Rasmusen's Unpublished Papers (30 October 2008)

1. Working Papers
2. Forthcoming
3. Useful Notes, Not for Publication
4. Topics I Am Working On Without Circulating Papers
I have a separate page for papers that I don't think I will ever publish.

1. Working Papers

1. "Career Concerns and Ambiguity Aversion." Why do people have ambiguity aversion, preferring, a gamble with a 50\% chance of success to one whose expected probability of success is 50\% but where that 50\% is an unbiased estimate? The answer modelled here, in the spirit of the career concerns literature, is learning: a risk-averse person does not wish observers to learn whether he is good or bad at estimating probabilities. He therefore prefers a gamble with objective probabilities. In tex and pdf ( http://www.rasmusen.org/papers/ambiguity-rasmusen.pdf).

2. "Internalities and Paternalism: Applying the Compensation Criterion to Multiple Selves across Time " One reason to call an activity a vice and suppress it is that it reduces a person's future happiness more than it increases his present happiness. Gruber \& Koszegi (2001) show how a vice tax can increase a person's welfare in a model of multiple selves with hyperbolic preferences across time. An interself analogy of the compensation criterion can justify a vice ban whether preferences are hyperbolic or exponential, but subject to the caveat that the person has a binding constraint on borrowing. In tex and pdf ( http://www.rasmusen.org/papers/internality-rasmusen.pdf).

3. "Quality-Maintaining Profits and Reputation." Can above-cost prices give firms enough incentive to keep quality high? In the reputation model of Klein & Leffler (1981), firms refrain from cutting quality (or price) because if they did, they would forfeit future profits. Here, I show that something similar can happen even in a static setting. First, if there are discerning consumers who can observe quality, firms do not want to lose their business. Second, if all consumers can sometimes but not always spot flaws, firms do not want to lose the business of those who would spot them on a given visit. Third, if the law provides some penalty for fraud, but not enough to make it entirely unprofitable, firms may prefer selling high quality at high prices to low quality at high prices but with some chance of punishment. tex and pdf ( http://www.rasmusen.org/papers/quality-rasmusen.pdf).

4. "First versus Second-Mover Advantage with Information Asymmetry about the Size of New Markets," (with Young-Ro Yoon). Is it better to move first, or second--- to innovate, or to imitate? Suppose one player has superior information about which of two new markets is better. If he enters first, he might be able to secure a natural monopoly. (The less-informed player also has this motive.) If he enters second, he can prevent the other player from imitating him. We find, predictably, that the more accurate the informed player's information the more he wants to delay in order to prevent the spillover of his information. Also, the less accurate the informed player's information the more he wants to move first in order to foreclose a market. In addition, the bigger the difference in markets, the more likely the two players will make the same choice. More surprisingly, if the informed player's information becomes more accurate that can hurt both industry profits and consumer welfare by inducing both players to choose what they hope is the bigger market, leaving the other market not served. tex and pdf ( http://www.rasmusen.org/papers/entry-rasmusen-yoon.pdf).

5. "Executive Compensation in Japan: Estimating Levels and Determinants from Tax Records" (with Minoru Nakazato and J. Mark Ramseyer). Most studies of executive compensation have data on pay but not total income. Studies of executives in Japan lack even good data on pay. We have tax data on total executive incomes, enabling us to estimate salaries and an executive’s exposure to firm risk from a new angle. We confirm the conventional wisdom that Japanese executives earn far less than American ones--- about one-fifth the pay, adjusting for firm size. Tobit regressions show that pay in Japan depends heavily on firm size (with an elasticity of .22). Paper, data, and programs are at http://www.rasmusen.org/papers/exec/exec.htm.

6. "A Model of Trust in Quality and North-South Trade." Countries have different comparative advantages in quality. These might be due to technological differences, or to reputation differences of the sort described in Klein & Leffler (1981). Reputation differences are particularly interesting, since good reputations are a form of ``social capital'' that is amenable to modelling. They can explain why firms in these industries like to export even if the foreign price is no higher than the domestic one, and why governments would like to have large ``high-value'' sectors. In tex and pdf ( http://www.rasmusen.org/papers/trade-rasmusen.pdf).

7. "Some Common Confusions about Hyperbolic Discounting." There is a lot of confusion over what ``hyperbolic discounting'' means. I try to clear up that confusion. In tex and pdf ( http://www.rasmusen.org/special/hyperbolic-rasmusen.pdf).

8. "Price Discrimination between Retailers with and without Market Power " (with Barick Chung). Suppose a monopolist manufacturer sells at two prices to retailers in small towns and large cities. To prevent retailers’ arbitrage, the manufacturer needs to set the wholesale price difference smaller than the transportation cost. As a result, with linear pricing the retail price for towns will be even higher than that in double marginalization; and with a two-part tariff, the wholesale price for towns will be higher than the marginal cost. In this context, double marginalization cannot be totally eliminated by two-part tariff pricing. tex and pdf ( http://www.rasmusen.org/papers/retailers-chung-rasmusen.pdf).

