Showing papers in "Journal of Economics in 1990"
59 citations
TL;DR: The authors analyzes the effect of demand uncertainty in a two-stage duopoly model where firms first choose capacity then price, and shows that the equilibrium is sensitive to the decision structure of the model.
Abstract: This paper analyzes the effect of demand uncertainty in a two-stage duopoly model where firms first choose capacity then price, and shows that the equilibrium is sensitive to the decision structure of the model. If both the capacity choice and the price choice are made simultaneously, no pure strategy equilibrium exists. If prices are chosen sequentially, the pricing stage has two pure strategy equilibria, but only for one of these does a pure strategy equilibrium of the full game exist. Finally, if both capacities and prices are chosen sequentially, a pure strategy equilibrium with strong first mover advantages exists. (This abstract was borrowed from another version of this item.)
29 citations
21 citations
20 citations
TL;DR: In this article, the welfare effects of international transfers in a two country model in the presence of unemployment which is generated by an exogenously specified real minimum wage rate were examined, and the necessary conditions for the occurrence of paradoxical as well as normal results on employment and welfare were established.
Abstract: This paper reexamines the welfare effects of international transfers in a two country model in the presence of unemployment which is generated by an exogenously specified real minimum wage rate. In this context we have found the necessary conditions for the occurrence of paradoxical as well as normal results on employment as well as welfare.
19 citations
TL;DR: In this paper, the authors considered the subgame perfect equilibria in a four-stage game with perfect foresight and showed that a binding price constraint does not necessarily lead to an increase in capacity and output.
Abstract: This paper deals with a privatized firm facing potential market entry. The firm has inherited excess capacity from its public past. The players have asymmetric costs. Only the entrant must install new capacity, which incurs positive capacity installation costs. The paper considers the subgame perfect equilibria in a four-stage game with perfect foresight. The incumbent and the entrant first decide on the capacities and subsequently on the prices. In both cases the incumbent moves first. The second main part of the paper deals with price-cap constraint on the incumbent. The paper shows that a binding price constraint does not necessarily lead to an increase in capacity and output (capacity trap). If the price constraint is binding and market entry occurs, the entrant sells at a higher price than the incumbent.
18 citations
TL;DR: In this article, the authors established a model of East-West trade between a capitalist economy and a labor-managed economy, both of which face asymmetric technological uncertainty, and showed that all the basic theorems in traditional trade theory (Factor Price Equalization, Heckscher-Ohlin, Stolper-Samuelson and Rybczynski) carry over to the uncertain environments characterized by different types of economies.
Abstract: Taking the final stage of the existing socialist economy as the labormanaged economy, this paper establishes a model of East-West trade between a capitalist economy and a labor-managed economy, both of which face asymmetric technological uncertainty. The model reflects the facts that the securities markets for firms' ownership shares exist only in the capitalist economy and that the firm's objective function in the capitalist economy is different from that in the labor-managed economy. It also considers the existence of international forward markets for commodities as international risk-sharing arrangements. Thus, the paper shows that all the basic theorems in traditional trade theory (Factor Price Equalization, Heckscher-Ohlin, Stolper-Samuelson and Rybczynski) carry over to the uncertain environments characterized by different types of economies.
17 citations
TL;DR: In this article, the equivalence of anonymous direct mechanisms and tax systems for continuum economies has been shown, which has been demonstrated by Hammond (1979) and Guesnerie (1981).
Abstract: The equivalence of anonymous direct mechanisms and tax systems for continuum economies, which has been demonstrated by Hammond (1979) and Guesnerie (1981), is shown to have its counterparts in large finite economies.
17 citations
10 citations
TL;DR: In this article, a macro model is chosen such that it gives rise to an aggregation set which is approached by the micro movements as fast as possible, and the inferred macro model describes trajectories of the aggregate quantities towards which the "true" trajectories as generated by a micro model are tending.
