Issue 3

Volume 7 JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY
Fall 1998

Increases in Executive Pay Following Privatization

Catherine D. Wolfram
The average chief executive at one of Britain's twelve regional electricity distribution companies experienced nearly a threefold salary increase in the two years following the industry privatization in 1990. It is hard to account for the tremendous pay raises with conventional explanations for executive compensation rates.

The Effectiveness and Targeting of Television Advertising

Ron Shachar and Bharat N. Anand
Television networks spend about 16% of their revenues on tune-ins, which are previews or advertisements for their own shows. In this paper, we examine two questions. First, what is the informational content in advertising? Second, is this level of expenditures consistent with profit maximization? To answer these questions, we use a new and unique micro-level panel dataset on the television viewing decisions of a large sample of individuals, matched with data on show tune-in advertisements.

Contract Renegotiation with Time-Varying Valuations

Andreas Blume
The paper characterizes optimal renegotiation-proof rental contracts in a model with adverse selection and hidden information. It generalizes the work of Hart and Tirole (1988) to the case of time-varying valuations. The paper considers a durable-goods monopolist who serves a nonanonymous buyer with time-varying valuation for the seller's good.

Seller Financing of Consumer Durables

Arijit Sen
Sellers of consumer durables often provide financing to customers. This paper shows that when customers desire consumption smoothing and when financial markets are imperfect, a seller can find it optimal to offer a menu of deferred-payment plans.

Product Switching Cost and Strategic Flexibility

Myong-Hun Chang
This paper examines the equilibrium degree of flexibility adopted by firms competing in oligopolistic product markets in which the value of flexibility arises from the initial presence of uncertainty over consumer preferences and its eventual resolution.