Showing papers in "Journal of Economics in 1992"
TL;DR: In this paper, the role and function of a mutual bank with variable fractional reserves, redemption in gold, and endogenous interest rate formation is analyzed using the strategic market game approach.
Abstract: We utilize the strategic market game approach to analyze the role and function of a mutual bank with variable fractional reserves, redemption in gold, and endogenous interest rate formation We specify the conditions of enough money and its distribution Using the continuum of traders model, we show existence and optimality for the case ofno bankruptcy as well as for the case in which there exists the potentiality of bankruptcy Finally, we analyze the relationship of the gearing ratio and the bankruptcy penalty with respect to the resulting equilibrium allocations
47 citations
TL;DR: In this article, the formation of expectations during decision making processes on pension schemes is the main focus and an overlapping generations model is used where politicians control the tax-transfer system and the young determine savings, where the outcome in the stationary state depends on the efficiency of the tax transfer system compared with savings and on the preferences of politicians relative to young individuals with respect to the division of endowments between young-age and old-age consumption.
Abstract: In this paper the formation of expectations during decision making processes on pension schemes is the main focus. An overlapping generations model is used where politicians control the tax-transfer system and the young determine savings. No generation of decision makers is committed to previous decisions. It appears that the outcome in the stationary state depends on the efficiency of the tax-transfer system compared with savings and on the preferences of politicians relative to young individuals with respect to the division of endowments between young-age and old-age consumption. One of the main conclusions is that if the parameters of the system are constant the stationary state enters within a finite time interval. So, if the system is initially outside the stationary state, the decision makers can calculate the path of taxes and savings towards the stationary state. This feature is also used to determine the effects of a demographic change.
45 citations
TL;DR: In this article, the effect of changing expectations about future prices on a firm's choice of technique and on its anticipated scrapping of capital equipment is analyzed for a putty-clay technology.
Abstract: The paper presents a framework for analyzing the effect of changing expectations about future prices on a firm's choice of technique, and on its anticipated scrapping of capital equipment Assuming a putty-clay technology, particular attention is paid to the way in which the scrapping age depends on the degree of ex ante input substitution Numerical illustrations — based on data for Norwegian manufacturing for the years 1964–1983, an ex ante technology represented by a Generalized Leontief cost function in materials, energy, labor, and capital, and an ARMA representation of the price expectation mechanism — are presented The results indicate that the price changes in this period may have had a substantial impact on planned scrapping, and on the chosen production techniques
26 citations
TL;DR: While the utility value of life may decrease monotonically with age, the dollar value may increase dramatically until a fairly old age (by ten-fold to age 60 for one plausible set of parameters) as discussed by the authors.
Abstract: While the utility value of life may decrease monotonically with age, the dollar value may increase dramatically until a fairly old age (by ten-fold to age 60 for one plausible set of parameters). Crucial for this result is a high enough real rate of interest (e.g. 4–5%) which makes accumulation desirable, leading to a lower marginal utility of money when one gets older, explaining the divergence. This divergence raises perplexing questions as to which value of life should be used and whether the old should be taxed and the young subsidized.
24 citations
TL;DR: In this paper, it is shown that a firm only prefers a profit-sharing system if its own union does not have "too much" bargaining power, and if the union in the other firm did not have ''too much'' bargaining power.
Abstract: The main purpose of this paper is to analyze when it is optimal for firms in a unionized duopoly to introduce profit-sharing. It is shown that a firm only prefers a profit-sharing system if its own union does not have “too much” bargaining power, and if the union in the other firm does not have “too much” bargaining power. However, if a firm introduces profit-sharing, the employment increases, and the price in the goods market decreases. Hence, even if it is not in the own interest of a firm to introduce profit-sharing, it may be in the interest of the society.
23 citations
TL;DR: In this article, the authors model the dynamic adjustment path of a socialist firm in transition to a market economy by a price shock that renders old capital obsolete and show that the firm can adjust with investment in more productive capital equipments.
Abstract: This paper models the dynamic adjustment path of a socialist firm in transition to a market economy by a price shock that renders old capital obsolete. The firm can adjust with investment in more productive capital equipments. The optimal time paths of investment, output, and employment are analyzed and the impact of fiscal incentives like investment subsidies and a reduced corporate income tax rate are studied. Like output, the aggregate capital stock follows a J-curve. The conditions for viability of firms and the impact of variables such as wage increases on the value of the firm are discussed.
21 citations
TL;DR: In this article, a model of economic development which treats knowledge accumulation as an endogenous variable is proposed. But the model is limited to the case of the People's Republic of China.
