Total Surplus Research Articles

Full-Duplex Wireless Powered IoT Networks

This paper studies the emerging wireless power transfer for the Internet-of-Things (IoT) network, where one hybrid access point (H-AP) with constant power supply communicates with a set of IoT devices. This H-AP is assumed to work in a full-duplex mode, which transmits/receives signals to/from these IoT devices simultaneously during the whole frame. The IoT devices are capable of harvesting energy from the received signals broadcast by the H-AP. And the harvested energy is used to support the uplink transmission. Since time-division multiple access is used in uplink transmission, one IoT device keeps harvesting energy till its own uplink time slot. The objective of this paper is to maximize the total surplus energy, which is defined as the gap between available energy and consumed energy for uplink transmissions, by exploiting the optimal time allocation scheme for each device. A distributed non-cooperative and a bargaining cooperative game-based algorithms are proposed to solve this problem. In addition, the well-known KKT condition approach is adopted as a comparison. The numerical results show that the bargaining cooperative algorithm outperforms the distributed non-cooperative algorithm (DNCA) and KKT algorithm (KKTA) in terms of total surplus energy and fairness index. The performance of DNCA is better than that of KKTA in terms of total surplus energy while KKTA is fairer than DNCA.

Modified Benders Decomposition for Solving Transmission Investment Game With Risk Measure

This paper proposes a mathematical model for transmission investment game where there are several transmission planners (TPs). The model is developed assuming a simultaneous-move game between TPs. Each TP maximizes the total surplus (producers’, consumers’, and transmission surplus) minus the investment cost of its region given the investment decisions of rival TPs. The transmission investment risk is also considered using the probability-of-shortfall measure. We assume one market operator who dispatches the generators in all TP's regions. The risk-constrained Nash equilibria model is formulated as a mixed-integer linear program (MILP). To solve the proposed MILP, a solution algorithm is proposed that combines the standard branch-and-bound algorithm (BB) with a proposed modified benders decomposition algorithm (MBD). The proposed BB-MBD algorithm is also parallelized to improve the computation performance. To improve the coordination between TPs, a supporting budget mechanism is also mathematically modeled in the MILP. The numerical results are carried out using the 9-bus 3-area and the IEEE Three Area RTS-96 networks. The computational performance of proposed BB-MBD is compared with standard BB algorithm.

Valuing Product Innovation: Genetically Engineered Varieties in U.S. Corn and Soybeans

We develop a discrete-choice model of differentiated products for U.S. corn and soybean seed demand to study the welfare impact of genetically engineered (GE) crop varieties. Using a unique dataset spanning the period 1996-2011, we find that the welfare impact of the GE innovation is significant. In the last five years of the period analyzed, our preferred counterfactual indicates that total surplus due to GE traits was $5.18 billion per year, with seed manufacturers appropriating 56% of this surplus. The seed industry obtained more surplus from GE corn, whereas farmers received more surplus from GE soybeans.

Managing channel profit and total surplus in a closed-loop supply chain network

Today’s government is interested in the product recovery programme in order to encourage sustainability. The research develops four closed-loop supply chain models by considering different scenarios for the governmental subsidies and fees under price-sensitive demand. Analytical results suggest that the government should provide subsidies to the manufacturer to maximise channel profit and total surplus. Higher subsidies advocates a manufacturer’s intention to lean towards remanufacturing activities under given manufacturing and consumption fees scenarios. The sensitivity analysis reveals that the total surplus and channel profit increases as subsidies increase in all closed-loop supply chain models.

Toward a dynamic notion of value creation and appropriation in firms: The concept and measurement of economic gain

Research Summary: “Value creation” is central to strategy. Even so, confusion arises because it can be defined in different ways, e.g., as the sum of producer and consumer surplus in a given time period, or as the change in surplus over time. To formalize the latter notion, we introduce the concept of economic gain, defined as the increase in total surplus. Economic gain can arise through innovation or when a superior firm displaces competitors. We provide a firm‐level measurement framework to quantify economic gain and its distribution among stakeholders, including the firm's shareholders, employees, suppliers, and customers. As an empirical illustration, we compare the creation and distribution of economic gain by Southwest Airlines and American Airlines between 1980 and 2010. Managerial Summary: Most managers and the business press regard “value creation” as the increase in shareholder wealth represented by a rise in corporate profit or stock price. A broader conception of value creation goes beyond shareholders to include the value that is distributed to additional stakeholders of the firm, including employees, suppliers, and customers. We develop a mathematical framework that allows this broader notion of value creation and distribution to be assessed and quantified in many cases. We illustrate the framework using historical data on Southwest Airlines and American Airlines over 3 decades.

Creative delinquency or destructive selfishness?

