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The purpose of this book is to discuss the relationship between information and distribution, with special reference to the role of the merchant in a market economy under conditions of risk and uncertainty. By working with simple models of the market economy and conducting a sequence of comparative analyses, the authors shed new light on an important yet rather neglected area in economics.

In a historical perspective, the merchants of Ohmi, the former name of Shiga Prefecture in western Japan, are known to have put great faith in the principles of Sampo Yoshi or the all-around advantages of trading. It is hoped that the results presented in this book will provide some solid ground for such an old principle that can be seen in a new light. Applications to regional and many related problems are also discussed here.

A distribution system is broadly defined as the systematic mechanisms and structures that regulate business operations, and its function is to maximize corporate value. Some of the following functions have previously been identified as distinguishing features of the Japanese distribution system compared with distribution systems in Europe and the United States: not only transactions, transportation, and storage, but also information, risk-bearing functions, and other characteristics. This book provides an overview of the distribution system in Japan, including changes that its practice have undergone and its current state; identifies current problems; and considers how these problems should be addressed.

Inhaltsverzeichnis

Frontmatter

Merchants: Historical Perspective

Frontmatter

Chapter 1. Liverpool Merchants Versus Ohmi Merchants: How and Why They Dealt with Risk and Insurance Differently

Abstract
The purpose of this paper is to intensively discuss and carefully compare the Liverpool merchants of Britain and the Ohmi merchants of Japan in a historical perspective. The question of much interest is how and why those two merchants dealt with risk and insurance differently. In his later years, John Hicks did a great contribution on the theory of economic history. He paid a special attention to the rise of the market in which the merchant played as the main actor of the history theater. According to the Hicks doctrine, the relation between theory and history should not be one-to-one, but rather flexible to a certain degree. Therefore, it would be quite interesting to carefully compare the Liverpool merchants of Britain and the Ohmi merchants of Japan. It will be seen that they were engaged in their respective triangular trade, producing their respective socioeconomic systems. In short, we have to take a pluralistic view in order to fully understand the concept of risk and insurance from the viewpoint of economic history.
Yasuhiro Sakai, Keisuke Sasaki

Chapter 2. The Role of Merchants in the Exchange Economy: A Historical Perspective

Abstract
This paper aims to discuss the relationship between economic theory and market economy from a new historical angle. Historically speaking, Werner Sombart seems to be a man in paradox. Although he was once a famous professor at Berlin, he became an almost forgotten man after the Second World War. In the 1990s, however, we saw a remarkable comeback of Sombart, named the Sombart Renaissance; his work on the role of capitalist spirit played in the three stages of capitalism is now worth serious investigation. In contrast, John Hicks has mainly been regarded as an important theoretician of general equilibrium and welfare, but his later work on economic history is also worthy of vital consideration. Hicks pays special attention to the role of merchant played in the exchange economy. By comparing the works of Sombart and Hicks in many ways, we can shed new light on the immortal problem of the relationship between Theory and History. We strongly believe that Ohmi merchants of Japan give us very good examples of the Hicks-type mercantile economy. Hicks has emphasized that the trade should comply with the “principle of all-round advantage.” Certainly, it corresponds well to the “principle of sampo-yoshi” obeyed by Ohmi merchants: namely, the principle of being good for a seller, good for a buyer, and good for the society.” We also would like to add that Ohmi merchants acted as lively players with capitalistic spirits a la Sombart. In short, we can learn a set of new lessons from the old teachings of Sombart and Hicks.
Yasuhiro Sakai, Keisuke Sasaki

Information Exchange: Theoretical Perspective

Frontmatter

Chapter 3. A Theory of Information and Distribution: The Market Economy and Demand Risk

