International Trade or Optimal Regulation

International Trade: Selected Readings

Author: Jagdish N Bhagwati

This text collects the most important contributions to the theory of international trade in recent decades, including the many new approaches developed during the 1980s. Of the 28 chapters in major sections covering general equilibrium, trade pattern theories, imperfect competition and market structure, quotas and VERs, theory of distortions, direct unproductive profit-seeking and rent-seeking activities, customs unions, growth and transfers, and foreign investment, 16 are new to this edition.

These new pieces focus on such currently active areas as the treatment of market structure, explored chiefly by economists Avinash Dixit, Jonathan Eaton and Gene M. Grossman, Paul R. Krugman, Elhanan Helpman, James Brander and Barbara Spencer, and imperfect competition and the theory of political economy, with key contributions by Anne 0. Krueger, Jagdish Bhagwati, Ronald Findlay, T. N. Srinivasan, Richard Brecher, Wolfgang Mayer, and several other younger trade theorists.

Other new selections take up developments within more traditional topics, such as the classic problem of the effects of transfers, the equivalence of tariffs and quotas, revived in the context of the effect of VERs, and the theory of multinational investments which has been affected by both the new theories of market structure and of political economy.

Jagdish N. Bhagwati is Arthur Lehman Professor of Economics and Director of the International Economics Research Center at Columbia University.

Books about: The Assault on Social Policy or The Mobility of Workers Under Advanced Capitalism

Optimal Regulation: The Economic Theory of Natural Monopoly

Author: Kenneth E Train

Optimal Regulation addresses the central issue of regulatory economics - how to regulate firms in a way that induces them to produce and price "optimally." It synthesizes the major findings of an extensive theoretical literature on what constitutes optimality in various situations and which regulatory mechanisms can be used to achieve it. It is the first text to provide a unified, modern, and nontechnical treatment of the field.

The book includes models for regulating optimal output, tariffs, and surplus subsidy schemes, and presents all of the material graphically, with clear explanations of often highly technical topics.

Kenneth E. Train is Associate Adjunct Professor in the Department of Economics and Graduate School of Public Policy at the University of California, Berkeley. He is also Principal of the firm Cambridge Systematics.

Topics include: The cost structure of natural monopoly (economies of scale and scope). Characterization of firstand second-best optimality. Surplus subsidy schemes for attaining first-best optimality. Ramsey prices and the Vogelsang-Finsinger mechanism for attaining them. Time-ofuse (TOU) prices and Riordan's mechanisms for attaining the optimal TOU prices' Multipart and self-selecting tariffs, and Sibley's method for using self-selecting tariffs to achieve optimality. The Averch-Johnson model of how rate-of-return regulation induces inefficiencies. Analysis of regulation based on the firm's return on Output, costs, or sales. Price-cap regulation. Regulatory treatment of uncertainty and its impact on the firm's behavior. Methods of attaining optimality without direct regulation (contestability, auctioningthe monopoly franchise.)

Table of Contents:

Preface
Introduction: The Economic Rationale and Task of Regulation
1.1 Motivation
1.2 Characteristics of a Natural Monopoly
1.3 Welfare Concepts with Natural Monopoly
1 The AverchJohnson Model of RateofReturn
Regulation
1.1 Purpose
1.2 Behavior of the Unregulated Firm
1.3 RateofReturn Regulation
1.4 Behavior of the Regulated Firm
1.5 Empirical Evidence on the AJ Effect
2 Regulatory Mechanisms to Induce Optimal Outcomes for
OneProduct Natural Monopolies
2.1 Introduction
2.2 ReturnonOutput Regulation
2.3 ReturnonSales Regulation
2.4 ReturnonCost Regulation
2.5 Price Discrimination
3 The AJ Model under Uncertainty
3.1 Motivation
3.2 Behavior of the Unregulated Firm under Uncertainty
3.3 Behavior of the Firm Facing Uncertainty under RateofReturn
Regulation
3.4 Results
4 Ramsey Prices
4.1 Motivation
4.2 Description of the Ramsey Rule
4.3 A More Rigorous Derivation of the Ramsey Rule
4.4 Finding the Ramsey Prices
4.5 RelaXation of Assumptions
4.6 An Application of the Ramsey Rule: Transit Pricing
5 The VogelsangFinsinger Mechanism
5.1 Introduction
5.2 The VF Mechanism
5.3 Demonstration for a OneGood Firm
5.4 Demonstration for a TwoGood Firm
5.5 Strategic Issues in VF Regulation
6 Surplus Subsidy Schemes
6.1 Introduction
6.2 Loeb and Magat
6.3 Sappington and Sibley: The Incremental Subsidy Surplus (ISS)
Scheme
6.4 Finsinger and Vogelsang: An ApproXimate Incremental Surplus
Subsidy (AISS) Scheme
7 Multipart Tariffs
7.1 Introduction and Definitions
7.2 Access/Usage Tariffs
7.3 Block Rates
8 TimeofUse Prices and Riordan's Mechanism
8.1 Motivation
8.2FirstBest TOU Prices Given Capacity
8.3 Riordan's Mechanism for Inducing FirstBest TOU Prices with
FiXed Capacity
8.4 Optimal Capacity
8.5 Riordan's Mechanism Applied to Capacity Choice
9 SelfSelecting Tariffs and Sibley's Mechanism
9.1 Introduction
9.2 Customer Choice among Tariffs under Traditional Assumptions
9.3 Equivalence to Multipart Tariffs
9.4 Welfare Implications of SelfSelecting Tariffs
9.5 An Application of SelfSelecting Tariffs
9.6 Sibley's Mechanism
9.7 Welfare Implications When Standard Assumptions Are
Inappropriate
10 Optimality without Regulation
10.1 Introduction
10.2 Auctioning the Monopoly Franchise
10.3 Contestability
10.4 Sustainable Prices in a Contestable Market
10.5 Market Forces versus Regulation for a Natural Monopoly
AppendiX: Price Caps
A.1 OneOutput Firm in a Fully Static World
A.2 MultiOutput Firm in a Fully Static World
A.3 Demand, Costs, and the PriceCap Change over Time
References
IndeX