The 2008 crash has left all the established economic doctrines - equilibrium models, real business cycles, disequilibria models - in disarray. Part of the problem is due to Smith’s "veil of ignorance": individuals unknowingly pursue society’s interest and, as a result, have no clue as to the macroeconomic effects of their actions: witness the Keynes and Leontief multipliers, the concept of value added, fiat money, Engel’s law and technical progress, to name but a few of the macrofoundations of microeconomics. A good viewpoint to take bearings anew lies in comparing the post-Great Depression institutions with those emerging from Thatcher and Reagan’s economic policies: deregulation, exogenous vs. endoge- nous money, shadow banking vs. Volcker’s Rule. Very simply, the banks, whose lending determined deposits after Roosevelt, and were a public service became private enterprises whose deposits determine lending. These underlay the great moderation preceding 2006, and the subsequent crash.

The Economic Institutions of Capitalism

This essay reviews progress in empirical economics since Leamer's (1983) critique. Leamer highlighted the benefits of sensitivity analysis, a procedure in which researchers show how their results change with changes in specification or functional form. Sensitivity analysis has had a salutary but not a revolutionary effect on econometric practice. As we see it, the credibility revolution in empirical work can be traced to the rise of a design-based approach that emphasizes the identification of causal effects. Design-based studies typically feature either real or natural experiments and are distinguished by their prima facie credibility and by the attention investigators devote to making the case for a causal interpretation of the findings their designs generate. Design-based studies are most often found in the microeconomic fields of Development, Education, Environment, Labor, Health, and Public Finance, but are still rare in Industrial Organization and Macroeconomics. We explain why IO and Macro would do well to embrace a design-based approach. Finally, we respond to the charge that the design-based revolution has overreached.

The Credibility Revolution in Empirical Economics: How Better Research Design is Taking the Con out of Econometrics

This programming manual accompanies the PcGive Professional 9.0 software, an interactive modelling package for modelling statistical and economic data for forecasting or observing trends.

Object-orientd matrix programming using OX

The recent financial crisis has led many to question how well businesses deliver services and how well regulatory institutions address problems in consumer financial markets. This paper discusses consumer financial regulation, emphasizing the full range of arguments for regulation that derive from market failure and from limited consumer rationality in financial decision making. We present three case studies--of mortgage markets, payday lending, and financing retirement consumption--to illustrate the need for, and limits of, regulation. We argue that if regulation is to be beneficial, it must be tailored to specific problems and must be accompanied by research to measure the effectiveness of regulatory interventions.

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Consumer Financial Protection.

Many firms have adopted outsourcing in recent years as a means of governing their information technology (IT) operations. While outsourcing is associated with significant benefits, it can also be a risky endeavour. This paper proposes a scenario-based conceptualization of the IT outsourcing risk, wherein risk is defined as a quadruplet comprising a scenario, the likelihood of that scenario, its consequences and the risk mitigation mechanisms that can attenuate or help avoid the occurrence of a scenario. This definition draws on and extends a risk assessment framework that is widely used in engineering. The proposed conceptualization of risk is then applied to the specific context of IT outsourcing using previous research on IT outsourcing as well as transaction cost and agency theory as a point of departure.

https://link.springer.com/content/pdf/10.1080%2F0268396032000130214.pdf

The Information Technology Outsourcing Risk: A Transaction Cost and Agency Theory-Based Perspective

This paper studies an empirical model of spatial competition applied to gasoline markets. The main feature is to specify commuting paths as the "locations" of consumers in a Hotelling-style model. As a result, spatial differentiation depends in an intuitive way on the structure of the road network and the direction of traffic flows. The model is estimated using panel data on the Quebec City gasoline market and used to evaluate the consequences of a recent vertical merger. Difference-in-difference and counterfactual simulation methods are compared, and the results, to a large extent, validate the assumptions of the demand model. (JEL G34, L13, L42, L81, Q41, R41)

