms through which the relationship may operate. We then analyse matched workplace and employee data in order to ascertain whether the average level of employee trust within the workplace influences workplace performance. We exploit the 2004 and 2011 Workplace Employment Relations Surveys (WERS) to analyse the role of average employee trust in influencing workplace performance in both pre and post recessionary periods. Our empirical findings support a positive relationship between three measures of workplace performance (financial performance, labour productivity and product or service quality) and average employee trust at both points in time. Moreover, this relationship holds when we jointly model average employee trust and firm performance in an instrumental variable framework in order to take into account the potential endogeneity of employee trust. We then exploit employee level data from the WERS to ascertain how individual level trust of the employee (rather than the average within the workplace) is influenced by measures taken by employers to deal with the recent recession. Our findings suggest that restricting paid overtime and access to training potentially erode employee trust. In addition, we find that job or work reorganisation experienced at either the employee or organisation level are associated with lower employee trust.

Network regulation using an agent

The general complexity of demand interrelationships including the co-existence of complements and... more The general complexity of demand interrelationships including the co-existence of complements and substitutes make traditional methods of regulating network industries problematic. Collusive pricing is preferred to independent pricing on complementary sections of a network whilst the reverse is true where goods/services are substitutes. However, the costs of market failure in the context of complementary goods, in particular, make appropriate regulatory involvement in such industries all the more important. In this paper, we explore alternative competitive and regulatory strategies within a simple theoretical network with differentiated demands. We show that the employment of an independent profit-maximising agent may offer a partial solution to the problem of network regulation, yielding outcomes which involve all parties pursuing their own interests yet being desirable to both firms and a welfare-maximising social planner.

On modelling the social interaction of couples

In this paper we contribute to the existing microeconomic literature on social interaction, which... more In this paper we contribute to the existing microeconomic literature on social interaction, which has generally focused on social interaction from an individual's perspective. Given that decisions regarding social interaction are often made within the context of a couple or family, we explore the potential interdependence between the social interaction of husbands and wives from both a theoretical and an empirical perspective. We develop a theoretical framework based on an extension of Becker (1974) to include factors which characterise aspects of a couple's decision-making in relation to social interaction and show that these factors support a tendency towards a positive correlation between the husband's and wife's levels of social interaction. Indeed, our empirical findings suggest such a positive association between the social interaction of husbands and wives as measured by active club membership and the frequency of the social interaction activities. In addition, we find that this positive association is particularly pronounced across the same types of club membership or social activities. We are grateful to the Data Archive at the University of Essex for supplying the British Household Panel Survey waves 1 to 18. We are very grateful to Andy Dickerson, Anita Ratcliffe and Jenny Roberts for excellent comments and advice. The normal disclaimer applies.

Interlocking directorships and patenting coordination

by Jolian McHardy, G. Efthyvoulou, and A. Navas

The aim of this paper is to investigate the role interlocking directorships play in the patenting... more The aim of this paper is to investigate the role interlocking directorships play in the patenting activities of UK companies and provide further insights into the channels through which this relationship emerges. Our empirical analysis produces three main results: first, interlocking leads to a higher number of successful patent applications; second, interlocked firms are more likely to cite each other's patents, especially around the moment of interlocking; and, third, interlocked companies tend to increase the technological similarity of their patent portfolio in the immediate period following their first interlock. To rationalise these results, we develop a theoretical model that identifies interlocking directorships as a practice that prevents property right conflicts that often arise between firms that are technologically close to each other. JEL classification: O31 O32 D85 G30 J49

${Aj, Ao, B, C1, C2, D, E, F} Proof to Lemma A First, that E (apr) > mp implies V > A, follows from straightforward manipula- tion of Eq. (9) and ap in Table 10] By hypothesis E(ay) > myx, hence by Lemma | in the case of both firms patenting, litigation ensues. Hence Table 8{a) is the relevant matrix for this game. Under the hypothesis of (i) E(mpy,) > mr. Given tz > E(mpz), it follows that this game has a unique asym- metric pure strategy Nash equilibria with both firms patenting and earning expected profit E(mpz). Under the hypothesis of (ii) E(mp_) < mp. Since tg > wp it follows that this game has a mixed strategy Nash equilibria. The expected profit for firm 7 playing patent with probability 7; is given by E(mlyi)) = uvyL (at) + uC -— y)te + 1 — u%)ar. Differentiating with respect to %, setting equal$