We show how an upstream firm by using a price-dependent profitsharing rule can prevent destructiv... more We show how an upstream firm by using a price-dependent profitsharing rule can prevent destructive competition between downstream firms that produce relatively close substitutes. With this rule the upstream firm induces the retailers to behave as if demand has become less price elastic. As a result, competing downstream firms will maximize aggregate total channel profit. When downstream firms are better informed about demand conditions than the upstream firm, the same outcome cannot be achieved by alternative vertical restraints such as resale price maintenance (RPM). Price-dependent profit-sharing may also ensure that the downstream firms undertake market expanding investments. The model is consistent with observations from the market for content commodities distributed by mobile networks.
This paper addresses the issue of national optimal tariffs for transportation of natural gas in a... more This paper addresses the issue of national optimal tariffs for transportation of natural gas in a setting where national gas production in its entirety is exported to end-user markets abroad. In a situation where the transportation network is owned altogether by a vertically integrated national gas producer, it is shown that the optimal tariff depends on the ownership structure in the integrated transportation company as well as in the non-facility based gas company. There are two reasons why it is possibly optimal with a markup on marginal transportation costs. First, there is a premium on public revenue if domestic taxation is distorting. Second, with incomplete national taxation of rents from the gas sector, the transportation tariffs can serve as a second best way of appropriating rents accruing to foreigners. In a situation where the network is run as a separate entity subject to a rate of return regulation, it will be optimal to discriminate the tariffs between shippers for the usual Ramseyean reasons.
Statnett fikk 2. juli 2010 konsesjon til å bygge en 420 kV kraftledning i luftspenn mellom Sima o... more Statnett fikk 2. juli 2010 konsesjon til å bygge en 420 kV kraftledning i luftspenn mellom Sima og Samnanger. På bakgrunn av sterke ønsker om en ny vurdering av sjøkabelalternativet på deler av strekningen, besluttet regjeringen i august 2010 at det skulle fortas en ny og uavhengig gjennomgang av dette alternativet. Utvalg IVs mandat var å se på de samfunnsøkonomiske virkningene av sjøkabelalternativer og sammenligne disse med virkningene ved det konsesjonsgitte luftalternativet. Utvalgets konklusjon var at sjøkabelalternativet og det konsesjonsgitte luftlinjealternativet er likeverdige med hensyn til forsyningssikkerhet. Sjøkabelalternativer med følgevirkninger kan ha en merkostnad for investeringer som utvalget anslår til rundt 30 milliarder kroner. Luftlinjealternativet innebærer på sin side betydelige naturinngrep
Trykk: Allkopi Bergen Samfunnsog naeringslivsforskning AS Centre for Applied Research at NHH Denn... more Trykk: Allkopi Bergen Samfunnsog naeringslivsforskning AS Centre for Applied Research at NHH Denne rapporten drofter mernytte i form av okt produktivitet som folge av transportinvesteringer som bidrar til okt lokal konkurranse og storre og tettere arbeidsmarkeder. Rapporten tar utgangspunkt i utenlandske studier som finner klare sammenhenger mellom produktivitet og grad av agglomerasjon i arbeidsmarkedet og drofter i hvilken grad disse er overforbare til norske forhold.
Denne rapporten handler om hvordan miljovirkninger av store investeringsprosjekter, negative elle... more Denne rapporten handler om hvordan miljovirkninger av store investeringsprosjekter, negative eller positive, kan hensyntas i vurderingen av den samfunnsokonomiske lonnsomheten av disse. Studien gir en sammenfatning av prinsipielle problemstillinger og erfaringer fra ulike tilnaerminger i andre land. Den er den forste av en serie av studier pa dette omradet
Making Essential Choices with Scant Information, 2009
This chapter deals with project profitability to society and how it is related to market-based co... more This chapter deals with project profitability to society and how it is related to market-based commercial profitability. The first part discusses the sources of divergence between profitability to private companies and to society as a whole, and how commercial assessments can be modified in order to find the social surplus. The second part deals with the role of information and risk for project assessments. It shows how the social cost of risk-bearing can be derived from the pricing of risk in private risk markets. The value of choosing flexible project concepts in order to adapt to new information about important risk factors is demonstrated in various contexts. 2. From theory to analysis and decision. Assessing the social profitability of a given project requires an overview with respect to what the project will generate in terms of services, necessary input of production factors, and the value of the services and cost of factor inputs. The valuation of output that is intended for domestic end users should be based on consumers' willingness to pay. The cost of factor inputs from domestic sources should be based on the factors' marginal value product in the most profitable alternative use. Consequently, the opportunity cost is positive if, and only if, the actual input has an alternative use in the short or longer term. Hence, the concept of social profits implies that the project will generate a positive social surplus if, and only if, it yields a larger contribution to the national value added than the input of resources would have generated in the best alternative use. Essentially the valuation problem boils down to whether market prices can be used for assessing social profitability. There are, however, several factors that complicate the connection between social opportunity costs and market prices: Lacking markets. Market-determined values and profits as guidelines for social values and surpluses require that all scarce goods and resources in the economy are bought and sold in well-functioning markets, so that social utilities and costs of a project are fully internalized in private profitability assessments. The market system, is however, generally incomplete, in the sense that markets for some goods and inputs are lacking. One important reason for lacking markets is due to goods for which it is difficult to enforce exclusive property rights. Hence, the use or consumption of such goods cannot be individualised. If enforcement of exclusive rights to such goods is not possible, it will be difficult to collect the willingness to pay as revenue in the market. Prime examples are national defence, and services related to law and order. Such services are called collective goods as they have to be consumed collectively. Another example is recreational areas to which everyone has free access. Beyond the confinement of national boundaries there are globally collective goods, such as the ozone layer and world climate. For such globally collective goods, enforceable national property rights are neither possible nor desirable.