Spatial Differentiation and Vertical Mergers in Retail Markets for Gasoline

We point out a fundamental difficulty of successfully colluding in retail markets with heterogeneous firms, and characterize the mechanism recent gasoline cartels in Canada used to sustain collusion. Heterogeneity in cost and network size necessitates arrangements whereby participants split the market unequally to favor stronger players. We characterize empirically the strategy and transfer mechanism using court documents containing summaries and extracts of conversations between participants. The mechanism implements transfers based on adjustment delays during price changes. We estimate that these delays can translate into substantial transfers and provide examples in which they can substantially reduce deviation frequency. (JEL K21, L12, L71, L81) C ollusion is prevalent in many retail markets, with a large number of cases prosecuted each year by antitrust authorities. 1 In most of these markets, collusion should be difficult since they feature a large number of asymmetric firms and price-sensitive consumers. In this paper, we describe in detail the difficulties of successfully colluding in price-posting retail markets with heterogeneous firms, and characterize the strategies that recently discovered gasoline cartels used to resolve these difficulties and sustain a collusive agreement. Even in markets like gasoline, where firms sell a homogeneous product, impor tant asymmetries can exist. Networks of stations offering complementary goods and services compete with independently owned stores primarily selling gasoline. Stores also differ in storage capacities and vertical arrangements, which lead to heterogenous costs due to volume discounts and long-term contracts. When organizing a cartel, the presence of stronger players leads to enforcement and agreement problems: low-cost and/or single-station firms have greater incentive to deviate to

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Collusion with Asymmetric Retailers: Evidence from a Gasoline Price-Fixing Case

This paper studies an empirical model of spatial competition and evaluates the impact of vertical relations on prices and consumer welfare. The main feature of my approach is to specify commuting paths as the "locations" of consumers in a Hotelling-style model. As a result spatial diﬀerentation depends in an intuitive way on the structure of the road network and the direction of traﬃc ﬂows. The model is estimated using panel data on the Quebec City gasoline market, and used to quantify markups and simulate two important counter-factual policies: elimination of vertical integration, and wholesale price discrimination ban.

Spatial Differentiation and Vertical Contracts in Retail Markets for Gasoline

We study the estimation of substitution patterns within the discrete choice framework developed by Berry (1994) and Berry, Levinsohn, and Pakes (1995). Our objective is to demonstrate the consequences of using weak instruments in this non-linear GMM context, and propose a new class of instruments that are designed to avoid weak IV and can be used to estimate a large family of models with aggregate data. We argue that strong instruments should reﬂect the (exogenous) degree of diﬀerentiation of each product in a market (Diﬀerentiation IVs), and provide a series of examples to illustrate the performance of simple instrument functions.

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Measuring Substitution Patterns in Differentiated Products Industries

We study the collapse of collusion in Quebec's retail gasoline market following a Competition Bureau investigation, and show that it involved two empirical regularities: high margins, and asymmetric price adjustments. Using weekly, station-level prices we test whether collusion was successful, and whether asymmetric adjustments were part of the cartel's strategy. We do so in the markets targeted by the investigation, and in markets throughout the province with similar pre-collapse pricing (cyclical markets). Our results suggest that stations in both target and cyclical markets adjusted pricing following the announcement: margins fell (by 30%/15% in target/cyclical markets), and adjustments became more symmetric.

/pdf/the-effect-of-explicit-communication-on-pricing-evidence-1syxoxnlbx.pdf

Jean-François Houde

Papers

Spatial Differentiation and Vertical Mergers in Retail Markets for Gasoline

Collusion with Asymmetric Retailers: Evidence from a Gasoline Price-Fixing Case

Spatial Differentiation and Vertical Contracts in Retail Markets for Gasoline

Measuring Substitution Patterns in Differentiated Products Industries

The Effect of Explicit Communication on pricing: Evidence from the Collapse of a Gasoline Cartel