Abstract: This study suggests a model of economic development which treats knowledge accumulation as an endogenous variable. It examines possible dynamic processes in an economic system which accumulates knowledge from developed nations. We describe the dynamics of the system by the interactions of three variables—economic conditions, level of knowledge, and openness. The introduction of “openness” as an important endogenous variable is due to the fact that the development model considered here is primarily concerned with the economic dynamics of the People's Republic of China. We are especially interested in nonlinear phenomena such as catastrophes and limit cycles. We show that small shifts in political policies may result in great social structural changes.
20 citations
TL;DR: In this paper, it is shown that such behavior need not result from irrationality or myopia, but may arise instead from the fact that agents do not have sufficient information to compute the RE magnitudes, and must therefore rely on a learning process that makes use of publicly observable data.
Abstract: The financial instability hypothesis advanced by Minsky (1975, 1982, 1986) is not compatible with the rational expectations hypothesis in that firms persist in adopting liability structures which give rise to outcomes which in turn violate the assumptions on the basis of which those liability structures were chosen. This occurs both in the case of excessive caution following a period of instability, and excessive boldness following a long expansion. However, within the context of a formal model, it is shown that such behavior need not result from irrationality or myopia, but may arise instead from the fact that agents do not have sufficient information to compute the RE magnitudes, and must therefore rely on a learning process that makes use of publicly observable data. The dynamics of two commonly used learning processes are examined, one of them Bayesian. Both generate trajectories which differ sharply in their qualitative properties from the RE trajectory, and are in fact quite consistent with the predictions of the FIH.
18 citations
TL;DR: In this paper, an analysis of the optimal harvesting of a renewable resource when human activity other than harvesting plays a role in the growth process of the resource is presented, and the analysis gives rise to results which differ substantially from the usual outcomes in the economics of renewable resources.
Abstract: This paper offers an analysis of the optimal harvesting of a renewable resource when human activity other than harvesting plays a role in the growth process of the resource. The activity we have in mind is not related to pollution or exploration but refers to the ability to influence the growth process directly by means of creating favorable conditions. The analysis gives rise to results which differ substantially from the usual outcomes in the economics of renewable resources. For instance, in the examples under study an increase in the price of the harvested commodity will lead to an increase of the steady state stock of the renewable resource.
17 citations
TL;DR: In this paper, the authors explore how residence and source-based taxes on capital income affect the external current account in small open economies by using an intertemporal equilibrium model with overlapping generations.
Abstract: By using an intertemporal equilibrium model with overlapping generations, this paper explores how residence-and source-based taxes on capital income affect the external current account in small open economies. These taxes influence the saving-investment balance not only through their incentive effects on rates of return but also through their impact on the intergenerational distribution of resources. This paper, in its examination of these effects — both intertemporal substitution and intergenerational distribution — identifies the net effect of the various impacts.
15 citations
TL;DR: In this article, a continuous-time, overlapping generations model with two countries is proposed to deal with dynamic adjustment in large economies to changes in the rate of capital income taxation or in the rates of investment tax credit in one country.
Abstract: This paper deals with dynamic adjustment in large economies to changes in the rate of capital income taxation or in the rate of investment tax credit in one country. The framework applied in the paper is a continuous-time, overlapping generations model with two countries. It features population growth and debt non-neutrality. We address impact and steady state effects of capital income tax and investment subsidy changes in the home country on consumption per capita, the capital intensity, and the per capita net foreign asset position in both countries. We also briefly consider individual welfare consequences of these policies.
Journal Article•
TL;DR: The authors analyzes some important factors determining firms' innovative activity by using a dynamic stochastic oligopoly model, where the rivals in an industry maximize their expected discounted cash flows with respect to R&D expenditures and output levels.
Abstract: This paper analyzes some important factors determining firms' innovative activity by using a dynamic stochastic oligopoly model We suppose that the rivals in an industry maximize their expected discounted cash flows with respect to R&D expenditures and output levels Optimal innovative activity is shown to depend positively on market size, but negatively on demand and technological uncertainty, spillovers, and interest rates Using an isoelastic demand function, we can show that, if spillovers are modest and demand is relatively inelastic, firms' maximum innovative activity is not necessarily to be expected in the monopoly case The maximum may also occur in either a duopoly or triopoly
TL;DR: In this paper, a 2-asset model of portfolio choice is analyzed in order to maximize the investor's expected utility from terminal wealth subject to an expected tax revenue constraint, where the relative change in the risk remuneration should be equal to the inverse of the product of two elasticities.
