This paper extends the standard New Keynesian model by incorporating labor adjustment costs and overtime work. I show that labor frictions help reconcile the frequent price changes found in the microdata with the degree of sluggishness in inflation adjustment to output changes at the macro level. The introduction of labor frictions affects the dynamic behavior of economic variables (particularl...

A standard result in regulation is that efficiency requires that marginal prices be set equal to marginal costs. This paper performs an empirical test of marginal cost pricing in the natural gas distribution market in the United States during the period 1989-2008. For all 50 states we reject the null hypothesis of marginal cost pricing. Departures from marginal cost pricing are particularly sev...

The reduction in distribution costs of digital products has renewed interest in strategies for pricing goods with low marginal costs. In this paper, we evaluate the concept of customized bundling in which consumers can choose up to a quantity M of goods drawn from a larger pool of N different goods (N>M) for a fixed price. We show that the complex mixed bundle problem can be reduced to the cust...

All environmental policies involve costs of implementation and management that are distinct from pollution sources’ abatement costs. In practice, regulators and sources usually share these administrative costs. We examine theoretically an optimal policy consisting of an emissions tax and the distribution of administrative costs between the government and regulated sources of pollution. Our focu...

ÐIn this paper we review the theoretical and empirical literature on the cost structure of the provision of intercity highway transportation and specify and estimate our own cost functions. We develop a full cost model which identi®es the key cost components and then estimate costs component by component: user costs, infrastructure costs, time and congestion costs, noise costs, accident costs, ...

The Euler (or gradient) allocation technique defines a financial institution’s marginal cost of a risk exposure via calculation of the gradient of a risk measure evaluated at the institution’s current portfolio position. The technique, however, relies on an arbitrary selection of a risk measure. We reverse the sequence of this approach by calculating the marginal costs of risk exposures for a p...

ing from its dynamic effects on the economy, the potential benefits from deregulation of an inefficiently regulated sector may be illustrated in a simplified scheme first worked out by Harberger (1954) for the estimation of welfare losses from monopoly20. In this case, the Harberger measure of welfare loss corresponds to that part of the reduction in consumer surplus which is not appropriated b...

Within the framework of a dynamic Computable General Equilibrium model this paper analyses the impact of trade restrictions on regional rates of return on capital, marginal costs of abatement and optimal climate policy. It will be shown that regional differences both in marginal costs of abatement and in the marginal productivity of capital are driven by market imperfection. With restrictions o...

This paper compares various nonparametric models for the estimation of farm specific marginal costs function in the dairy sector. Specifically, locally weighted regression approaches using theory-consistent cost function frameworks as polynomials in the nonparametric approach are applied. A comparison of average marginal cost levels as well as marginal cost distributions across farms illustrate...

Tradable permits are celebrated as a political instrument since they allow (i) firms to equalize marginal abatement costs through trade and (ii) the government to distribute the burden of the policy in a politically fair and feasible way. These two concerns, however, conflict in a dynamic setting. Anticipating that high-cost firms will receive more permits in the future, firms purchase excessiv...