A selection from Stockholm University publication database

• Does hidden information make trade liberalization more fragile?

  2011. Mathias Herzing. Canadian Journal of Economics 44 (2), 561-579

  Article

  P>This paper focuses on the impact of hidden information on strategic interaction in the context of trade agreements. In the presence of informational asymmetry it is possible that a tradeoff between liberalization and sustainability of cooperation emerges. It is shown that it may be optimal to agree on a degree of liberalization associated with a strictly positive ex ante probability of deviation occurring. In that case, cooperation will break down in finite time, and the optimal degree of liberalization cannot be applied indefinitely.Ce memoire etudie l'impact de l'information cachee sur l'interaction strategique dans le contexte des accords de commerce. Quand il y a asymetrie de l'information, il est possible qu'emerge une relation d'equivalence entre la liberalisation et la viabilite de la cooperation. On montre qu'il peut etre optimal de s'entendre sur un degre de liberalisation associe a une probabilite ex ante strictement positive qu'une deviation va se produire. Dans ce cas, la cooperation va s'effriter dans une periode finie, et le degre optimal de liberalisation ne tient pas indefiniment.

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• ON THE OPTIMAL PRODUCTION CAPACITY FOR INFLUENZA VACCINE

  2015. Rikard Forslid, Mathias Herzing. Health Economics 24 (6), 726-741

  Article

  This paper analyzes the profit maximizing capacity choice of a monopolistic vaccine producer facing the uncertain event of a pandemic in a homogenous population of forward-looking individuals. For any capacity level, the monopolist solves the intertemporal price discrimination problem within the dynamic setting generated by the standard mathematical epidemiological model of infectious diseases. Even though consumers are assumed to be identical, the monopolist will be able to exploit the ex post heterogeneity between infected and susceptible individuals by raising the price of vaccine in response to the increasing hazard rate. The monopolist thus bases its investment decision on the expected profits from the optimal price path given the infection dynamics. It is shown that the monopolist will always choose to invest in a lower production capacity than the social planner. Through numerical simulation, it is demonstrated how the loss to society of having a monopoly producer decreases with the speed of infection transmission. Moreover, it is illustrated how the monopolist's optimal vaccination rate increases as its discount rate rises for cost parameters based on Swedish data. However, the effect of the firm discount rate on its investment decision is sensitive to assumptions regarding the cost of production capacity.

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• Welfare effects of taxation in oligopolistic markets

  2016. Jonas Häckner, Mathias Herzing. Journal of Economic Theory 163, 141-166

  Article

  This paper discusses how marginal costs of public funds are related to various market characteristics under imperfect competition. Under a quite general tax scheme, these costs turn out to be lower the wider the firms' product ranges, the lower the degree of market concentration and the lower the degree of product differentiation. Moreover, marginal costs of taxation are lower in Bertrand markets compared to Cournot markets. In cases when marginal costs of public funds cannot easily be assessed we ask if pass-through rates can provide useful information for policy makers. The market characteristics that we analyze are shown to have opposite effects on pass-through and marginal costs of public funds. It is also demonstrated that the marginal cost of public funds is generally lower for ad valorem taxes than for unit taxes. The main results are based on a linear demand system, but a number of extensions confirm that our main results are reasonably robust.

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• The effectiveness of environmental inspections in oligopolistic markets

  2017. Jonas Häckner, Mathias Herzing. Resources and Energy Economics 48, 83-97

  Article

  This study focuses on the consequences of inducing compliance with environmental legislation through inspections in oligopolistic markets. Adherence to the law is associated with environmental gains, but also with losses in surpluses as firms incur abatement costs. By relating the net social benefit of deterring breaches of legislation to inspection costs, the impact of various market characteristics on the effectiveness of inspections can be assessed, thus providing guidance for environmental inspection agencies that have to prioritize among sectors given a fixed budget.

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• The equilibrium compliance rate among regulated firms

  2020. Jonas Häckner, Mathias Herzing. International Review of Law and Economics 63

  Article

  This study develops a framework for the strategic interaction of firms that have to decide between adhering to and violating legislation. Depending on how deterring enforcement is various degrees of compliance with the law will arise in equilibrium. For an agency that targets a certain compliance rate more resources per firm should be allocated to industries with strong demand and high costs for adhering to legislation. Whenever some degree of non-compliance among competing firms can be expected, more inspection resources are needed in markets where products are highly differentiated and/or the number of firms is small.

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• Assessing the consequences of quarantines during a pandemic

  2021. Rikard Forslid, Mathias Herzing. European Journal of Health Economics 22 (7), 1115-1128

  Article

  This paper analyzes the epidemiological and economic effects of quarantines. We use a basic epidemiological model, a SEIR-model, that is calibrated to roughly resemble the COVID-19 pandemic, and we assume that individuals that become infected or are isolated on average lose a share of their productivity. An early quarantine postpones but does not alter the course of the pandemic at a cost that increases in the duration and the extent of the quarantine. For quarantines at later stages of the pandemic there is a trade-off between lowering the peak level of infectious people on the one hand and minimizing fatalities and economic losses on the other hand. A longer quarantine dampens the peak level of infectious people and also reduces the total number of infected persons but increases economic losses. Both the peak level of infectious individuals and the total share of the population that will have been infected are U-shaped in relation to the share of the population in quarantine, while economic costs increase in this share. In particular, a quarantine covering a moderate share of the population leads to a lower peak, fewer deaths and lower economic costs, but it implies that the peak of the pandemic occurs earlier.

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• Multiple equilibria in the context of inspection probabilities depending on firms' relative emissions

  2021. Mathias Herzing. Resources and Energy Economics 63

  Article

  This paper presents a model of environmental regulations with firms that are heterogeneous with respect to the cost for reducing emissions to the legally permitted level. Given that the enforcement capacity is limited due to budgetary constraints and that each firm's inspection probability depends on its emissions relative to other firms’ emissions, the likelihood of being punished for violations is endogenously determined and multiple equilibria may therefore arise. Hence, both good outcomes with high compliance rates and bad outcomes with many violations are possible. Multiple equilibria are most likely to emerge at intermediate levels of deterrence and at low permitted emission levels. However, it is generally not straightforward how stricter legislation impacts on equilibrium outcomes, indicating that behavioral expectations among regulated firms are an important factor to consider when adapting enforcement to changes in the law.

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