Throughout Western Europe the 1990s have witnessed an intensified public debate on the future of ... more Throughout Western Europe the 1990s have witnessed an intensified public debate on the future of the welfare state. The debate has been particularly vivid in Scandinavia and has been stimulated in part by the recent economic crisis in Sweden, a country which has been widely regarded as the world’s most advanced welfare state.
Summary This paper deals with an economy where firms can vary the quality design of their product... more Summary This paper deals with an economy where firms can vary the quality design of their products. By postulating that consumers have preference orderings over quality characteristics, Pareto optimal rules for production, distribution and quality design are derived. We then examine the price implications of a Pareto optimal range of quality designs and it is shown that, in general, commodity prices will not provide profit maximizing firms with the correct information for Paretooptimal choices of quality design.
... But an alternative for a country seeking a high tax level would be to resort to the origin pr... more ... But an alternative for a country seeking a high tax level would be to resort to the origin principle, and tax the ... Taxation and public expenditure in an open economy 301 ... This is a topic which has not yet found its way into the standard expositions of the theory of public finance.7 ...
Summary In this paper we discuss the problem of determining an optimal dividend policy for a comp... more Summary In this paper we discuss the problem of determining an optimal dividend policy for a company having a set of shareholders with specified preferences. The yield opportunities on the capital invested in the company are stylized in that we assume that the company can only invest in two capital assets: one with a stochastic rate of return and one with a secure rate of return. We then discuss how the optimal dividend policy depends on the secure rate of return and on the riskiness of the random rate of return. Finally, the horizon effects on the optimal policies are discussed. In this paper we shall study the problem of determining an optimal dividend policy for a company with a random rate of return on investments and having a set of shareholders with specified preferences. By a dividend policy we shall understand a rule which completely determines the payments to be made to the holders of the company's common stock at any point in time. An optimal policy will consequently mean a dividend payment rule which maximizes some utility criterion as defined by the shareholders' preferences. The crux of the dividend problem is obviously how to represent the shareholders' preferences by a collective utility function representing the constituent individual preferences in a consistent manner. However, we shall circumvent the problems involved in collective choice and group decision-making by assuming that the shareholders' individual utility functions are identical. This assumption may not be so strong as it looks like at a first glance, as the shareholders who do not agree with the company's policy, can sell their shares and buy shares in other companies pursuing a policy that corresponds better to their individual preferences.
A market economy allocates too little resources to an industry with increasing returns to scale s... more A market economy allocates too little resources to an industry with increasing returns to scale such as an agglomerated cluster. A subsidy to the cluster is therefore welfare improving. But often the government does not know which industries have increasing returns to scale. The problem is to identify the true clusters from the ordinary industries. This paper attempts to shed some light on the problem of industrial policy and industrial clusters when there is asymmetric information between the government and the industry. We show that a subsidy contingent of a certain activity level will create a separating equilibrium.
According to the new European telecom regulation, incumbent operators are required to provide acc... more According to the new European telecom regulation, incumbent operators are required to provide access to such bottlenecks on fair, reasonable and non-discriminatory terms. We explore different interpretations of this general rule in a model in which the bottleneck can be used by external (to the bottleneck firm) as well as internal service providers, and also derive some properties of the solution to the bottleneck owner’s maximization problem as well as that of a welfare-maximizing regulator. In particular, we derive an ECPR rule that also corrects for synergies. Next, by imposing certain symmetry requirements we establish a benchmark in which the external service provider is a competitive fringe and internal and external end-users face identical prices and buy identical quantities of the two services. This, we argue, can be dubbed a non-discrimination benchmark. We then show that introducing certain synergies makes the bottleneck want to favour external supply, while making the fri...