9. "The Industrial Organization of the Japanese Bar: Levels and Determinants of Attorney Income," (with Minoru Nakazato and J. Mark Ramseyer). Using micro-level data on attorney incomes in 2004, we reconstruct the industrial organization of the Japanese legal services industry. These data suggest a somewhat bifurcated bar, with two sources of unusually high income: talent in Tokyo, and scarcityelsewhere. The most talented would-be lawyers (those with the highest opportunity costs) pass the bar-exam equivalent on one of their first tries or abandon the effort. If they pass, they tend to opt for careers in Tokyo that involve complex litigation and business transactions. This work places a premium on their talent, and from it they earn appropriately high incomes. The less talented face lower opportunity costs, and willingly spend many years studying for the exam. If they eventually pass, they disproportionately forego the many amenities available to professional families in Tokyo and opt instead for careers in the under-lawyered provinces. There, they earn scarcity and monopoly rents not available in the far more competitive Tokyo market. In MS Word ( http://www.rasmusen.org/papers/jpnbar.nakazato.ramseyer.rasmusen.doc).

10. "The Parking Lot Problem." (with Maria Arbatskaya and Kaushik Mukhopadhaya).If there is queueing for an underpriced good, the queueing can eat up the entire surplus, eliminating the social value of the good. An implication is that there is a discontinuity in social welfare between ``enough'' and ``not enough'' for certain goods such as parking spaces. This implies that if there is uncertainty in the number of demanders, the amount of the good should be set well in excess of the mean demand. http://www.rasmusen.org/papers/parking-rasmusen.pdf or in tex.

11. "Economic Regulation and Social Regulation." A long- standing book project, in the style of my JLS Desecration paper. ``Health, safety, morals, and the general welfare,'' are the traditional subjects of the police power of the state. When we think of government regulation, we usually think of economic regulation. This is generally efficient only for a narrow range of activities and is subject to abuse by private parties who can profit from it. Social regulation is another area of government regulation, however, and one where the presumptive efficiency of laissez faire disappears, because market imperfections are more common and capture by special interests is less profitable. This does not immediately imply that the government should engage in social engineering, because our current knowledge of social processes is primitive. It does imply that courts should be reluctant to strike down social regulation on the grounds that it is irrational. My working files are at Http://www.rasmusen.org/social/social.htm. The old draft is available at tex and pdf ( Http://www.rasmusen.org/papers/social.pdf).

2. Forthcoming

1. "Prosecutors' Choices of Prosecution and Conviction Rates; Theory and Evidence" (with Manu Raghav and J. Mark Ramseyer). Forthcoming at American Law and Economics Review. It is natural to suppose that a prosecutor's conviction rate-- the ratio of convictions to cases prosecuted-- is a sign of his competence. Prosecutors, however, choose which cases to prosecute. If they prosecute only the strongest cases, they will have high conviction rates. Any system which pays attention to conviction rates, as opposed to the number of convictions, is liable to abuse. As a prosecutor's budget increases, he allocates it between prosecuting more cases and putting more effort into existing cases. Either can be socially desirable, depending on particular circumstances. We model the tradeoffs theoretically in two models, one of a benevolent social planner and one of a prosecutor rewarded directly for his conviction rate as well as caring about convictions and personal goals and apply the model to U.S. data drawn from county-level crime statistics and a survey of all state prosecutors by district. Conviction rates do have a small negative correlation with prosecutorial budgets, but conditioning on other variables in regression analysis, higher budgets are associated both with more prosecutions and higher conviction rates. tex and pdf ( http://www.rasmusen.org/papers/prosecutors-raghav-ramseyer-rasmusen.pdf) .

3. Useful Notes, Not for Publication

1. "Principles of Graphs and Tables." Tips for undergraduate writing ( http://www.rasmusen.org/g492/14_graphs.htm).

4. Miscellaneous, without Circulating Papers,

1. Notes on ``Isoperfect Price Discrimination: Bargaining and Market Power,'' with David Myatt. Standard discussions of perfect price discrimination rest on a hidden assumption: that the monopolist can make take-it-or-leave-it offers. If a monopoly charges different prices to each of a large number of buyers, the correct paradigm is not the ultimatum game, but bilateral monopoly. The monopolist's profit will not be the entire surplus, but something less. Under ``balanced isoperfect price discrimination''-- a constant split $\lambda=.5$ of the bargaining surplus with each buyer--- and constant marginal cost, the monopolist has the same profit as monopoly pricing if the demand curve is linear, less if demand is concave, and more if demand is convex. Increasing marginal cost tends to make the monopolist prefer price discrimination. Isoperfect price discrimination is complemented by an idiosyncratic product design and informative advertising, whereas simple monopoly pricing is facilitated by plain-vanilla designs promoted via pure hype. Competition pushes suppliers away from isoperfect price discrimination and towards simple posted pricing. tex.

2. Notes on "Belief in God: A Game Theory Approach " Notes in tex

3. Notes on ``Isoperfect Price Discrimination in a Hotelling Duopoly,'' with David Myatt. When duopolists compete by haggling with consumers, the form of the bargaining model is very important, whether in a Bertrand model or a Hotelling model. tex.

4. Notes on ``How Useful Is a Product Umbrella for Reputation? ,'' with David Myatt. A firm with a reputation for high quality in one product may usefully extend that reputation to other products. We look at how that works in a moral hazard model of product quality. tex.

5. Notes on ``Bargaining under Complete Information,'' with David Myatt. Outside options are tricky. tex.

6. Notes on ``The Rubinstein (1982) Model with Both Discounting and Per-Period Costs'' Combining those two things results in a model like the standard one with just discounting. tex.

7. Notes on ``Quasi-Concavity.'' with Chris Connell. We propose a new, equivalent, definition that relates it better to concavity. tex.

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