Abstract: Although it is not possible, in general, to give a macro description of a micro model over the entire state space of the micro model, it is possible to aggregate exactly over a subspace. The set of micro states where aggregation is possible forms the aggregation set. The paper considers the local (linear) case. The macro model is chosen such that it gives rise to an aggregation set which is approached by the micro movements as fast as possible. The inferred macro model describes trajectories of the aggregate quantities towards which the "true" trajectories of these quantities, as generated by the micro model, are tending.
9 citations
TL;DR: In this article, the authors incorporate endogenous production into Sah's analysis of alternative schemes for distributing a deficit good, and show that if production is linear, a low-wage worker prefers goods to be sold at a free-market price to the alternatives of (equal) nonconvertible rationing or a queuing system.
Abstract: We incorporate endogenous production into Sah's analysis of alternative schemes for distributing a deficit good. The model is interpreted as applying to a socialist economy suffering from repressed inflation. Sah's results are robust to this generalisation provided production is linear. Also, amending Sah's assumptions, we suppose all individuals own equal shares in the means of production. If production is linear, a low-wage worker (particularly defined) prefers goods to be sold at a free-market price to the alternatives of (equal) nonconvertible rationing or a queuing system. Without linearity, the results are less clear-cut.
TL;DR: In this article, an exchange economy using gold as a means of payment is considered where it is possible to borrow gold in a money market and a positive money rate of interest is encountered as the shadow price of the capacity constraint in an economy without enough gold.
Abstract: An exchange economy using gold as a means of payment is considered where it is possible to borrow gold in a money market. A positive money rate of interest is encountered as the shadow price of the capacity constraint in an economy without enough gold. The meaning of enough gold and the role of the default penalty are noted in the determination of the interest rate.
TL;DR: In this article, for the linear heterogeneous duopoly with substitutive goods and with price strategies, the situations in which one firm, firm 1 say, prefers to be price leader, whereas firm 2 prefer to be a price follower conditions that necessarily hold in that case are derived and interpreted in economic terms.
Abstract: We consider for the linear heterogeneous duopoly with substitutive goods and with price strategies the situations in which one firm, firm 1 say, prefers to be price leader, whereas firm 2 prefers to be price follower Conditions that necessarily hold in that case are derived and interpreted in economic terms These conditions characterize the powerful position of firm 1 relative to firm 2 on the market
TL;DR: In this article, it is shown that self-organisation among capitalists of different nations will lead those nations who are most aggressive in the pursuit of accumulation (in terms of savings properties) to dominate completely the ownership of the world's capital.
Abstract: In a simple model of international investment it is shown that self-organisation among capitalists of different nations will lead those nations who are most ‘aggressive’ in the pursuit of accumulation (in terms of savings properties) to dominate completely the ownership of the world's capital. These dominating tendencies will, however, be constrained if governments use profit taxes and transfer receipts for the purpose of productive accumulation. These constraints do not require a change in the ranking of average withdrawals properties.
TL;DR: In this article, the authors analyse the monopoly union model and the wage bargaining model in light of the distinction between insiders and outsiders and show that a possible outcome of wage bargaining is the wage level where all insiders keep their job, but no outsiders are taken on.
Abstract: The monopoly union model and the wage bargaining model are analysed in light of the distinction between insiders and outsiders. It is shown that a possible outcome of the wage bargaining is the wage level where all insiders keep their job, but no outsiders are taken on. In this situation, small variations in the bargaining situation of the union will not affect the wage and employment outcome. Furthermore, it may even be the case that the union does not wish a higher wage, because this would lead to lay-offs among the insiders. Thus, the monopoly union model and the bargaining model may yield the same wage and employment levels.
TL;DR: In this paper, the authors investigate efficiency and equitability issues given a cost sharing method ϕ in an economy with a public commodity and devise a mechanism to implement ϕ-cost share equilibria as strong equilibrium of an associated non-cooperative game.
Abstract: This paper investigates efficiency and equitability issues given a cost sharing method ϕ in an economy with a public commodity. We study the concept of a ϕ-cost share equilibrium and examine the set of all equilibrium allocations. Finally, we devise a mechanism to implement ϕ-cost share equilibria as strong equilibria of an associated non-cooperative game.
