Showing papers by "Jean Tirole published in 2000"

The Simple Economics of Open Source

Abstract: There has been a recent surge of interest in open source software development, which involves developers at many different locations and organizations sharing code to develop and refine programs. To an economist, the behavior of individual programmers and commercial companies engaged in open source projects is initially startling. This paper makes a preliminary exploration of the economics of open source software. We highlight the extent to which labor economics, especially the literature on 'career concerns', and industrial organization theory can explain many of these projects' features. We conclude by listing interesting research questions related to open source software.

Customer Poaching and Brand Switching

Abstract: Firms sometimes try to "poach" the customers of their competitors by offering them inducements to switch. We analyze duopoly poaching under both short-term and long-term contracts assuming either that each consumer's brand preferences are fixed over time or that preferences are independent over time. With fixed preferences, short-term contracts lead to poaching and socially inefficient switching. The equilibrium with long-term contracts has less switching than when only short-term contracts are feasible, and it involves the sale of both short-term and long-term contracts. With independent preferences, short-term contracts are efficient, but long-term contracts lead to inefficiently little switching.

Transmission rights and market power on electric power networks

Abstract: We analyze whether and how the allocation of transmission rights associated with the use of electric power networks affects the behavior of electricity generators and consumers with market power. We also examine how the allocation of transmission rights is affected by the microstructure of the markets for these rights. Both financial and physical transmission rights are considered. The analysis focuses on a two-node network where there are cheap generating supplies in an exporting region and expensive generating supplies in an importing region. Extensions to a network with loop flow are developed. Regulatory mechanisms for detecting and mitigating the market-powerenhancing effects of transmission rights holdings are discussed. n There has been considerable controversy over whether competitive electricity systems should be organized around bid-based pools with financial transmission rights or bilateral contracting systems organized with tradeable physical transmission rights (Joskow, 1996). We focus here on one set of issues that have arisen in this controversy. We analyze whether and how the allocation of transmission rights associated with the use of an electric power network affects the behavior of electricity generators and purchasers that have market power. We examine the similarities and differences in this regard between financial and physical rights and compare the welfare properties of each. We also examine how transmission-rights markets with different microstructures allocate rights among generators and consumers and determine rights prices, and we demonstrate that the allocation of rights through the market is endogenous. Our analysis is limited to these issues, and it is not our objective to discuss here the full set of reasons why a physical rights mechanism might be preferred to a financial rights mechanism or vice versa.

Liquidity and Risk Management

Abstract: Firms and financial institutions are best viewed as ongoing entities, whose project completion may require renewed injections of liquidity. This paper proposes a contract-theoretic framework integrating three dimensions of corporate financing and prudential regulation: (a) liquidity management, (b) risk management, and (c) capital structure. It concludes with a preliminary assessment of recent regulatory approaches to the treatment of market risk.

Lapm: A Liquidity-Based Asset Pricing Model

Abstract: The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consumer's intertemporal marginal rate of substitution. This paper develops an alternative approach to assest pricing based on corporations' desire to hoard liquidity. Our corporate finance approach suggests new determinants of asset prices such as the distribution of wealth within the corporate sector and between the corporate sector and the consumers. Also, leverage ratios, capital adequacy requirements, and the composition of savings affect the corporate demand for liquid assets and therby interest rates. This paper first sets up a general model of corporate demand for liquid assets, and obtains an explicit formula for the associated liquidity permia. It then derives some implications of corporate liquidity demand for the equity premium puzzle, for the yield curve, and for the state-contingent volatility of asset prices.

