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Models fiscal policy interactions between fiscal authorities and private investors in the foreign exchange market in a game‐theoretic framework. Using a two‐period game, I consider the credible and noncredible announcements of the domestic fiscal authority with respect to the stance of its future fiscal policy. Each country faces a trade‐off between its current account and budget deficit objectives and time‐inconsistency arises due to lack of a sufficient number of policy instruments. For this game I derive explicitly the time consistent and precommitment policies for the domestic fiscal authority and explain that precommitment is welfare improving relative to the time‐consistent policy. In a two‐country framework, both precommitment with respect to the private sector and co‐operation between the two policymakers tend to improve welfare.

The purpose of this paper is to develop a model of innovative industries which face coopetition: firms compete while committing at the same time to R&D joint ventures and other cooperative agreements. These joint activities are likely to occur in presence of complementarities on demand or supply sides; they raise specific accounting issues concerned with recognition and measurement of intangible resources committed to, and generated from them.

The paper develops a heuristic industrial economic model characterized by joint utility of outputs for custumers on the demand side, and potential complementarities in R&D activities on the supply side. The authors’ model describes different scenarios generated by alternative corporate pricing strategies. In particular, these strategies (as implemented by firms or imposed by regulators) influence both infrastructure corporate investments and the creation and stability of coopetitive relationships.

The model scenarios show that especially accounting for intangible resources – related to processes of innovation and R&D – should deserve specific attention. Firms and regulators need to properly account for both hard intangibles that have market prices of reference, and soft and ethereal intangibles that factually have not. A stock method of accounting for intangibles results then which is narrow and biased, because of its focus on hard intangibles alone. A flow method of accounting should be preferred, which tracks the cumulated investment flow of direct and indirect expenditures in innovation and development, properly allocated within and between firms.

The paper argues for regulatory frameworks that enable increasing the positive effects of cooperation while repressing collusive behaviours (technological standardization, fiscal incentives to welfare‐improving innovation and strategy, public research, costumers’ protection, and so forth). Concerning the overall industrial organization, the paper's theoretical analysis shows the need for better recognition and measurement of intangibles and complementarities in costing and pricing, for both corporate and regulatory purposes.

In games with strategic complementarities, public information about the state of the world has a larger impact on equilibrium actions than private information of the same precision, because the former is more informative about the likely behavior of others. This may lead to welfare-reducing “overreactions” to public signals as shown by Morris and Shin (2002). Recent experiments on games with strategic complementarities show that subjects attach a lower weight to public signals than theoretically predicted. The purpose of this paper is to reconsider the welfare effects of public signals accounting for the weights observed in experiments.

Aggregate behavior observed in experiments on games with strategic complementarities can be explained by a cognitive hierarchy model where subjects employ limited levels of reasoning. They respond in a rational way to the non-strategic part of a game and they account for other players responding rationally, but they neglect that other players also account for others’ rationality. This paper analyzes the welfare effects of public information under such limited levels of reasoning.

In the model by Morris and Shin (2002) public information is always welfare improving if strategies are derived from such low reasoning levels. The optimal degree of publicity is decreasing in the levels of reasoning. For the observed average level of reasoning, full transparency is optimal, if public information is more precise than private information. If the policy maker has instruments that are perfect substitutes to private actions, the government should secretly respond to its information without disclosing or signaling it to the private sector independent of the degree of private agents’ rationality.

This paper takes experimental evidence back to theory and shows that the main result obtained by the theory under rational behavior breaks down if theory accounts for the bounded rationality observed in experiments.

Details a behavioral theory of economic welfare that overlaps and extends the global theoretical framework contained in Pareto Optimality, with significant public policy implications. The essence of this framework is contained in Adam Smith’s the Wealth of Nations where it is argued that the economic welfare of society cannot be augmented if the material level of well‐being of the working population is reduced, even if the economy experiences growth. Moreover, it is argued that there need not be an equity‐efficiency trade‐off in a competitive market economy to the extent that wages positively affect productivity and do not increase production costs. Therefore, shifting from a low to a high wage economy is welfare improving. Smith, in effect, argues that one can have economic ‘justice’ and economic efficiency where the former is necessary to the latter. The behavioral model of economic welfare paints a dynamic picture of economic welfare in contradistinction to the static framework provided by Pareto Optimality wherein the conditions of Pareto Optimality need not be violated.

This paper aims to examine whether integration of national markets fosters innovation in the technologically inferior country.

The authors examine a simple game theoretic framework where a technologically backward home firm and a technologically advanced foreign firm compete in both qualities and prices in an integrated market. They formalize the speed of response to market integration of the two countries as a first mover advantage in the R&D stage.

The authors find that the outcome depends on the speed of response of the two firms and their initial technological distance. If the domestic firm is not too far behind the foreign firm to begin with, and if it responds faster, then the technological gap may get reversed. Further, the authors find that integration may be welfare improving for both the countries. There are, however, distributional implications. While the consumers always gain from such integration the firms may not.

This paper contributes to the debate on the implication of market integration. In contrast to the literature the authors use a model of vertical product differentiation which is relatively less explored in the literature and formalize the speed of response to market integration as a first mover advantage in R&D. This allows them to establish several interesting results with interesting policy implications.

When sectoral shocks hit a large, regionally heterogeneous economy, it is likely that regions with sectoral specialization will be affected in different ways. In these cases, it might be optimal for the country to decentralize the currency into a number of regional currencies, thus allowing for differentiated monetary policy. The paper aims to discuss these issues.