TL;DR: In this article, it is shown that the managers in the corporate sector of the economy, operating in an environment of monopolistic competition, experience a situation of this nature, where the market conditions external to the firm and the industry in which it operates, the expected reactions of the rival firms, and managerial preferences together describe the actual performance of the firm.
Abstract: Decision-making in complex organizations is subject to limited information and bounded rationality when confronted with uncertainty of the environment in which the organization has to function. Most of the firms in the corporate sector of the economy, operating in an environment of monopolistic competition, experience a situation of this nature. The market conditions external to the firm and the industry in which it operates, the expected reactions of the rival firms, and managerial preferences together describe the actual performance of the firm. The demand curves of such firms are often random. Further, the information and search costs for any one firm in such a market are prohibitive and prevent it from making attempts to resolve the endemic randomness. Perforce the management has to function in such a stochastic environment. Following Horowitz (1970), Leland (1972), and Hey (1979) it is well-known that such firms may adopt price fixing behavior whether or not they fix the production level a priori. Lim (1981), Aiginger (1985, 1986), and Sengupta (1986) examined the conditions under which different behavioral modes are optimal from the perspective of the management of the firm. To provide guidance to managerial decisions, it is necessary to estimate the parameters of the demand, cost, and managerial preference functions. However, conventional regression methods cannot be utilized to estimate the ex ante demand and cost curves
TL;DR: In this paper, a simple model of an open economy exhibiting some interesting open economy dynamics is presented, where prices and interest rates are perfectly flexible and an imperfection on the labour market is imposed to get more realistic dynamics.
Abstract: This paper is the result of an attempt to build a simple model of an open economy exhibiting some interesting open economy dynamics. According to the latest fashion the model had to be based on intertemporal optimization and anticipation of agents. As a point of reference, we start with a model of a closed economy. We choose the smallest number of agents necessary to construct an interesting economy: two, being a representative firm and a representative consumer. We model anticipation by rational expectations. As we use a simple non-stochastic setting, this implies perfect foresight. The model describes four markets: a market for goods, a market for labour, a market for money and a share market. Prices and interest rates are perfectly flexible. In order to get more realistic dynamics we impose an imperfection on the labour market. This is done by including a Phillips-curve: wages react sluggish to excess demand for (supply of) labour. The resulting model is a microfounded intertemporal analogon of the standard IS-LM model. Section 2 describes the closed economy model. It is shown that the intertemporal behaviour of the model depends critically on the form of the utility function used. A numerical simulation exper- iment with the closed economy model is shown. Then we start opening up the economy. The simplest way to model openness is by the concept of the small open economy, which we use. In the literature there are basically two roots for
TL;DR: The importance of incomplete information and risk aversion for the allocation of economic resources is shown to depend critically on whether uncertainty is exogenously imposed or endogenously related to the ability of the price system to aggregate and disseminate the information possessed by the agents in a decentralized market economy as mentioned in this paper.
Abstract: The importance of incomplete information and risk aversion for the allocation of economic resources is shown to depend critically on whether uncertainty is exogenously imposed or endogenously related to the ability of the price system to aggregate and disseminate the information possessed by the agents in a decentralized market economy. The specific example analysed in this paper is a two-period exchange model with competitive markets and a homogeneous product.
TL;DR: Pay-as-you-go financed state pension systems as means for public pension insurance seem to lose their attraction: economic growth is too slow to guarantee an internal rate of return matching the real interest rate.
Abstract: Pay-as-you-go financed state pension systems as means for public pension insurance seem to lose their attraction: economic growth is too slow to guarantee an internal rate of return matching the real interest rate. Therefore, efficiency reasons do not justify the introduction of this kind of old age insurance. Unfortunately, a transition from an existing pay-as-you-go system to a capital-funded pension scheme is shown not to be Pareto-improving.
