Knowledge that Transforms

This paper examines the use of stage mechanisms in implementation problems and provides a partial characterization of the set of subgam e perfect implementable choice rules. It is shown that, in many economic environments, virtually an y choice rule can be implemented. To illustrate the power of this approach, the paper discusses a number of models in which it is possible to implement the first-best (although it wouldn't have been possible to do so without using stage mechanisms). The diversity of these models suggests that subgame perfect implementation may find wide application. Copyright 1988 by The Econometric Society.

Vehicles damage roads and, thus, increase road repair costs and create a road damage externality by raising the operating costs of subsequent vehicles. The main result is that if periodic road maintenance is condition responsive and if all road damage is attributable to traffic, then, in steady state with zero traffic growth, the average road damage externality is zero a nd the appropriate road damage charge is the average maintenance cost. Where weather accounts for some road damage, the road damage externality is no longer identically zero, but is quantitatively negligible. Road charges now recover a fraction of road costs. Copyright 1988 by The Econometric Society.

The paper studies a simple two-period principal/agent model in which the principal updates the incentive scheme after observing the agent's first-period performance. The agent has superior information about his ability. The principal offers a first period incentive scheme and observes some measure of the agent's first-period performance (cost or profit), which depends on the agent's ability and (unobservable) first-period effort. The relationship is entirely run by short-term contracts. In the second period the principal updates the incentive scheme and the agent is free to accept the new incentive scheme or to quit. The strategies are required to be perfect, and updating of the principal's beliefs about the agent's ability follows Bayes' rule. The central theme of the paper is that the ratchet effect leads to much pooling in the first period. First, for any first-period incentive scheme, there exists no separating equilibrium. Second, when the uncertainty about the agent's ability is small, the optimal scheme must involve a large amount of pooling. The paper also gives necessary and sufficient conditions for the existence of partition equilibria and looks at the effect of cost uncertainty.

On introduit le concept de processus aleatoire vectoriel presque integre. Ce type de processus aide a travailler vers une theorie asymptotique generale de la regression pour des series temporelles multiples

This paper considers estimation and testing of vector autoregressio n coefficients in panel data, and applies the techniques to analyze the dynamic relationships between wages an d hours worked in two samples of American males. The model allows for nonstationary individual effects and is estimated by applying instrumental variables to the quasi-differenced autoregressive equations. The empirical results suggest the absence of lagged hours in the wage forecasting equation. The results also show that lagged hours is important in the hours equation. Copyright 1988 by The Econometric Society.

If a resource importing country can commit to the future development of a backstop tec hnology, such a development program can be used strategically to affe ct the pricing policy of a resource supplier. Previous studies have r evealed the interesting possibility that by delaying development of t he substitute, the importing country could benefit from a favorable p roduction response on the part of the exporting country. This paper d emonstrates that this effect can indeed occur, but the set of paramet ers for which it does occur is smaller than previously realized. The intuition behind this effect is further developed. Copyright 1988 by The Econometric Society.

Consider a homogeneous product market where firms have private information about an uncertain demand parameter and compete in quan tities. The author examines the convergence properties of Bayesian-Co urnot equilibria as the economy is replicated and concludes that larg e Cournot (or almost competitive) markets do not aggregate informatio n efficiently except possibly when the production technology exhibits constant returns to scale. A competitive market is nevertheless cons trained efficient when taking as given the decentralized private info rmation structure of the economy. The results are shown to be robust to the consideration of endogenous information acquisition and to the addition of extra rounds of competition. Copyright 1988 by The Econometric Society.

The authors study the Nash equilibria of a two-person, infinitely-repeated game in which players' preferences depend on repeated game payoffs and the complexity of the strategies they use. The model considered is that of A. Rubinstein (1986). Necessary conditions on the structure of the equilibria are derived. These results place significant restrictions on equilibrium payoffs. The results suggest that the introduction of implementation costs results in a striking discontinuity in the Nash equilibrium sets in terms of strategies and payoffs. Copyright 1988 by The Econometric Society.

Contributions by E. Maskin and S. Williams have established that any social choice cor respondence satisfying monotonicity, no veto power, and having at lea st three participants is Nash implementable under the proviso that th e number of social alternatives is finite and that the correspondence satisfies citizen sovereignty. The author makes improvements in two aspects of their Nash implementation theorems: a reduction in the str ategy space and a proof for an arbitrary alternative set. Each partic ipant announces two participants' preferences, an alternative, and a positive integer. With this strategy space specification, the author confirms Maskin's theorem for an arbitrary size of the alternative se t. Copyright 1988 by The Econometric Society.

This paper uses cross-sectional and longitudinal data to examine differences in pay for equally-skilled workers in different ind ustries. The major finding is that there is substantial dispersion in wages across industries, even after allowing for measured and unmeas ured labor quality, working conditions, fringe benefits, transitory d emand shocks, the threat of union-ization, union bargaining power, fi rm size, and other factors. In addition, evidence is presented demons trating that turnover has a negative relationship with industry wage differentials. These findings suggest that workers in high-wage indus tries receive noncompetitive rents. Copyright 1988 by The Econometric Society.