The author explicates the potential benefits and costs to decentralization. The author also highlights characteristics that should be satisfied in order to consider multiple currencies. This paper uses a theoretical and empirical model to test if the USA contains regional optimal currency areas. The author tests five potential divisions of the states into monetary subunions.

One of these divisions is proven to result in higher welfare (a 2 percent increase) than the status quo national monetary union. Thus, the USA is not an optimal currency area, and monetary decentralization could be a feasible and welfare-improving option for future policy.

There have been no previous studies of monetary divisions. Given the importance of fiscal decentralization, it is important to also understand the implications of monetary decentralization.

Merger approving focuses on both market power and welfare gains. In general, the approval process does not include a comparative efficiency analysis. This paper aims to introduce this dimension and show its potential.

Based on the analysis of past bank mergers, the authors examine expected and actual efficiency gains. This paper measures the potential (ex ante) and ex post efficiency gains of bank mergers by using data envelopment analysis (DEA).

The authors find some (approved) mergers were promised and yielded efficiency gains while others did not.

DEA does not allow testing statistically the significance of the presumed relationship between variables.

The authors conclude that some mergers that took place would not have been approved had an efficiency analysis been made.

Regulators and/or competition authorities could approve mergers which do not increase efficiency.

To date, efficiency frontier analysis has not been performed for merger approval. It implies that the regulator or competition authority could allow mergers with no clear social gains.

Measures of inequality determine the effectiveness of social and economic policies aimed at reducing inequality and to design effective intervention policies. The purpose of this paper is to focus on poverty reduction and welfare improving impacts of reducing income inequality in the case of Fiji. Using Fiji's Household Income and Expenditure Survey 2002‐2003, a comprehensive analysis is used to measure the level of inequality by household income, quintile income distribution, decomposition of inequality by ethnicity and regional groups, and the household income inequality by source of income.

Several statistical techniques have been applied to investigate the degree of inequality in the household income. These include the Gini coefficient, the Nelson ratio, the concentration index and the Atkinson index. An evaluation by ethnicity, regions and household income sources reflects the level of inequality, and concerns for policies and governance.

The results show that urban households, in particular, experience greater inequalities, in both positive and normative terms. The Indo‐Fijian households experience greater income inequalities than the Fijian households. Decomposition results for the separate factor income components also indicate major sources of inequality. These findings clearly establish that Fiji still has a long way to go in reducing the income gaps between the rich and the poor in both rural and urban households.

The paper is a first study that estimates various measures of inequality in the case of Fiji. The implication of the empirical findings suggests that Fiji is unlikely to achieve its Millennium Development Goal of halving poverty rate by 2015 due to the large income differentials by ethnicity and in the urban‐rural areas.

Although the majority of Ethiopians continue the on-farm and off-farm work, the country still struggles to secure food for its citizens and farmer welfare is very low. To increase farmers' welfare, improving farmers' entrepreneurial competency is believed to be the solution. However, entrepreneurial competencies are diversified, and investigating the most important dimensions specific to the agricultural sector is important. As a result, the objective of this research is to look into important entrepreneurial competencies that could help farmers.

To achieve the objective, survey data, collected from 178 households in North Shoa, Amhara National Regional State, Ethiopia is analyzed through structural equation modeling (SEM).

The study revealed that of the six entrepreneurs' competencies considered, only two of them (Strategic competency and relationship competency) have a significant association with the welfare of farmers. Moreover, the study revealed that the moderating effect of agricultural extension (taking model and non-model farmers as a group) on the relationship between entrepreneurial competency and farmers' welfare is not significant.

This study focuses only on six entrepreneurial competencies from which two of them are found significant factors in farmers' welfare. Thus, future research could broaden the scope in terms of looking into additional variables.

The study investigated the moderating effect of the farmers' category as a model and non-model on the relationship between entrepreneurial competency and farmers' welfare, which is the first to discuss the moderation effect.

The purpose of this paper is to model the role that stakeholders, and especially social responsible consumers play in the process of finding a win–win solution to control production related negative externalities. In this regard, when information asymmetries are present and consumers become knowledgeable about them, consumers with d-preferences for corporate social responsibility (CSR) type of products becomes the driver of the firm strategy.

To accomplish the goals of this paper, the authors proceed to develop a series of theoretical models wherein the social gains and costs of alternative modes of intervention are illustrated. The authors begin with a standard Pigouvian tax model and construct a stakeholder equivalent tax model and finalize the analysis with consumers acting in a shared social responsible behavior with firms as the optimal solution model.

The authors show that proactive disclosure of information asymmetries regarding negative externalities develops a shared social responsibility between consumers and firms. Market-based solutions to the externality problem are achieved under this setting. This solution is preferred to a Pigouvian tax and to a stakeholder equivalent tax. It is concluded that shared social responsibility is the result of the interaction of consumers with d-preferences and the reaction of a socially responsible “firm” willing, and the authors are able to incorporate these preferences as drivers for its strategy.

The main limitation of this paper is in its theoretical nature and specific applications to one case, that of negative externalities in production processes. The implication of this is that the model herein developed needs to be put to the empirical test.

The overall social implications indicate that active reduction of information asymmetries is welfare improving and preferred to government intervention.

This paper is original as it makes use of economic principles to develop a parsimonious model to demonstrate that proactive actions of a firm in response to consumers and stakeholders demands leads to an overall social welfare improvement when negative externalities deriving from production are incorporated into the decision making process of both consumers and firms. These decisions prove superior to government regulations.