Browsing by Author "Lewis, TR"

Now showing 1 - 13 of 13
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    Incentives for Conservation and Quality-Improvement by Public Utilities
    (1992) Lewis, TR; Sappington, D
    We examine the design of incentive programs to motivate regulated utilities to supply both basic service (e.g., electricity supply, local telephone service) and service enhancements (e.g., energy-conservation services, improved clarity and speed of voice communication). The optimal regulatory programs are shown to vary greatly, depending upon the information available to the regulator. The price of the basic service may optimally be distorted above or below marginal cost to better motivate the supply of the service enhancement. Our policy prescriptions are compared with current programs and proposals to promote energy conservation.
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    Inflexible Rules in Incentive Problems
    (1989) Lewis, TR; Sappington, D
    In practice, contracts involve "standard terms" or "rules," allowing for variations only under "exceptional" circumstances. We develop a simple model in which optimal contracts display this feature, even in the absence of transactions costs. Rules arise when an agent has "countervailing incentives" to misrepresent private information. These incentives are created by endowing the agent with a critical factor of production ex ante. Applications in regulatory, labor, and legal settings are developed.
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    Information management in incentive problems
    (Journal of Political Economy, 1997-08-01) Lewis, TR; Sappington, DEM
    We extend the standard procurement model to examine how an agent is optimally induced to acquire valuable planning information before he chooses an unobservable level of cost-reducing effort. Concerns about information acquisition cause important changes in standard incentive contracts. Reward structures with extreme financial payoffs arise, and super-high-powered contracts are coupled with contracts that entail pronounced cost sharing. However, if the principal can assign the planning and production tasks to two different agents, then all contracting distortions disappear and, except for forgone economies of scope, the principal achieves her most preferred outcome.
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    Managing dynamic competition
    (American Economic Review, 2002-09-01) Lewis, TR; Yildirim, H
    In many important high-technology markets, including software development, data processing, communications, aeronautics, and defense, suppliers learn through experience how to provide better service at lower cost. This paper examines how a buyer designs dynamic competition among rival suppliers to exploit learning economies while minimizing the costs of becoming locked in to one producer. Strategies for controlling dynamic competition include the handicapping of more efficient suppliers in procurement competitions, the protection and allocation of intellectual property, and the sharing of information among rival suppliers. (JEL C73, D44, L10).
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    Managing Switching Costs in Multiperiod Procurements with Strategic Buyers
    (2005) Lewis, TR; Yildirim, H
    This article examines the use of switching costs by long-lived strategic buyers to manage dynamic competition between rival suppliers. The analysis reveals how buyers may employ switching costs to their advantage. We show that when switching costs are high, a buyer may induce suppliers to price more competitively by credibly threatening to replace the incumbent supplier with his rivals. The implications of this finding for adoption of technology and firm organization are explored in settings in which the buyer is integrated with the suppliers and where the buyer is an outsourcer.
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    Motivating wealth-constrained actors
    (American Economic Review, 2000-09-01) Lewis, TR; Sappington, DEM
    We examine how owners of productive resources (e.g., public enterprises or financial capital) optimally allocate their resources among wealth-constrained operators of unknown ability. Optimal allocations exhibit: (1) shared enterprise profit - the resource owner always shares the operator's profit; (2) dispersed enterprise ownership -resources are widely distributed among operators of varying ability; (3) limited benefits of competition - the owner may not benefit from increased competition for the resource; and, sometimes, (4) diluted incentives for the most capable - more capable operators receive smaller shares of the returns they generate. Implications for privatizations and venture capital arrangements are explored. (JEL D82, D44, D20).
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    Oligopoly and Financial Structure: The Limited Liability Effect
    (1986) Lewis, TR; Brander, J
    We argue that product markets and financial markets have important linkages. Assuming on oligopoly in which financial and output decisions follow in sequence, we show that limited liability may commit a leveraged firm to a more aggressive output stance. Because firms will have incentives to use financial structure to influence the output market, this demonstrates a new determinant of the debt-equity ratio.
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    Optimal industrial targeting with unknown learning-by-doing
    (Journal of International Economics, 1995-05-01) Dinopoulos, E; Lewis, TR; Sappington, DEM
    We examine a government's optimal targeting policy when it has limited information about the learning curves of domestic producers. Popular arguments suggest that in order to promote learning-by-doing, the government might want to protect domestic producers from foreign competition by temporarily closing the domestic market to foreign producers. We identify a set of conditions under which such trade intervention is not optimal. Instead, domestic welfare is better fostered either by no government intervention, or by providing subsidies to the most capable domestic producers who are willing to set a particularly low domestic price for their product. © 1995.
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    Preemption, Divestiture, and Forward Contracting in a Market Dominated by a Single Firm
    (1983) Lewis, TR
    A central concern of industrial organization literature is to determine if markets dominated by a leading producer tend to remain that way when entry by rival firms is possible. In particular, suppose market entry is limited by the availability of an essential raw input, such as a natural resource, or by technological know -how. At some future time, more of the raw input becomes available, permitting outsiders to enter. At this point, the leader can maintain its market position by either discovering or purchasing new raw inputs or technologies before the potential entrants............
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    Protecting the environment when costs and benefits are privately known
    (RAND Journal of Economics, 1996-12-01) Lewis, TR
    I analyze different approaches for protecting the environment when stakeholders are privately informed about the costs and benefits of pollution reduction. The presence of asymmetric information calls for some important departures from the textbook prescriptions of marketable permits and emission taxes for controlling pollution. For instance, it may no longer be optimal to equate the social marginal benefits to the marginal cost of cleanup in determining appropriate abatement levels. I conclude this review with some suggestions for future research in this area.
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    Regulating a Monopolist with Unknown Demand
    (1988) Lewis, TR; Sappington, D
    Optimal regulatory policy is derived in a setting where the firm has better knowledge of demand than the regulator. When marginal production costs increase with output, the regulator can induce the firm to use its private information entirely in the social interest. When marginal costs decline with output, however, the regulator is unable to derive any benefit from the firm's superior knowledge, and a single price is established that is invariant to demand.
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    Renegotiation and Specific Performance
    (1989) Lewis, TR; Sappington, D; Perry, M
    This article will examine the implications of enforcing specific performance for attempted breach of contract in a model of renegotiation. It will be shown that after the supplier receives relevant private information, renegotiation does not always occur even though gains from trade exist. Further, this article will argue that enforcement of specifice performance and result in a higher level of expected social welfare, appropriately defined, relative to the case where monetary damages for breach of contract are permitted.
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    Sufficient Conditions for Extracting Least Cost Resource First
    (1982) Lewis, TR
    Kemp and Long demonstrated that it may be preferable to exploit high and low cost resource deposits simultaneously and not in sequence as is typically assumed in the resources literature. They show that it is desirable to delay extraction from low cost pools in order to smooth consumption over time, if the resource in the ground is society's only store of wealth. This paper considers a model in which extracted resources can be converted into capital which may either be consumed or stored to provide for consumption later on. We find that a sufficient condition for the strict sequencing of extraction to be optimal is that stored capital be productive so that it can be used to produce additional capital.