This paper investigates various aspects of a monopolist's pricing and environmental quality choice, as two simultaneous decisions and with each as a separate decision, the other variable being exogenously fixed. Green quality is modeled as in Spence (1975), and the present analysis builds on his pioneering work. We contrast the private and the first-best socially optimal solutions. While the latter follows the intuitive property of assigning a higher price to higher quality, the former solution does so under a natural condition of log-supermodular demand. This condition is studied in some detail, and related to properties of an underlying utility function. We complete this characterization of optimal pricing by providing a counter-intuitive example where the two-dimensional interaction is such that the monopolist ends up charging a lower optimal price than the social planner, as well as producing a lower quality. Finally, we investigate respective sufficient conditions under which (i) the private and first-best solutions coincide, and (ii) either one is larger than the other.

This paper examines the standard symmetric two-period R&D duopoly model, but with a deterministic one-way spillover structure. Though the two firms are ex-ante identical, one obtains a unique pair of asymmetric equilibria of R&D investments, leading to inter-firm heterogeneity in the industry, in R&D roles as well as in unit costs. We analyze the impact of a change in the spillover parameter and R&D costs on firms’ levels of R&D and profits. We find that higher spillovers need not lead to lower R&D investments for both firms. In addition, equilibrium profits may improve due to the presence of spillovers, and it may be advantageous to be the R&D imitator rather than the R&D innovator.

This paper investigates sequential manufacturer-retailer price determination and channel performance under possible misrepresentation by one member of its privately known cost. To the standard double marginalization game, we add a preliminary stage where the manufacturer (alternately the retailer) announces its privately known constant marginal cost. We prove that the manufacturer has no incentive to misrepresent its cost, and we give respective sufficient conditions on the demand function for the retailer to overreport and to underreport costs. Depending on the shape of the demand function, opportunistic behavior by the retailer may lower or raise the manufacturer's profit and channel performance.

We reformulate Grandmont's and its successors' notion of behavioral heterogeneity such as to get the exact insensitivity of the aggregate budget share function with respect to changes in prices and income, instead of a mere approximate insensitivity. We propose a non parametric set-up such that, if the population is distributed according to some uniform probability measure, the aggregate budget share function is constant. The important contribution is that this exact insensitivity is not explained by any insensitivity at the microeconomic level but rather by an exact balancing effect. We give illustrative examples of populations that fulfill our requirements.

This paper investigates the pass-through of an excise tax imposed on a monopoly firm with constant marginal cost. The optimal price increases as tax increases for any demand function. Tax pass-through is globally under or in excess of 100% according as the direct demand function is log-concave or log-convex. The analysis relies on supermodular optimization and delivers conclusions based on minimal sufficient assumptions in a simple, broadly accessible and self-contained framework. Further results allow for mixed conditions that provide precise and local determination of pass-through. Several illustrative examples are given. Policy conclusions relating to the relative wisdom of taxing high versus low cost monopoly firms are drawn from the results.

This paper is a first step in answering B. de Villemeur’s (1998, 1999) and Hildenbrand’s (1998) criticism of the notions of behavioral heterogeneity introduced in demand theory by Grandmont (1992) and Kneip (1999). As in the Grandmont-Kneip approach, we define a notion of behavioral heterogeneity such that if the population is sufficiently heterogeneous, the aggregate budget share function is proved to become insensitive to changes in prices and income. However, in contrast to the aforementioned literature, this insensitivity in the aggregate is not explained by any insensitivity property at the microeconomic level, but rather by a “balancing effect” : For any commodity, the negative effect on market budget share induced after a change in prices or income by individuals who decrease their budget share is compensated by the existence of individuals who increase their budget share.

If one wants to get rid of the paradoxes pointed out by Hildenbrand (1998) and B. de Villemeur (1999), one needs to reformulate Grandmont's (1992) notion of behavioral heterogeneity such as to get exact insensitivity of the aggregate budget share function with respect to changes in prices and income, instead of a mere approximate insensitivity. Here, we propose a non parametric set-up such that, if the population is distributed according to some ``uniform'' measure, the aggregate budget share function is constant. This exact insensitivity is not explained by any insensitivity property at the micro-economic level, but rather by a perfect ``balancing effect''. We then discuss the economic interpretation of some concrete examples illustrating our theory.

If one wants to get rid of the paradoxes pointed out by Hildenbrand ((19)) and B. de Villemeur ((4)), one needs to reformulate Grandmont's ((16)) notion of behavioral heterogeneity such as to get exact insensitivity of the aggregate budget share function with respect to changes in prices and income, instead of a mere approximate insensitivity. Here, we propose a non parametric set-up such that, if the population is distributed according to some "uniform" measure, the aggregate budget share function is constant. This exact insensitivity is not explained by any insensitivity property at the micro-economic level, but rather by a perfect "balancing eect". We then discuss the economic interpretation of some concrete examples illustrating our theory.

Grandmont\'s ([14]) notion of behavioral heterogeneity is reformulated in a non parametric set-up such that the space of budget share functions admits a ``uniform\'\' probability distribution. If the population is distributed according to this measure, the aggregate budget share function is constant with respect to changes in prices and income. This exact insensitivity of the market budget share function is known to imply uniqueness and global stability of any competitive equilibrium. Here, it is not explained by any insensitivity property at the micro-economic level, but rather by a perfect \'balancing effect\'\'. Eventually, it is proved that the insensitivity property holds approximately for a finite population sufficiently close to, but distinct from, the perfectly heterogenous one.

The purpose of this note is to correct the illustrative example (entitled Intertemporal parametric model of demand “à la Grandmont”) of a population of households fulfilling the requirement of heterogeneity introduced in2.

Aggregation in exchange markets is studied by imposing restrictions on the distribution of the households» intertemporal characteristics. Approximate bounds for the derivatives of market demand that depend upon specific measure of sensitivity of the distribution of households» intertemporal choices to changes in the real interest rate are provided. This has strong consequences for the prevalence, in the aggregate, of gross substitutability between current and future consumption.