We show how an upstream firm by using a price-dependent profitsharing rule can prevent destructiv... more We show how an upstream firm by using a price-dependent profitsharing rule can prevent destructive competition between downstream firms that produce relatively close substitutes. With this rule the upstream firm induces the retailers to behave as if demand has become less price elastic. As a result, competing downstream firms will maximize aggregate total channel profit. When downstream firms are better informed about demand conditions than the upstream firm, the same outcome cannot be achieved by alternative vertical restraints such as resale price maintenance (RPM). Price-dependent profit-sharing may also ensure that the downstream firms undertake market expanding investments. The model is consistent with observations from the market for content commodities distributed by mobile networks.
This paper addresses the issue of national optimal tariffs for transportation of natural gas in a... more This paper addresses the issue of national optimal tariffs for transportation of natural gas in a setting where national gas production in its entirety is exported to end-user markets abroad. In a situation where the transportation network is owned altogether by a vertically integrated national gas producer, it is shown that the optimal tariff depends on the ownership structure in the integrated transportation company as well as in the non-facility based gas company. There are two reasons why it is possibly optimal with a markup on marginal transportation costs. First, there is a premium on public revenue if domestic taxation is distorting. Second, with incomplete national taxation of rents from the gas sector, the transportation tariffs can serve as a second best way of appropriating rents accruing to foreigners. In a situation where the network is run as a separate entity subject to a rate of return regulation, it will be optimal to discriminate the tariffs between shippers for the usual Ramseyean reasons.
Statnett fikk 2. juli 2010 konsesjon til å bygge en 420 kV kraftledning i luftspenn mellom Sima o... more Statnett fikk 2. juli 2010 konsesjon til å bygge en 420 kV kraftledning i luftspenn mellom Sima og Samnanger. På bakgrunn av sterke ønsker om en ny vurdering av sjøkabelalternativet på deler av strekningen, besluttet regjeringen i august 2010 at det skulle fortas en ny og uavhengig gjennomgang av dette alternativet. Utvalg IVs mandat var å se på de samfunnsøkonomiske virkningene av sjøkabelalternativer og sammenligne disse med virkningene ved det konsesjonsgitte luftalternativet. Utvalgets konklusjon var at sjøkabelalternativet og det konsesjonsgitte luftlinjealternativet er likeverdige med hensyn til forsyningssikkerhet. Sjøkabelalternativer med følgevirkninger kan ha en merkostnad for investeringer som utvalget anslår til rundt 30 milliarder kroner. Luftlinjealternativet innebærer på sin side betydelige naturinngrep
Trykk: Allkopi Bergen Samfunnsog naeringslivsforskning AS Centre for Applied Research at NHH Denn... more Trykk: Allkopi Bergen Samfunnsog naeringslivsforskning AS Centre for Applied Research at NHH Denne rapporten drofter mernytte i form av okt produktivitet som folge av transportinvesteringer som bidrar til okt lokal konkurranse og storre og tettere arbeidsmarkeder. Rapporten tar utgangspunkt i utenlandske studier som finner klare sammenhenger mellom produktivitet og grad av agglomerasjon i arbeidsmarkedet og drofter i hvilken grad disse er overforbare til norske forhold.
Denne rapporten handler om hvordan miljovirkninger av store investeringsprosjekter, negative elle... more Denne rapporten handler om hvordan miljovirkninger av store investeringsprosjekter, negative eller positive, kan hensyntas i vurderingen av den samfunnsokonomiske lonnsomheten av disse. Studien gir en sammenfatning av prinsipielle problemstillinger og erfaringer fra ulike tilnaerminger i andre land. Den er den forste av en serie av studier pa dette omradet
Making Essential Choices with Scant Information, 2009
This chapter deals with project profitability to society and how it is related to market-based co... more This chapter deals with project profitability to society and how it is related to market-based commercial profitability. The first part discusses the sources of divergence between profitability to private companies and to society as a whole, and how commercial assessments can be modified in order to find the social surplus. The second part deals with the role of information and risk for project assessments. It shows how the social cost of risk-bearing can be derived from the pricing of risk in private risk markets. The value of choosing flexible project concepts in order to adapt to new information about important risk factors is demonstrated in various contexts. 2. From theory to analysis and decision. Assessing the social profitability of a given project requires an overview with respect to what the project will generate in terms of services, necessary input of production factors, and the value of the services and cost of factor inputs. The valuation of output that is intended for domestic end users should be based on consumers' willingness to pay. The cost of factor inputs from domestic sources should be based on the factors' marginal value product in the most profitable alternative use. Consequently, the opportunity cost is positive if, and only if, the actual input has an alternative use in the short or longer term. Hence, the concept of social profits implies that the project will generate a positive social surplus if, and only if, it yields a larger contribution to the national value added than the input of resources would have generated in the best alternative use. Essentially the valuation problem boils down to whether market prices can be used for assessing social profitability. There are, however, several factors that complicate the connection between social opportunity costs and market prices: Lacking markets. Market-determined values and profits as guidelines for social values and surpluses require that all scarce goods and resources in the economy are bought and sold in well-functioning markets, so that social utilities and costs of a project are fully internalized in private profitability assessments. The market system, is however, generally incomplete, in the sense that markets for some goods and inputs are lacking. One important reason for lacking markets is due to goods for which it is difficult to enforce exclusive property rights. Hence, the use or consumption of such goods cannot be individualised. If enforcement of exclusive rights to such goods is not possible, it will be difficult to collect the willingness to pay as revenue in the market. Prime examples are national defence, and services related to law and order. Such services are called collective goods as they have to be consumed collectively. Another example is recreational areas to which everyone has free access. Beyond the confinement of national boundaries there are globally collective goods, such as the ozone layer and world climate. For such globally collective goods, enforceable national property rights are neither possible nor desirable.