Abstract: A multistage economy with durables with finite and with unbounded lives is considered. The importance of the existence of both asset and rental markets is considered. It is shown that without rental markets efficiency may not be achieved and a stationary state that might exist with rental markets need not exist. The meaning of the existence of a 100% backed loan is considered. The roles of gold and land as stores of value and money are considered.
TL;DR: In this paper, the authors analyze two solution procedures for cost minimization problems and discuss their implications for the optimal decisions, and show that the replacement procedure does not work if the firm has to pay only for its input requirements.
Abstract: Consider a price taking firm which faces a random production technology. The major question arising is how to determine the optimal input quantities. In all contributions toward this problem it is assumed that the entrepreneur maximizes the expected utility of profits. Then the solution technique operates via substitution of the stochastic production function into the profit function and is well known (see for example Feldstein, 1971; Batra, 1975; Pope and Kramer, 1979). However, in the case of cost minimization problems, this procedure does not work if the firm has to pay only for its input requirements. This means that no costs arise for a deviation of the realized production volume from the desired one. In the present paper we analyze two solution procedures for such problems and discuss their implications for the optimal decisions. In Section 2 the general problem is stated. In Section 3 we introduce the concept of the true optimal production policy and derive its unbiased estimator as an operational and, in some aspects, superior decision rule. Then we show that the replacement
TL;DR: In this article, it is argued that the Nash equilibrium calculated by Gradus (1989) is not the Nash equilibria found when applying the definition generally employed in differential game theory.
Abstract: It is argued here that the Nash equilibrium calculated by Gradus (1989) is not the Nash equilibrium found when applying the definition generally employed in differential game theory. The model presented by Gradus would call for a modified Nash equilibrium concept as outlined in this note.
TL;DR: In this paper, the authors combine the principal-agent approach with the analysis of labor contracts under demand uncertainty and show that given the necessity to impose effort incentives, the optimal contract is shown to maintain an efficient insurance with respect to the demand uncertainty, and this efficient insurance may now yield either voluntary or involuntary layoff unemployment.
Abstract: The model combines the principal-agent approach with the analysis of labor contracts under demand uncertainty. Given the necessity to impose effort incentives the optimal contract is shown to maintain an efficient insurance with respect to the demand uncertainty and the employment risk. However, this efficient insurance may now yield either voluntary or involuntary layoff unemployment. Further, the optimal effort levels entail “underemployment” given adominant strategy incentive mechanism as well as under aNash-equilibrium mechanism. In contrast, the optimal employment levels fall short of achieving efficient production only in the latter case.
TL;DR: In this article, the authors examined the growth paths that maximize the utility of the worst off generation for an economy where preferences are stationary and can be represented by a recursive utility function.
Abstract: This paper examines the growth paths that maximize the utility of the worst off generation for an economy where preferences are stationary and can be represented by a recursive utility function. The analysis focuses on the case where second period utility is an inferior good. It is shown that in such a case the maximin growth paths are time inconsistent. A possible solution to the time inconsistency problem is examined.
TL;DR: In this paper, the impact of pecuniary externalities in a two-sector economy with an incomplete market structure is analyzed, where agents in each sector choose their proportion of risky investment, and sector specific risks are assumed to be perfectly negatively correlated.
Abstract: The paper analyses the impact of pecuniary externalities in a two-sector economy with an incomplete market structure. Agents in each sector choose their proportion of risky investment. Sector specific risks are assumed to be perfectly negatively correlated. It is shown that the economy is more volatile if risk markets do not exist. With a complete set of risk markets, shocks in one sector will be dampened on the aggregate level. In contrast, when risk markets are absent, pecuniary externalities arising from higher risky investment in one sector can create feedback effects in the other sector. When agents are sufficiently risk averse (their coefficient of relative risk aversion being greater than one), an individually optimal response to the increased riskiness of the price distribution will result in an even riskier price distribution: an increase in risky activity in one sector will lead to an increase in risky activity in the other sector, and this gives multiplier effects.