Journal Article Economics of Depletable Resources: Market Forces and Intertemporal Bias Get access James L. Sweeney James L. Sweeney Federal Energy Administration and Stanford University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 44, Issue 1, February 1977, Pages 125–141, https://doi.org/10.2307/2296977 Published: 01 February 1977 Article history Received: 01 August 1974 Accepted: 01 February 1976 Published: 01 February 1977
Journal Article Risk Sharing, Sharecropping and Uncertain Labour Markets Get access David M. G. Newbery David M. G. Newbery Churchill College, Cambridge, and Stanford University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 44, Issue 3, October 1977, Pages 585–594, https://doi.org/10.2307/2296910 Published: 01 October 1977 Article history Received: 01 May 1974 Accepted: 01 December 1976 Published: 01 October 1977
Journal Article Comments on a Probabilistic Model of Social Choice Get access P. M. Rice P. M. Rice University of Georgia Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 44, Issue 1, February 1977, Pages 187–188, https://doi.org/10.2307/2296984 Published: 01 February 1977 Article history Received: 01 March 1974 Accepted: 01 December 1975 Published: 01 February 1977
Symposium on Economics of Information: Introduction Joseph E. Stiglitz Joseph E. Stiglitz Stanford University and Oxford University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 44, Issue 3, October 1977, Pages 389–391, https://doi.org/10.2307/2296897 Published: 01 October 1977
The theory of the second best, first formally presented by Lipsey and Lancaster [16], maintains that the abolition of an arbitrarily chosen distortion in an economy with multiple distortions may reduce the welfare of the economy. The main objective of the present paper is to formulate some piecemeal policy recommendations which would definitely result in a move towards efficiency. In particular, we will prove the following: (a) a policy which reduces all price distortions uniformly will improve the welfare of the economy, if it is stable in the Marshallian sense. (b) a policy which brings the highest distortion to the level of the next highest will improve the welfare of the economy, if the good with the highest distortion is substitutable for all the other goods and if the economy is stable in the Marshallian sense. Our results integrate the characterization of the second best solution by Green [9], the analysis of the uniform reduction of tariff and excise tax by Foster and Sonnenschein [8] and Bruno [4], and the demonstration by Kemp [15] that the welfare effect of the tariff reduction in the two commodity world is related to the stability of the economy. In the present paper, an extensive use of the compensated demand function enables us to reveal the underlying relationship among these seemingly unrelated works.' In Section 2, we will define the compensated demand function, and will present its properties used in this paper. The model will be presented in Section 3. In Section 4 we will establish that in an economy with constant-cost technology a uniform reduction in excise tax rates improves welfare provided that the aggregate of income terms weighted by marginal costs (AIM) is positive. We will also show that a reduction of the highest tax rate to the level of the next highest rate improves the welfare if the AIM is positive and if the good with the highest tax rate is substitutable for all other goods. In Section 5 the main theorems will be proved by establishing that the positivity of AIM in the propositions of Section 4 can be replaced by another condition if the economy is stable under the Marshallian adjustment mechanism (which is defined in the text). Section 6 will re-evaluate the theory of the second best from our framework. (This section can be read independently of Section 5.) Throughout this paper, a matrix will be denoted by an upper-case letter; a lower-case bold-faced letter will represent a column vector; its transpose will be shown by a prime; and the ith element of the vector is denoted by the same letter with subscript i, unless stated otherwise.
Journal Article To Tell the Truth: Imperfect Information and Optimal Pollution Control Get access Evan Kwerel Evan Kwerel Massachusetts Institute of Technology Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 44, Issue 3, October 1977, Pages 595–601, https://doi.org/10.2307/2296911 Published: 01 October 1977 Article history Received: 01 June 1975 Accepted: 01 August 1976 Published: 01 October 1977
Sanford J. Grossman, Richard E. Kihlstrom, Leonard J. Mirman; A Bayesian Approach to the Production of Information and Learning By Doing, The Review of Economic
Journal Article The Existence of Futures Markets, Noisy Rational Expectations and Informational Externalities Get access Sanford J. Grossman Sanford J. Grossman Stanford University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 44, Issue 3, October 1977, Pages 431–449, https://doi.org/10.2307/2296900 Published: 01 October 1977 Article history Received: 01 April 1975 Accepted: 01 October 1976 Published: 01 October 1977
The fact that a consumer is frequently uncertain about the quality of a product that he purchases, and is therefore also unsure of the extent to which it will render him the services he might expect of it, is one that is gaining increasing recognition. In an earlier paper [5] I examined in a simple framework the effects of changes in the uncertainty about a product's quality on the consumer's demand, and also touched briefly on the effect of a guarantee. In this paper I want to examine in more detail some of the economic issues posed by the existence of guarantees. There are several useful distinctions that can be drawn as a preliminary to more detailed study. One is a distinction between situations where buyers and sellers have equal access to information, and a situation where sellers have superior access. The first situation is exemplified by a market where trade is in a product whose quality is genuinely random, with the distribution known to both buyers and sellers. Thus if a certain fraction p of the cars from a given factory are generally known to be faulty, then a transaction in which a retailer sells a car to a buyer comes into this category: each knows that the chance of the car being faulty is p, but, because the car is unused, neither knows whether it is actually faulty. Contrast this with a situation where the first owner of the car is reselling it: now there is an important asymmetry, in that the seller is much better informed about the quality of the product than the buyer. This is the case with which Akerlof's very interesting analysis [1] is largely concerned, and which I have also discussed in [4]. My main concern here, however, is with a situation of equal information. Thinking casually about such a situation, it is clear that one can distinguish between the incentive effects and the risk-sharing effects of a guarantee. Incentive effects arise because the existence of a guarantee provides the producer with an incentive to improve the quality of his product, at least to the extent of reducing the chances of its falling below the guaranteed level. If the compensation in the event of failure is less than complete, then the consumer also has an incentive to maintain the product. For example, a used car guarantee, under which the buyer and seller will each pay half of any repair bills, provides both parties with incentives to minimize these bills. Of course, if the guarantee is valid for only a limited period of time, then there is the further effect of providing the buyer with an incentive to ensure that if there is to be a failure, it occurs early in the product's life. This may act in opposition to the other effect, and reduce his eagerness to maintain the product. In addition to creating the incentive effects mentioned, a guarantee also acts as a way of sharing the risk associated with uncertainty about the quality of a product: to be efficient in this sense, it will apportion this risk in accordance with the risk-aversion of the participants. My main concern here is with the risk-sharing aspects of guarantees. This is partly because these seem to be the most tractable aspects of the problem, but also stems from a belief that these are the most important aspects. Casual empiricism suggests that except in rather unique cases, a product is usually designed and produced before any attention is given to the choice of guarantee terms: these are then chosen as part of a marketing package. In such situations, the reliability of the product will clearly be independent of the
Journal Article The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination Get access Steven Salop Steven Salop Federal Reserve Board Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 44, Issue 3, October 1977, Pages 393–406, https://doi.org/10.2307/2296898 Published: 01 October 1977 Article history Received: 01 April 1974 Accepted: 01 October 1976 Published: 01 October 1977