Throughout Western Europe the 1990s have witnessed an intensified public debate on the future of ... more Throughout Western Europe the 1990s have witnessed an intensified public debate on the future of the welfare state. The debate has been particularly vivid in Scandinavia and has been stimulated in part by the recent economic crisis in Sweden, a country which has been widely regarded as the world’s most advanced welfare state.
Summary This paper deals with an economy where firms can vary the quality design of their product... more Summary This paper deals with an economy where firms can vary the quality design of their products. By postulating that consumers have preference orderings over quality characteristics, Pareto optimal rules for production, distribution and quality design are derived. We then examine the price implications of a Pareto optimal range of quality designs and it is shown that, in general, commodity prices will not provide profit maximizing firms with the correct information for Paretooptimal choices of quality design.
... But an alternative for a country seeking a high tax level would be to resort to the origin pr... more ... But an alternative for a country seeking a high tax level would be to resort to the origin principle, and tax the ... Taxation and public expenditure in an open economy 301 ... This is a topic which has not yet found its way into the standard expositions of the theory of public finance.7 ...
Summary In this paper we discuss the problem of determining an optimal dividend policy for a comp... more Summary In this paper we discuss the problem of determining an optimal dividend policy for a company having a set of shareholders with specified preferences. The yield opportunities on the capital invested in the company are stylized in that we assume that the company can only invest in two capital assets: one with a stochastic rate of return and one with a secure rate of return. We then discuss how the optimal dividend policy depends on the secure rate of return and on the riskiness of the random rate of return. Finally, the horizon effects on the optimal policies are discussed. In this paper we shall study the problem of determining an optimal dividend policy for a company with a random rate of return on investments and having a set of shareholders with specified preferences. By a dividend policy we shall understand a rule which completely determines the payments to be made to the holders of the company's common stock at any point in time. An optimal policy will consequently mean a dividend payment rule which maximizes some utility criterion as defined by the shareholders' preferences. The crux of the dividend problem is obviously how to represent the shareholders' preferences by a collective utility function representing the constituent individual preferences in a consistent manner. However, we shall circumvent the problems involved in collective choice and group decision-making by assuming that the shareholders' individual utility functions are identical. This assumption may not be so strong as it looks like at a first glance, as the shareholders who do not agree with the company's policy, can sell their shares and buy shares in other companies pursuing a policy that corresponds better to their individual preferences.
A market economy allocates too little resources to an industry with increasing returns to scale s... more A market economy allocates too little resources to an industry with increasing returns to scale such as an agglomerated cluster. A subsidy to the cluster is therefore welfare improving. But often the government does not know which industries have increasing returns to scale. The problem is to identify the true clusters from the ordinary industries. This paper attempts to shed some light on the problem of industrial policy and industrial clusters when there is asymmetric information between the government and the industry. We show that a subsidy contingent of a certain activity level will create a separating equilibrium.
According to the new European telecom regulation, incumbent operators are required to provide acc... more According to the new European telecom regulation, incumbent operators are required to provide access to such bottlenecks on fair, reasonable and non-discriminatory terms. We explore different interpretations of this general rule in a model in which the bottleneck can be used by external (to the bottleneck firm) as well as internal service providers, and also derive some properties of the solution to the bottleneck owner’s maximization problem as well as that of a welfare-maximizing regulator. In particular, we derive an ECPR rule that also corrects for synergies. Next, by imposing certain symmetry requirements we establish a benchmark in which the external service provider is a competitive fringe and internal and external end-users face identical prices and buy identical quantities of the two services. This, we argue, can be dubbed a non-discrimination benchmark. We then show that introducing certain synergies makes the bottleneck want to favour external supply, while making the fri...
Uploads
Papers by Kåre Hagen