We study two competing firms with different production costs and moral standards making decisions to sell their products in the market by choosing their optimal production quantities and degrees of disobedience of a guiding rule imposed by a regulatory authority such as the government. We model this problem as a Cournot–Nash game in which. We introduce rules unfairness as a behavioural factor at work. We answer the questions of why firms disobey rules and to what degree and what are the effects of such actions. Our results show that firms disobey the rules for self-interest and harm other incentives. The case when the firms’ disobediences can improve the total surplus (sum of their profits) is referred to as creative delinquency, whereas destructive selfishness refers to situation in which one’s behaviour only benefits self and leads to a decreased total surplus. Our results indicate that rules unfairness could be beneficial in some cases. Finally, our derivation of the optimal decision rules allows a regulatory authority to put into effect a coordinated punishment strategies that can benefit one firm or both firms.

Stable Licensing Schemes in Technology Transfer

We consider stable licensing schemes that are combinations of lump-sum fee and per-unit royalty realized as bargaining outcomes in transferring a new technology from a technology holder to oligopolistic firms through licensing. The licensing schemes on which the technology holder and licensees can agree are necessarily rejection-proof; that is, no subgroup of licensees has an incentive to reject the licensing schemes. We define the rejection-proof core for each group of licensees as the set of rejection-proof licensing schemes for its group that are not dominated by any other rejection-proof licensing schemes for any licensees' group. Our findings are as follows: For the group of licensees that maximizes the sum of the technology holder's (gross) profit and licensees' total surplus, the rejection-proof core is always non-empty. Further, the non-empty rejection-proof cores suggest that it should be optimal for the technology holder to license the new technology to such a group from the viewpoint of his/her profit maximization.

Impact of vaccine against peste-des-petits ruminants (PPR) in India: An analysis using economic surplus model

Peste-des-Petits Ruminants (PPR) as an acute contagious disease in sheep and goats has proved costly and is considered as one of the most important health constraints in rearing of small ruminants. ICAR-Indian Veterinary Research Institute, Izatnagar had developed a vaccine against the disease through research project during the period 1997-2001. The vaccine has been marketed by various agencies, both public and private since 2007-08 in many states of the country. The economic feasibility of PPR control programme using the above vaccine at the national level was estimated using an economic surplus model. The change in total economic surplus and research and delivery cost were projected from 1997 (year of the start of the research project) to 2030 (by which 100% of small ruminant population is to be vaccinated, as per OIE/FAO specifications) after adjusting for the above adoption pattern. The benefits to society (economic surplus) and costs of control programme were deflated using a suitable consumer price index to 2016 level. Using a long run discount rate of 7.5%, the benefits were compared to researchand delivery cost and the NPV, IRR and BCR were calculated. The change in total surplus as a result of vaccination of sheep and goats against PPR was ₹ 8,253 crore per annum. The study revealed that the vaccination programme resulted into significant economic benefits (NPV= ₹ 489 crore). The IRR and BCR were 119% and 123:1, respectively. Sensitivity analysis revealed that the benefits were most sensitive to higher assumption of discount rate and lower assumption of degree of immunity provided by the vaccine accounting for uncertainties in the efficacy of the vaccine at the field level. In both the case, the net benefits decreased significantly. Net benefits to society also significantly decreased upon the assumption of declining adoption rates and ceiling adoption not reaching 100% level.

Piracy on the Internet: Accommodate it or fight it? A dynamic approach

This paper uses a dynamic stochastic model to solve for the optimal pricing policy of music recordings in the presence of P2P file-sharing networks eroding their sales. We employ a policy iteration algorithm on a discretized state space to numerically compute the optimal pricing policy. The realistically calibrated model reflects the real-world figures we observe and provides estimates of the optimal pricing policy as well as comparative statics figures. The pricing policy is such that, for a given P2P network size, prices are increasing in the number of buyers of the product and, for a given number of buyers of the product, prices are non-monotonic in the P2P network size. Surprisingly, in the presence of P2P networks, increases in production costs and decreases in the valuation of the product increase the consumer and total surplus. A higher valuation of the product leads to a lower steady state price. Increased switching costs have a negative effect on prices and profits, so the long term incentive to attract new consumers dominates the short term incentive to harvest loyal consumers. The full enforcement of intellectual property rights has adverse effect on both consumer surplus and total welfare.