Abstract
This paper discusses the relationship between information and distribution, with special reference to the role of the merchant in the market economy. By working with simple equilibrium models of the industry and doing a sequence of comparative economic analyses, we intend to shed a new light on an important yet rather neglected area in the economics profession. Let us suppose that the demand side is subject to many changes and may be represented by a simple uniform distribution function with two parameters, i.e. mean μ and variations σ2. Then, we can show that the entry of the informed distributor between the producer and the consumer would cause two opposing welfare effects: A negative intermediation effect and a positive information effect. If the degree of relative risk is large enough in the sense that the σ2 - μ2ratio exceeds a certain threshold value, then the information effect becomes a dominant force. Therefore, the introduction of the distributor into the economy will increase both producer and consumer surpluses: It will make all the parties better off. In a historical perspective, the Ohmi merchant is known to have a good faith in Sampo Yoshi, or the principle of all-round advantages of trading. Hopefully, the result obtained in the paper will give some theoretical ground for such an old and new principle.
Yasuhiro Sakai, Keisuke Sasaki

Chapter 4. Information Exchanges among Firms and Their Welfare Implications (Part I): The Dual Relations between the Cournot and Bertrand Models

Abstract
This long series of papers consist of three parts. Part I is concerned with the basic dual relations between the Cournot and Bertrand models. Part II begins to deal with the world of risk and uncertainty, with a discussion of the Cournot duopoly model with a common demand risk as a starting point. It then deals with other types of duopoly models with a common risk. Part III discusses more complicated problems such as private risks and oligopoly models. All these three parts taken together aim to carefully outline and critically evaluate the problem of information exchanges in oligopoly models, one of the most important topics in contemporary economics.
The true motivation of writing such survey papers is to strive for a synthesis of the economics of imperfect competition and the economics of imperfect information. The problem at issue is how and to what extent the information exchanges among firms influence the welfare of producers, consumers, and the whole society. It is seen in the paper that a definite answer to the problem really depends on the following many factors. (1) The type of competitors (Cournot-type or Bertrand-type), (2) the nature of risk (a common value or private values; demand risk or cost risk), (3) the degree and direction of physical and stochastic interdependence among firms, and (4) the number of firms. If any set of those factors is specified in a given oligopoly model, the welfare and policy implications may very systematically be derived by way of their decomposition into the following four effects. That is, (i) own variation effects, (ii) cross variation effects, (iii) own efficiency effects, and (iv) cross efficiency effect. In the real world, trade associations may be regarded as typical information exchange mechanisms. Many welfare implications obtained in the papers will shed a new light to the effectiveness and limitations of those trading groups.
Yasuhiro Sakai, Keisuke Sasaki

Chapter 5. Information Exchanges among Firms and Their Welfare Implications (Part II): Alternative Duopoly Models with Different Types of Risks

Abstract
The purpose of this paper is to overview and evaluate the problem of information exchanges in oligopoly, an important topic in contemporary economics. It is intended as a synthesis of the two streams of economic theories: the economics of imperfect competition and the economics of risk and information. This long series of papers consists of three parts. The previous chapter which dealt with Part I discussed the dual relations between the Cournot and Bertrand duopoly models in the absence of risk.
This paper turns to Part II, focusing on many duopoly models in which a common risk is present. The starting point of discussion is the Cournot duopoly model with an industry-wide common demand risk. Many other duopoly models such as the Cournot duopoly with cost risk and the Bertrand duopoly with demand or cost risk are successively discussed. It will be seen that the existence of various risk factors and the informational exchanges between Cournot or Bertrand firms influence the welfare implications on consumers and the society in many complicated ways.
The next paper which deals with Part III will be concerned with more complicated problems such as private risks and/or oligopoly models.
Yasuhiro Sakai, Keisuke Sasaki

Chapter 6. Information Exchange among Firms and Their Welfare Implications (Part III): Private Risks and Oligopoly Models