Self-Confidence and Social Interactions

Abstract: This paper studies the interactions between an individual self-steem and his social environment, whether in the workplace, at school, or in personal relationships A person generally has only imperfect knowledge of his own ability (or long-term pay) in pursuing a task, and will undertake it only if he has succinct self-confidence People who interact with him (parent, spouse, friend, teacher, manager, colleague, etc) often have complementary information about his ability, but also a vested interest in his completing the task This generates an incentive for such principals to distort their signals so as to manipulate the agent?s self-confidence We first study situations where an informed principal chooses an incentive structure, such as offering payments or rewards, delegating a task, or simply giving encouragement We show that rewards may be weak reinforcers in the short term and that, as stressed by psychologists, they may have hidden costs in that they become negative reinforcers once withdrawn By offering a low?powered incentive scheme, the principal signals that she trusts the agent Conversely, rewards (extrinsic motivation) have a limited impact on the agent?s current performance, and reduce his intrinsic motivation to undertake similar tasks in the future Similarly, empowering the agent is likely to increase his motivation and effort, while offers of help or assistance may create dependence More generally, we identify under which conditions the hidden costs of rewards are a myth or a reality We then consider the fact that people often criticize or downplay the achievements of their spouse, child, colleague, coauthor, subordinate or teammate We formalize such situations of ego?bashing, and argue that they may reflect battles for dominance By lowering the other?s ego, an individual may gain (or regain) real authority within the relationship Finally, we turn to the case where it is the agent who has superior information, and may attempt to signal it through a variety of self?presentation strategies In particular, people with low self?esteem often deprecate their own accomplishments in order to obtain leniency (a lowering of expectancies) or a ?helping hand?on various obligations Such strategies are costly: they are met with disapproval, and may back?re if the desired indulgence is denied We analyze this signaling game, and characterize the levels of self?esteem that give rise to self?deprecation

Customer Poaching and Brand Switching

Abstract: Firms sometimes try to "poach" the customers of their competitors by offering them inducements to switch. We analyze duopoly poaching under both short-term and long-term contracts assuming either that each consumer's brand preferences are fixed over time or that preferences are independent over time. With fixed preferences, short-term contracts lead to poaching and socially inefficient switching. The equilibrium with long-term contracts has less switching than when only short-term contracts are feasible, and it involves the sale of both short-term and long-term contracts. With independent preferences, short-term contracts are efficient, but long-term contracts lead to inefficiently little switching.

Self-confidence: intrapersonal strategies

Abstract: This paper explains why people value self-confidence, and how this concern shapes their informational strategies and intertemporal decisions. The theory has applications in areas as diverse as labour supply, savings and investment, or education and career decisions. People generally have imperfect knowledge about their abilities, which in most tasks are complementary to effort. Self-confidence thus enhances motivation, and this gives a time--inconsistent individual a strong incentive to build up the self-esteem of his future selves, so as to limit their procrastination. The benefits of confidence-maintenance must, however, be traded off against the risks of overconfidence. Moreover, rational inference implies that the individual cannot systematically fool himself. The model explains why people often choose to remain ignorant about their true abilities, or 'blind' to important signals from their work, personal or market environment; and why they sometimes deliberately impair their own performance or choose overambitious tasks in which they are sure to fail (self-handicapping). It also provides a formal account of (endogenously) selective memory or awareness, such as the tendency to remember one's successes more than one's failures. This result, in turn, helps explain why most people have overoptimistic assessments of their own abilities and accomplishments (self-serving beliefs). Another important result is that this 'psychological immune system' can lead to multiple intrapersonal equilibria in cognitive strategies, self confidence, and behaviour. Moreover, while 'positive thinking' and similar forms of self--deception can improve ex-ante welfare, they can also be self-defeating.

Pricing Under the Threat of Entry by a Sole Supplier of a Network Good

Abstract: This paper develops a model of pricing to deter entry by a sole supplier of a network good. We show that the installed user base of a network good can serve a preemptive function similar to that of an investment in capacity if the entrant's good is incompatible with the incumbent's good and there are network externalities in the demand for each good. Consequently, the threat of entry of an incompatible good can lead the incumbent to set low prices. Although the threat of entry is welfare-enhancing in our model, the welfare effects of actual entry are ambiguous. Put differently, a government policy that led to the entry of a firm that otherwise would not have entered, such as an entry subsidy, may lower welfare. We try to identify the main factors that should be considered in thinking about the welfare effects of entry deterrence in similar models.

