14.282  Organizational Economics

H2 pset

Hi Everyone

The problem set for Johns part of the class has now been posted to help you study for the exam.

Ali

Announced on 11 December 2017  9:05  p.m. by Ali Fakhruddin Palida

No recitation tomorrow

Hi Everyone

Tomorrow is actually a school holiday so there will not be recitation. I will cover blundell/Bond next section

Ali

Announced on 09 November 2017  6:22  p.m. by Ali Fakhruddin Palida

No recitation tomorrow

hi Everyone

given that you have the exam, there will be no recitation tomorrow.

Ali

Announced on 26 October 2017  8:44  p.m. by Ali Fakhruddin Palida

Midterm exam

Hello everyone

the midterm exam has been posted in the "General" section of stellar. Please either hand-write your answers and scan or type up your answers and email to me by Oct. 29 5:00pm. Shoot me an email if you have questions.

Ali

Announced on 21 October 2017  9:06  a.m. by Ali Fakhruddin Palida

UD GHM clarification

Hello Everyone

There was a bit of confusion today regarding how to fit the upstream-downstream firm example we studied in class to to canonical GHM model. I may have implied that the former could not directly be fit to the framework of the latter. This is incorrect. The GHM model can accommodate this setting exactly, but you must be careful how you construct coalitional payoffs.

Consider the UD example. U's investment is made directly on the asset. Therefore, under integration, after U's investment is made, his cooperation is no longer needed for surplus to be generated for the asset owner. In particular, we can specify coalitional payoffs v(S,e) under integration as:
v({U,D},e)=Q(e)-R(e)
v({U},e)= Q(e)-R(e)
v({D},e)=0
From this you can see that U generates no additional marginal surplus in any coalition, and therefore will recieve 0 via NB or SHV.

However, note that this setting is inherently different from a setting where, under integration, U's cooperation is still necessary for the full coalition to generate surplus. In this case, coalitional payoffs would be:
v({U,D},e)=Q(e)-R(e)
v({U},e)= 0
v({D},e)=0
In this case, U does generate marginal surplus in the full coalition and will therefore recieve half of this surplus via NB or SHV. This is the case that HM 90 and Gans 2005 focus on in their papers and is why we observe that non-asset owners still extract positive surplus ex post in those models.

You can think of the latter setting as the investment being like an investment in human capital. Even if you eventually use that human capital working on someone else's asset, they must cooperate with you to obtain the benefit from that investment. They cannot extract your human capital without your permission even if you have already invested in it.

I apologize for the confusion and i hope this helps. Please email me if you have questions

Ali

Announced on 20 October 2017  4:55  p.m. by Ali Fakhruddin Palida