Abstract
The long series of papers on the information exchanges among firms and their welfare implications contain three parts, namely Part I, Part II, and Part III. In the previous chapters, we already discussed Parts I and II. Part I was concerned with the basic dual relations between the Cournot and Bertrand models. Part II dealt with the world of risk and uncertainty, focusing on the Cournot duopoly model with a common demand risk as a starting point. It then explored other types of duopoly models with a common risk. The purpose of this chapter is to discuss more complicated problems such as private risks and oligopoly models. When there exist more than two firms in an industry, the problem of the information exchange among firms becomes more complicated yet more intriguing. It will be seen that as the number of “producers as insiders” rises, the possibility of “consumers as outsiders” gaining their welfare is likely to increase. This is certainly the result which may agree with common sense. Some policy implications of our analysis will also be investigated.
Yasuhiro Sakai, Keisuke Sasaki

Chapter 7. The Profit-Maximizing and Labor-Managed Firms: A Unified Approach to the Role of Information

Abstract
This paper analyzes the welfare implications of acquiring information for profit-maximizing and labor-managed firms (in short, PMF and LMF). We invent a unified method of exploring the role of information in a two-person game under uncertainty on the basis of comparative static analysis, and then apply the method to both the PMF and LMF. It is shown that whereas the LMF’s behavior is analogous to that of the PMF in some circumstances, the former may be entirely different from the latter in others. Because a special status is accorded to labor as a variable factor of production, the informational analysis of the LM economy requires special care for both computation and interpretation.
Looking carefully at reality, there are a variety of capitalist firms, presumably forming a sort of spectrum with PMF at one end and the LMF at the other end. We would strongly believe that LMF also matters and should be worthy of due investigation.
Yasuhiro Sakai, Keisuke Sasaki

Risk Aversion: Mathematical Perspective

Frontmatter

Chapter 8. Risk Aversion and Information Exchange: The Constant Absolute Risk Aversion Function and its Applications

Abstract
The purpose of this paper is to carefully investigate the relationship between the concepts of risk aversion and expected utility, with a focus on the constant-risk-aversion function and its application to oligopoly theory. Whereas there is now a growing literature on risk, uncertainty, and the market, the operational theory of risk-averse oligopoly has been rather underdeveloped so far.One of the reasons for such underdevelopment is that the established concept of risk aversion remains too abstract rather than reasonably operational, whence very few economists have dared to study the economic consequences of a change of risk aversion by firms.
In this paper, we attempt to combine the constant absolute risk aversion function developed by K. J. Arrow and J. W. Pratt, two great economists of the 20th century, and the normal distribution function invented by K.F. Gauss, a mathematical genius of the 19th century: The resulting situation may be called the CARA-NORMAL case. We intend to invent a very useful mathematical theorem for this specific yet important case, and then apply it to the theory of risk-averse oligopoly. In particular, the impact of increasing risk aversion on the outputs of duopolies is carefully examined. It is shown among other things that the comparative static results depend on the degree of risk aversion and the state of product differentiation.
Yasuhiro Sakai, Keisuke Sasaki

Chapter 9. Information Sharing of Private Cost Information: An Application of the Cardano Cubic Formula

Abstract
There have been so many papers on the theory of oligopoly and information. In spite of growing literature on this subject, however, we believe that there is nevertheless a conspicuously missing link in it. To our surprise, very few papers have ever attempted to investigate an important subject of “information exchange and risk aversion.” Although such a subject seems to demand very tough computations and psychological pains, we strongly believe that someone must take up a challenge. So, the main purpose of this paper is to do our best for filling in such a missing gap, thus hoping to do a contribution to the important subject of oligopoly and information. More specifically, this paper aims to discuss the value of additional information in Cournot duopoly when each firm faces its own cost uncertainty. If firms display risk aversion and thus maximize the expected utility of profits, the exchange of cost information between them affects the mean values of outputs as well as their variances. By employing a constant absolute risk aversion model, we are able to show the variance effect may sometimes overpower the mean effect, whence information sharing may possibly make firms worse off. As our daily experience shows, “going together” may sometimes be a better policy than “going alone.”
Yasuhiro Sakai, Keisuke Sasaki
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