Knowledge that Transforms

POLICIES DESIGNED TO INCREASE CAPITAL ACCUMULATION through an increase in the savings rate are being currently considered in the United States. Suppose that fiscal measures are implemented which increase the savings rate; what will the dynamic effects on output and capital accumulation be? The literature provides us with two well-known but partly conflicting answers. The first, addressed to the short and medium run, emphasizes aggregate demand effects and the possible paradox of savings: an increase in the savings rate will decrease aggregate demand and may well decrease both savings and investment. The second, addressed to the long run, emphasizes that larger savings imply a higher sustainable capital stock in steady state. Are the two answers somehow consistent? Is it plausible in particular that rational firms would initially decumulate capital only to accumulate more later, that rational agents would initially save less only to save more later? To study these questions, a model must have three components. As, at any point of time, equilibrium is characterized by the equality of savings and investment, it must have a description of savings behavior by agents and of investment behavior by firms. To allow for aggregate demand effects on production, it must also allow for some price and wage inflexibility and thus give a description of price and wage behavior. The choice of the paper is to focus on one of the three components, namely the investment behavior of firms and, to keep the analysis tractable, to make the other two components as simplesimplistic-as possible. (Malinvaud [9], in studying the same issue, chooses a simpler description of investment and a more refined description of the wage-price mechanism.) Section 1 characterizes the investment decision of firms in partial equilibrium. Section 2 embeds it in a macroeconomic model. Sections 3 to 5 characterize the dynamic adjustment under various degrees of price and wage rigidity.

[Recent work on inference in regressions with heteroscedastic disturbances leads to the possibility of more efficient estimators. The conditions needed to exploit the possibility are discussed. A sampling experiment indicates that the gains can be achieved even in small samples.]

An exchange economy is considered in which there are a finite number of individuals, the same number of indivisibles, and a fixed amount of a divisible good. Each individual consumes exactly one of the indivisibles and a certain quantity of the divisible good. The existence of prices corresponding to Pareto-efficient allocations is proved. It is also shown that this economy possesses fair allocations, income-fair allocations, coalition-fair allocations, and Pareto-efficient egalitarian-equivalent allocations. IN THIS STUDY the effect of including large indivisibles in an exchange economy will be analyzed. The analysis will be carried out with respect to the existence of price equilibrium and with respect to the existence of different forms of fairness. The economy consists of a finite number of individuals, the same number of indivisibles, and a fixed amount of a divisible good. It is assumed that each individual consumes exactly one of the indivisibles and some quantity of the divisible good. We may interpret the indivisibles as being professions or houses. The relationship between price equilibrium and a Pareto-efficient allocation is well-known and proved in a number of cases under different assumptions about preferences and commodities. For a standard economy see, e.g., Debreu [5]. In case of nonconvexities, which may also describe a certain type of indivisibility, we may have an exact relationship in economies with a continuum of individuals (see, e.g., Hildenbrand [11]), but otherwise an approximate relationship obtains. The degree of approximation depends on the degree of nonconvexities in preferences, and not on the number of individuals (see, e.g., Arrow and Hahn [1]). We will prove the existence of prices characterizing a Pareto-efficient allocation in a case where the indivisibles play an essential role and where approximate results would be too approximate. The indivisibles may be considered large for the individual compared to his total consumption. The theory of fairness has developed considerably during the seventies. Different kinds of concepts of fairness have been introduced and analyzed; see Daniel [41, Foley [81, Pazner and Schmeidler [121, and Schmeidler and Vind [141, among others. Normally, these authors have considered models with divisible goods or an infinite number of individuals. For exchange economies the existence of fair allocations (an envy-free and Pareto-efficient allocation) has been proved in

During the recent years, there is substantial interest in the econometric models with qualitative and censored dependent variables. The important contributions on these topics by Amemiya [1973J, McFadden [1973J and Heckman [1974J among others stimulate the recent

Most analyses of the principal-agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent's utility being at a stationary point.An important paper of Mirrlees has shown that this approach is generally invalid.We present an alternative procedure.If the agent's preferences over income lotteries are independent of action, we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem.We use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem.'Support from the U.K.

is a given function of the exogenous variables z and unknown parameters 9, representing the systematic component of the utility difference, and F is the distribution function of the random component of the utility difference. This paper describes a method of estimating the parameters 9 without assuming any functional form for the distribution function F, and proves that this estimator is consistent. F is also consistently estimated. The method uses maximum likelihood estimation in which the likelihood is maximized not only over the parameter 9 but also over a space which contains all distribution functions.

This paper analyzes the effects of futures trading in a market for a storable commodity, in which producers and speculators are assumed to be risk averse and specifications of the aggregate supply and inventory demand functions are derived from explicit optimization. A critical aspect is how the parameters of these functions change with the introduction of the future market as it is through these induced parameter changes that the futures market exerts its influence on the spot price. The effects of the futures market on both the long-run average spot price and its variance are analyzed. While we are unable to draw any definitive conclusions on this issue, we find that in all cases considered the futures market stabilizes the spot price, as well as lowering its long-run mean. FOR MANY YEARS NOW, the question of the effects of futures trading on the stability of spot prices has been extensively debated. This topic has been discussed at various levels. For example, farmers and agricultural interest groups have claimed that futures trading destabilizes spot prices, thereby imposing welfare losses on the economy. In the United States, Congress has decided that futures trading can cause price destabilization and has subjected futures trading to the regulation of the Commodity Futures Trading Commission. At a more analytical level, economists have been investigating the issue, both empirically, and more recently, theoretically as well.

For a general paramnetric model we consider the problem of consistently estimating that permissible subset of the parameter space that contains the true parameter point and has smallest dimension. The subset selection is done by means of a model selection criterion of