Showing papers by "Hal R. Varian published in 1989"
Posted Content•
TL;DR: The principal-agent literature typically assumes that principals are unable to observe the characteristics or the actions of the agents whom they monitor as mentioned in this paper, and the inability of the principal to observe characteristics or actions leads to complications in the design of incentive schemes.
Abstract: The principal-agent literature typically assumes that principals are unable to observe the characteristics or the actions of the agents whom they monitor. The inability of the principal to observe characteristics or actions leads to complications in the design of incentive schemes. For surveys of this literature, see Hart and Holmstrom [1987] and Rees [1985 a], [1985 b]. However, in reality, it is often not the case that agents' characteristics or effort levels are really unobservable; rather, they simply may be very costly to observe. One may choose to model high-costs actions as being infeasible actions, but in doing so, one may miss some interesting phenomena. In particular, simply because information is costly to the principal doesn't mean that it is costly to everyone. It may happen that the agents themselves are in good positions to monitor or advise each other.
607 citations
TL;DR: The standard models of financial markets such as the Sharpe-Lintner mean-variance model or the Rubinstein-Breeden-Litzenberger contingent consumption model both assume more-or-less homogenous probability beliefs as discussed by the authors.
Abstract: The standard models of financial markets such as the Sharpe-Lintner mean-variance model or the Rubinstein-Breeden-Litzenberger contingent consumption model both assume more-or-less homogenous probability beliefs.1 There has been some work on extending the mean-variance model to allow for differences in beliefs across agents; see Jarrow (1980), Lintner (1969), Mayshar (1983), and Williams (1977). Differences in beliefs in contingent commodities models have received much less attention. The major references are Rubinstein (1975, 1976a), Breeden and Litzenberger (1978), Hakansson et al. (1982), and Milgrom and Stokey (1982).
271 citations
TL;DR: In this paper, the authors present a survey of some of the insights offered by the economic theory of price discrimination, including the computational costs involved in using complex price discrimination and the welfare consequences of this sort of discrimination.
Abstract: 4. Summary As we indicated at the beginning of this chapter, price discrimination is a ubiquitous phenomenon. Nearly all firms with market power attempt to engage in some type of price discrimination. Thus, the analysis of the forms that price discrimination can take and the effects of price discrimination on economic welfare are a very important aspect of the study of industrial organization. In this survey we have seen some of the insights offered by the economic theory of price discrimination. However, much work remains to be done. For example, the study of marketing behavior at the retail level is still in its infancy. Retail firms use a variety of marketing devices — sales, coupons, matching offers, price promotions, and so on — that apparently enhance sales. The marketing literature has examined individual firm choices of such promotional tools. But what is the ultimate effect of such promotions on the structure and performance of market equilibrium? What kinds of marketing devices serve to enhance economic welfare and what kinds represent deadweight loss? One particularly interesting set of questions in this area that has received little attention concerns the computational costs involved in using complex forms of price discrimination. In the post-deregulation airline industry of the United States, airlines have taken to using very involved pricing schemes. Finding the most inexpensive feasible fight may involve a considerable expenditure of time and effort. What are the welfare consequences of this sort of price discrimination? Do firms appropriately take into account the computational externality imposed on their customers? Even in more prosaic case of public utilities, pricing schedules have become so complex that households often make the “wrong” choice of telephone service or electricity use. Questions of simplicity and ease-of-use have not hitherto played a role in the positive and normative analysis of price discrimination. Perhaps this will serve as a fruitful area of investigation in future studies of price discrimination.
205 citations
TL;DR: In this article, the authors examine a CAPM model of world security prices in which governments recognize their ability to influence international security prices via their tax treatment of foreign and domestic investors, and they have the incentive to set tax rates such that investors tend to specialize in domestic securities, and to restrict net capital flows between countries.
74 citations
TL;DR: In this paper, the authors examined a simple model of rent seeking behavior in order to determine the correct way to measure welfare loss due to rent seeking, using a general equilibrium version of the standard partial equilibrium consumers' surplus cost-benefit setup.
Abstract: I examine a simple model of rent seeking behavior in order to determine the correct way to measure welfare loss due to rent seeking. I conduct this analysis using a general equilibrium version of the standard partial equilibrium consumers' surplus cost-benefit setup. I conclude that the ordinary tools of cost-benefit analysis, such as consumers' and producers' surplus, are up to the task of measuring the deadweight loss due to rent seeking, as long as they are applied in the proper general equilibrium context.
50 citations
Posted Content•
TL;DR: It is argued that a more fruitful approach to testing optimizing behavior is to measure the departure from optimization using the estimated objective function, and see whether this departure is significant in an economic sense.
14 citations