Economic Analysis of Reward Advertising

This paper investigates an emerging monetization mechanism for app developers – reward advertising. With reward ads, consumers have an option to view ads in exchange for a reward such as premium content. We investigate when and how an app developer should adopt reward ads as a mechanism for monetizing content. We identify two determinants – the revenue rate of the ads and the heterogeneity of consumers’ nuisance costs of viewing ads. When the ad revenue rate is low relative to consumers’ nuisance cost, the app developer should rely on content selling and not offer reward ads (i.e., the pure content-selling strategy). Otherwise, it is profitable for the app developer to offer reward ads alone (the pure reward-advertising strategy) or in combination with content selling (the hybrid strategy). When reward ads are offered, the hybrid strategy is more profitable if consumers are highly heterogeneous in nuisance costs; otherwise, the pure reward-advertising strategy is more profitable. Interestingly, we find that a high reward rate could decrease the number of reward ads viewed due to accelerated satiation. The optimal reward rate for the pure reward-advertising strategy may increase or decrease in consumers’ nuisance cost heterogeneity. Furthermore, when the proportion of low-nuisance-cost consumers is high enough, the total consumer surplus under the pure reward-advertising strategy is lower than those under the other two strategies. Our results provide practical guidance for app developers on when to use reward advertising, how to choose optimal rewards rates, and what to expect about its impact on consumers.

Collusion in mixed oligopolies and the coordinated effects of privatization

We study the sustainability of collusion in mixed oligopolies where private and public firms only differ in their objective: private firms maximize profits, while public firms maximize total surplus. If marginal costs are increasing, public firms do not supply the entire market, leaving room for private firms to produce and possibly cooperate by restricting output. The presence of public firms makes collusion among private firms harder to sustain, and maybe even unprofitable. As the number of private firms increases, collusion may become easier or harder to sustain. Privatization makes collusion easier to sustain, and is socially detrimental whenever firms are able to collude after privatization (which is always the case if they are sufficiently patient). Coordinated effects thus reverse the traditional result according to which privatization is socially desirable if there are many firms in the industry.

Unbundling Efficient Breach: An Experiment

Current law and economics scholarship analyzes efficient breach cases monolithically. The standard analysis holds that breach is efficient when performance of a contract generates a negative total surplus for the parties. However, by simplistically grouping efficient breach cases as of a single kind, the prior literature overlooks that gain‐seeking breaches might be different from loss‐avoiding breaches. To capture these different motives, we designed a novel game called the Contract‐Breach Game where we exogenously varied the reasons for the breach—pursuing a gain or avoiding a loss—under a specific performance remedy. Results from an incentivized laboratory experiment indicate that the motives behind the breach induce sizable differences in behavior; subjects are less willing to renegotiate when facing gain‐seeking than loss‐avoiding breaches, and the compensation premium obtained by the promisee is higher. Our analysis suggests that inequality aversion is an important driver of our results; indeed, inequality‐averse subjects accept low offers more often in cases of loss‐avoiding breaches than gain‐seeking breaches. These results give us insight into the preferences and expectations of ordinary people in a case of a breach.

Asymmetric information and the property rights approach to the theory of the firm

In the Grossman–Hart–Mooreproperty rights approach to the theory of the firm, it is usually assumed that information is symmetric. Ownership matters for investment incentives, provided that investments are partly relationship-specific. We study the case of completely relationship-specific investments (i.e., the disagreement payoffs do not depend on the investments). It turns out that if there is asymmetric information, then ownership matters for investment incentives and for the expected total surplus. Specifically, giving ownership to party B can be optimal, even when only party A has to make an investment decision and even when the owner’s expected disagreement payoff is larger under A-ownership.

Research and Development Cooperatives and Market Collusion: A Global Dynamic Approach

We present a continuous-time generalization of the seminal research and development model of d’Aspremont and Jacquemin (Am Econ Rev 78(5):1133–1137, 1988) to examine the trade-off between the benefits of allowing firms to cooperate in research and the corresponding increased potential for product market collusion. We show the existence of a solution to the optimal investment problem using a combination of results from viscosity theory and the theory of planar dynamical systems. In particular, we show that there is a critical level of marginal cost at which firms are indifferent between doing nothing and starting to develop the technology. We find that colluding firms develop further a wider range of initial technologies, pursue innovations more quickly, and are less likely to abandon a technology. Product market collusion could thus yield higher total surplus.

Air and high-speed rail transport integration on profits and welfare: Effects of air-rail connecting time

Air-rail integration has become a popular idea to relieve airport congestion and environmental impact of transport industry, especially amid the fast expansion of high-speed rail network around the world. This study examines the circumstances under which air-rail integration can be better justified, by focusing on the effects of reducing air-rail connecting time on transport operators' profits, consumer surplus, and social welfare. We show that while consumers always benefit from less air-rail connecting time (an integrated hub with seamless transfer between air and rail services is always preferred by passengers), operators of the two modes, air transport and high-speed rail, won't have an incentive to integrate unless the cost of integration is sufficiently low. Nonetheless, reducing air-rail connecting time enhances total surplus when the hub airport suffers from a certain degree of capacity constraint and the cost of air-rail integration is not too high.