Abstract: Should risky capital income be taxed like safe income or should tax rates be differentiated? The question is analyzed in a 2-assets model of portfolio choice. Flat tax rates are chosen in order to maximize the investor's expected utility from terminal wealth subject to an expected tax revenue constraint. If lump-sum taxes are not available, optimal tax rates are characterized by an elasticity rule: The relative change in the risk remuneration should be equal to the inverse of the product of two elasticities. One is the output elasticity of capital. The other is the demand elasticity for risky investments with respect to a revenue preserving tax variation.
TL;DR: In this paper, a theoretical model for periodic commodity price shocks in a market with a cartelized supply side is presented, and it is shown how the interactions of sluggish demand and the inherent instability of the cartel create cyclical behavior and price shocks.
Abstract: The paper explains periodic commodity price shocks in a market with a cartelized supply side. It is shown how the interactions of sluggish demand and the inherent instability of the cartel create cyclical behavior and price shocks. The theoretical model is applied to the world petroleum market.
TL;DR: In this paper, monetary and fiscal authorities are subject to a time inconsistency problem vis-a-vis a monopoly-union, and additional support for commitments of either authority is provided.
Abstract: Within a policy game, where monetary and fiscal authorities are subject to a time inconsistency problem vis-a-vis a monopoly-union, we provide additional support for commitments of either authority: monetary commitment moderates fiscal time inconsistency problems, and fiscal commitment moderates monetary time inconsistency problems. In contrast with the benefits of commitments, a regime of coordinated monetary and fiscal policy may turn out to be counterproductive.
TL;DR: In this paper, two dynamic systems of labor adjustments are formulated for labor-managed firms in Cournot oligopoly with product differentiation, and the global stability conditions are derived for two types of Cournot equilibria corresponding to the stationary points of the dynamic systems.
Abstract: Two dynamic systems of labor adjustments are formulated for labor-managed firms in Cournot oligopoly with product differentiation. The global stability conditions are derived for two types of Cournot equilibria corresponding to the stationary points of the two dynamic systems.
TL;DR: In this article, the authors derived stability conditions for the endogenous rational expectations business cycles detected by Diamond and Fudenberg (1989) and showed that for the trading externality underlying their example, bifurcating cycles are always stable.
Abstract: In this note stability conditions for the endogenous rational expectations business cycles detected by Diamond and Fudenberg (1989) are derived. It is shown that for the trading externality underlying their example, bifurcating cycles are always stable, i.e., there always exists a continuum of rational expectations equilibrium paths converging to the cycle.
TL;DR: In this paper, a two-segment general equilibrium model with a continuum of sector-specific capital goods in each sector was developed, where each capital good represents a particular type of technology.
Abstract: We develop a two sector general equilibrium model with a continuum of sector-specific capital goods in each sector, where each capital good represents a particular type of technology. Even without the standard assumptions usually made in the context of specific-factor models, similar results are derived. This framework is used to analyze the impacts of growth and technological change on the degree of obsolescence in each sector. Innovation and an increasing capital stock increase the degree of obsolescence. On the other hand, growth of labor and modernization of existing technologies reduce the stock of obsolete capital.
TL;DR: In this article, the authors show that the strategic behavior of agents in a tournament can be analyzed more generally using a specification of the production function along the lines of the standard agency model, and that in mixed contests, the more able contestant would in equilibrium have a higher probability of winning the contest despite attempts to use effort to compensate for ability by the less able contestant.
Abstract: Existing studies on tournaments utilize different specifications of the production function. Comparison of these results is difficult. This paper shows that the strategic behavior of agents in a tournament can be analyzed more generally using a specification of the production function along the lines of the standard agency model. I also show that in mixed contests, the more able contestant would in equilibrium have a higher probability of winning the contest despite attempts to use effort to compensate for ability by the less able contestant (Proposition 3).
TL;DR: In this paper, the authors describe how joint (dis)economies between markets, formalized as international scope effects in demand due to snob or bandwagon phenomena, affect firms' opportunities for tacit cooperation.
Abstract: This paper describes how joint (dis)economies between markets, formalized as international scope effects in demand due to snob or bandwagon phenomena, affect firms' opportunities for tacit cooperation. Cooperative opportunities and welfare implications are described in a simple framework, where firms compete in quantities for an infinite number of periods, in terms of trigger strategies.
TL;DR: This article developed a Keynesian general equilibrium model based on competitive firm behavior and optimizing agents that form expectations rationally, and showed that the optimal output levels are in part determined by demand conditions.
Abstract: A Keynesian general equilibrium model is developed from neoclassical principles The model is based on competitive firm behavior, and optimizing agents that form expectations rationally Firms determine their product price to maximize expected profits Non-neutrality results follow from micro foundations that view firms as committing to a price and output level before actual demand is observed It follows that optimal output levels are in part determined by demand conditions In the general equilibrium framework, increases in government spending lead to welfare-improving increases in aggregate output
TL;DR: In this paper, the authors examined the dynamic principal-agent problem in an optimal control framework, with an emphasis on the equity issues, and demonstrated that cooperative solutions will not be sustainable even if both the workers and the management have full information.