Global Price Caps and the Regulation of Access

Abstract: It is generally agreed that an intelligent interconnection policy is the key to an harmonious development of competition in the telecommunications industry. The paper first warns against some hazards associated with the dominant regulatory paradigms. By treating retail and wholesale prices asymmetrically, these paradigms may distort the structure of relative prices. They may further provide incumbents with incentives to exclude and to cross-subsidize. These perverse incentives generate a legitimate suspicion and lead regulators or courts to substitute their judgment fot the operators' business judgment. Second, the paper explains the intellectual underpinnings of an alternative mode of regulation, which consists in putting the operator's retail and wholesale activities into a single basket and thus in subjecting the firm to a global price cap. It provides an extensive discussion of the costs and benefits of global price caps, and shows that they do not distort the structure of retail and wholesale prices. Last, global price caps eliminate or substantially reduce the incentives for exclusionary behaviors and cross-subsidies, and thus allow a light-handed regulation.

Self-Confidence and Social Interactions

Abstract: This paper studies the interactions between an individual's self esteem and his social environment in the workplace, at school, and in personal relationships. Because a person generally has only imperfect knowledge of his own abilities, people who derive benefits from his performance (parent, spouse, friend, teacher, manager, etc.) have incentives to manipulate his self confidence. We first study situations where an informed principal chooses an incentive structure, such as offering payments or rewards, delegating a task, or giving encouragement. We show that extrinsic rewards may have hidden costs as stressed by psychologists in that they undermine intrinsic motivation. As a result, they may be only weak reinforcers in the short run, and become negative reinforcers once withdrawn. Similarly, empowerment is likely to increase motivation, while offers of help may create a dependance. More generally, we identify when the hidden costs of rewards are a myth or a reality. We next consider situations where people criticize or downplay the performance of their spouse, child, colleague, or subordinate. We formalize ego bashing as reflecting battles for dominance or authority within the relationship. Finally, we turn to the self presentation strategies of privately informed agents. We study in particular how depressed individuals may engage in self-deprecation as a way of seeking leniency (a lowering of expectancies) or a helping hand' on various obligations.

Some Reflections on Open Source Software (

Abstract: Over the past few years, Open Source Software (OSS) has become a hotly debated topic. It is fundamentally different from commercial software since it is distributed with the source code, is, in most cases, free, and when modified must be redistributed under the same license of the original software (1). In contrast, commercial software is usually distributed only under compiled form, is usually not free, and is protected by copyright and secrecy that prevents it from being modified.

Connectivity in the Commercial Internet

Abstract: We study the "backbone market" in the Internet. After discussing the structure of the Internet, we use an extension of the Katz-Shapiro network model to analyze the strategies that would be used by dominant backbone. We show that a larger backbone prefers a lower quality interconnection than the smaller one. We then analyze a "targeted degradation" strategy where the larger backbone lowers the quality of interconnection to its smaller rivals in turn. Finally, we show that the qualitative results are robust to the possibility of "multihoming" by clients. Copyright 2000 by Blackwell Publishing Ltd (This abstract was borrowed from another version of this item.)

Self-Confidence & Social Interactions

Abstract: This paper studies the interactions between an individual's self-esteem and his social environment - in the workplace, at school, and in personal relationships. Because a person generally has only imperfect knowledge of his own abilities, people who derive benefits from his performance (parent, spouse, friend, teacher, manager, etc.) have incentives to manipulate his self--confidence. We first study situations where an informed principal chooses an incentive structure, such as offering payments or rewards, delegating a task, or giving encouragement. We show that extrinsic rewards may have hidden costs - as stressed by psychologists - in that they undermine intrinsic motivation. As a result, they may be only weak reinforcers in the short run, and become negative reinforcers once withdrawn. Similarly, empowerment is likely to increase motivation, while offers of help may create a dependence. More generally, we identify when the hidden costs of rewards are a myth or a reality. We next consider situations where people criticize or downplay the performance of their spouse, child, colleague, or subordinate. We formalize ego-bashing as reflecting battles for dominance or authority within the relationship. Finally, we turn to the self-presentation strategies of privately informed agents. We study in particular how depressed individuals may engage in self-deprecation as a way of seeking leniency (a lowering of expectancies) or a ‘helping hand’ on various obligations.