The Effect of Content Providers' Ability to Charge End-Users on the Network Neutrality Debate

There is an ongoing global debate on network neutrality, a principle that prohibits Internet Service Providers (ISPs) such as Comcast from charging content providers like Netflix for preferential delivery of their content to end-users. In this paper, we shed new light on the debate by developing and analyzing a two-sided model of the Internet that not only allows the ISP to charge both end-users and content providers, but, in contrast to previous work, also incorporates the ability of content providers to charge end-users directly. We show that in this scenario, which is more realistic in today’s world, all players are equally well off with or without network neutrality. This is in stark contrast to the findings obtained in a scenario where we limit content providers to rely on advertising alone for revenue; in such a context, content providers are worse off but the ISP and end-users are better off without network neutrality. We show that our results continue to hold when the content providers command different advertising rates, suggesting that removing network neutrality does not favor stronger content providers over weaker ones. We also study a scenario where only one content provider can charge end-users directly while the other relies only on advertising revenue. In this scenario, while the players are no longer indifferent between the two regimes, content providers can be better off and total surplus can reduce without network neutrality, which is in contrast to the findings obtained when both content providers are constrained to rely only on advertising for revenue.

Mesquite Extract as Phytogenic Additive to Improve the Nutrition of Sheep

Four concentrations (0, 200, 400, 600 and 800 mg extract per ml of water) of mesquite extract were used as phytogenic additive to verify the potential to increase the nutritional value of the feed, ruminal parameters (primarily propionate production) and nitrogen use efficiency, microbial protein synthesis and quantify the reduction of ciliated protozoa and characterize the ingestive behavior of sheep. Ten adult male sheep were subjected to a 5 × 5 double Latin square design. Prior to feeding, the animals received the mesquite extract. Nutrient intake was estimated from the difference of the amount of feed provided and the total surplus. Rumen content samples were collected to evaluate the profile of short-chain fatty acids, ammonia nitrogen, pH, ciliated protozoa, turnover rate and disappearance rate. To estimate the microbial protein synthesis, the technique of purine derivatives was used. The mesquite extract quadratically increased (P < 0.05) the digestibility of dry matter, organic matter, crude protein and total digestible nutrients, as well as increased propionate production, acetate:propionate ratio and microbial protein synthesis. The numbers of ciliate protozoa in the rumen decreased as a result of mesquite extract inclusion in the diet. The use of mesquite pod extract at a concentration of 488 mg/mL is recommended to improve digestibility of dry matter, organic matter, crude protein and total digestible nutrients, and to optimize microbial protein synthesis and increase propionic acid production.

Vertical integration in the TV market: Exclusive provision and program quality

We study how vertical integration in a media market affects investments in premium content. We show that a content provider provides the premium content exclusively to a platform, regardless of the vertical structure of the industry. However, a vertically integrated content provider has lower incentives to invest in quality than an independent one. With asymmetric platforms, the platform with a competitive advantage in the advertising market obtains the exclusive content, and the content provider invests even less when it is integrated with it. We show that the content provider prefers to merge with the platform with a competitive advantage in the advertising market. Vertical integration reduces both consumer and total surplus. Our results suggest that authorities should carefully assess the effects of vertical mergers on the incentives to invest in content quality, incorporating non-price measures in merger analysis. An intervention at the distribution stage that enforces non-exclusive provision reduces quality and may have adverse effects on consumer and total surplus.

Auctioning the Digital Dividend: A model for spectrum auctions

We model a spectrum auction where firms purchase units to participate in a constrained, multi-product, downstream market. We use dynamic programming techniques to numerically solve for the optimal bidding strategy in a clock auction. Firms value constraining competitor market power, so incumbents often bid aggressively to shut out entrants. We find that high cost firms may hold up the market, so the auction may be inefficient and generate zero revenue. An auction may be optimal for a regulator maximising total surplus. A regulator maximising auction revenue sets reserve prices high enough to restrict spectra sold, effectively behaving as a monopolist.

Durable goods monopoly with stochastic costs

I study the problem of a durable good monopolist who lacks commitment power and whose marginal cost of production varies stochastically over time. Time-varying costs modify the results on the Coase conjecture. When the distribution of consumer valuations is discrete, the monopolist is able to exercise market power and the market outcome is ine¢ cient. In contrast, with a continuum of types the monopolist is unable to extract additional rents from buyers with higher valuations. Moreover, the market outcome is …rst best e¢ cient in this setting: the monopolist serves consumers sequentially as costs decrease, precisely at the point in time that maximizes total surplus. The model is set up in continuous time and the monopolist’s marginal cost evolves as a � :