Abstract: The present study examines the dynamic principal-agent problem, in an optimal control framework, with an emphasis on the equity issues. It is demonstrated that (a) cooperative solutions will not be sustainable even if both the workers and the management have full information, and (b) most of the conventional incentive schemes can at best make cooperative behavior enduring if it can be obtained in the first instance. As such, any inference that cooperation will be a result of organizational mechanisms of this nature appears to be indefensible.
TL;DR: In this paper, the authors show that even a very patient firm suffers a strictly positive loss as a result of adverse incentives, since the punishment is carried out with a positive probability along the equilibrium path.
Abstract: If an infinitely-lived monopolistic firm has private information about its (stochastic) quality possibility set in each period, the actions of the firm are subject to moral hazard. Consequently, the strategies of the finitely-lived consumers must provide incentives for the firm to produce the highest possible quality. For any discount factor, the costs of providing incentives are strictly positive, and we conclude that even the most patient firm cannot attain its first-best payoff. In order to give the firm sufficient incentives to supply the maximum quality when the possibility set is favorable, the firm must be punished for failing to perform when the set is unfavorable. The best perfect equilibrium strategy profile for the firm specifies that the firm always produces the highest possible quality given the possibility set. It follows that even a very patient firm suffers a strictly positive loss as a result of the adverse incentives, since the punishment is carried out with a positive probability along the equilibrium path.
TL;DR: In this article, the authors explicitly incorporate layoff and hiring costs into a discretetime dynamic model with stationary demand uncertainty, in which managers in a cooperative learn something about the demand process over time, and anticipate learning something about that process.
Abstract: This article explicitly incorporates layoff and hiring costs into a discretetime dynamic model with stationary demand uncertainty, in which managers in a cooperative learn something about the demand process over time, and anticipate learning something about that process. It is shown how the opportunity to learn affects initial membership size and how the knowledge gained induces changes in membership, as well as how risk preferences impact on membership size at any point in time.
TL;DR: In this article, the authors introduce an alternative behavioral assumption where individuals have "conjectures" about the responses of others and investigate the robustness of Basu's result under this new solution concept.
Abstract: Among many attempts to circumvent Sen's impossibility result Gibbard's theory of alienable rights has attracted attention of many researchers. Basu's (1984) theorem essentially depends on a Nash-type equilibrium concept. In this paper we introduce an alternative behavioral assumption where individuals have “conjectures” about the responses of others and investigate the robustness of Basu's result under this new solution concept. We also examine a possibility of coalition formation and cooperation under the “meta-rights approach.”
TL;DR: In this paper, the authors examined the effects of an increase in some final demand on the output levels under the constraint that the production of certain goods is held at its original value.
Abstract: Within the context of a linear Leontief model, the LeChatelier-Samuelson principle examines the effects of an increase in some final demand on the output levels under the constraint that the production of certain goods is held at its original value. The principle states that the increase in any output is larger when fewer output levels are kept constant. The present paper discusses bounds for such incremental changes, second-order effects, the consequences on the markets for the products with restricted output levels, and generalizations of the original assumptions.
TL;DR: In this paper, the authors derive conditions on which any solution path starting from an arbitrary initial point in a two-dimensional bounded region ultimately converges to a unique equilibrium point without escaping from the region during a transition period.
Abstract: On the basis of Olech's theorem we derive conditions on which any solution path starting from an arbitrary initial point in a two-dimensional bounded region ultimately converges to a unique equilibrium point without escaping from the region during a transition period. Then, using the result, we render one proposition more exact from the economic point of view.
TL;DR: In this article, the authors explore the incidence of benefit taxation when public goods yield utility only indirectly, as inputs to household production, and provide a condition for tax progression in terms of measurable parameters.
Abstract: This note explores the incidence of benefit taxation when public goods yield utility only indirectly, as inputs to household production. It provides a condition for tax progression in terms of measurable parameters. The result is contrasted with the usually considered case of public goods being ordinary consumption goods, in which the parameters that indicate whether benefit taxation would be progressive are inestimable because of the preference revelation problem.
TL;DR: In this paper, a monopolist offering variants on a Salop circle is analyzed with respect to his choice of product variants and prices, and the profit-maximizing pattern is not equidistant in variants.
Abstract: A monopolist offerings variants on a Salop circle is analyzed with respect to his choice of product variants and prices. Although we assume a uniform distribution of tastes, the profit-maximizing pattern is not equidistant in variants and prices are not the same for all variants.