Doctoral Thesis. - Universitaet Hamburg, 2011. - 89 pages.The thesis highlights seven specific questions spanning from the question whether to sell or rent a durable good to the role of incentives in the choice of originality. Each of the seven chapters presented in the following is a self-contained essay.
Chapter 2 deals with the question whether a durable-good monopolist should sell or rent under conditions of uncertainty. Contrary to the literature based on the assumption of certainty, we show that selling without commitment may dominate selling with commitment under conditions of moderate uncertainty, that is, uncertainty without the possibility of a shutdown in the future. Allowing for the possibility of a shutdown, we show that selling without commitment may even dominate renting.
In chapter 3 we offer three new reasons for the phenomenon of planned obsolescence without referring to time inconsistency as the classical explanation. The driving force behind all three reasons are informational concerns. These concerns are present in a broad range of situations leading to the following three rational reasons for the practice of planned obsolescence: (1) learning by the firm through repeat purchases, (2) option value to the firm and/or consumers, and (3) signaling innovative ability. Once all the factors are taken into account, practicing planned obsolescence may be profitable and even increase social welfare.
Chapter 4 deals with an important question concerning regulation: Why are quantity restrictions so ubiquitous? Economists generally prefer taxes. We argue that quantity regulation allows for enforcement of complementary regulations at no significant additional cost. In contrast, the regulation by taxes usually requires additional effort for every regulated activity separately. When the enforcement of a tax rule is sufficiently costly, quantity regulation may become desirable from a social point of view even if it eliminates some efficient conduct. The general argument is also useful in the justification of clear rules (refereed to as bright-line rules).
Why do we often observe soft budgets (the refinancing of loss-making enterprises)? That is the topic of chapter 5
We argue that various projects of economic agents (e.g., firms) are often the more profitable the more confident the agents are that the principal (e.g., a government) is competent or supports the project or both. The type of the principal is often not known to the agents. The confusion becomes even worse in times of a reform and/or crisis. Soft budgets may then be used to signal support and/or competence by the principal.
Chapter 6 deals with another important topic from regulatory economics: with the role of intermediaries. We analyze the consequences of (possibly) fraudulent information intermediaries in a market for credence goods characterized by monopolistic competition. The honest counseling may require side payments from the firms to the information intermediaries. The analysis suggests that strict regulation of the relationship between firms and intermediaries may be crucial to make these markets operate more efficiently.
Finally, chapter 7 analyzes a simple model concerning the choice of originality to solve a given task. This is of great importance for regulatory activities for at least two reasons: (1) imposed restrictions will often change the general approach to a regulated task, and (2) regulations itself can be of varying originality. A less original approach is more likely to succeed, but the potential benefit is at the same time generally smaller. On the other side, employing a more original approach is less likely to succeed, but it may lead to much higher benefits. The model predicts that the level of originality may increase with the number of potential beneficiaries, decreases with the number of people to be persuaded, and generally increases with the ability level of the agent. The incorporation of uncertainty concerning the exogenous variables leads to ambiguous predictions. The role of originality as a signal of ability or talent is also discussed.
