Knowledge that Transforms

[This paper finds in closed form a noisy rational expectations equilibrium for a class of economies with many risky assets and analyzes the properties of such equilibria. Because of the various interactions between the assets, phenomena appear that do not arise in models with a single risky asset. For example, an asset's equilibrium price might be decreasing in its own payoff and/or increasing in its own supply; an asset might be a Giffen good; a higher price for an asset (holding other prices fixed) might be "bad news" for the asset's payoff; and even for assets in fixed supply, uncertainty about other assets' supplies may prevent their prices from being fully revealing.]

This paper adopts a new approach to the problem of generalizing the properties of the two-by-two Heckscher-Ohlin model, asking whether we can obtain results which hold in very general models for dichotomous categories of commodities and factors. Using duality theory, some results of this kind are derived, which generalize certain properties of the Heckscher-Ohlin model to models which allow for any number of goods and factors, joint production, international factor mobility, and substitution between primary factors and intermediate inputs. The consequences of assuming sector-specific factors and equal numbers of goods and factors' are also examined.

[The paper presents a general theoretical framework for the analysis of integrated life-cycle models of consumption and family labor supply under uncertainty. Profit functions are used to represent intertemporally additive preferences and to yield convenient characterizations of "constant marginal utility of wealth" or "Frisch" demand functions. Conditions on preferences derived that allow additive fixed-effect specifications for the Frisch demands. Data from the British Family Expenditure Surveys from 1970-77 are used to derive panel-like information on male labor supply and consumption for several age cohorts over time. These data reproduce standard life-cycle patterns of hours and wages, but more detailed analysis shows that the theory is incapable of offering a satisfactory common explanation of the behavior of hours and wages over both the business cycle and the life cycle. Similarly, although the theory can explain the life-cycle behavior of hours and consumption separately, the same model cannot explain both, essentially because of a failure in symmetry.]

October 1983

[For a specified class of economic environments, a double auction in which numerous buyers and sellers submit sealed bids and offers is incentive efficient, in the sense that there is no other trading rule that is sure to be preferred by each agent, whatever his preferences.]

In a series of eleven markets, sellers possessed products that were exogenously designated as either grade "regular" or grade "super." Supers were valued more by buyers but grade could not be observed by buyers prior to purchase. Sellers could add costly units of quality to their products that were observable and valued by buyers. The data are analyzed with perfect information models, signaling equilibrium models, and pooling models. A variety of behaviors are observed across the eleven markets. Signaling is observed in most markets with some markets approaching the most efficient signaling equilibrium. Pooling or partial pooling occurs in a few markets. The performance seems to be sensitive to the relative cost of signaling and the market institutional setting.

[The existence of a positive balanced growth solution for the discrete dynamic input-output (IO) model is studied. Previous work in the area invariable assumed unrealistic restrictions on the matrices A or B, such as regularity or irreducibility. In our work these restrictions are not imposed. We find that in the realistic case of reducible A, a balanced growth solution exists if each sector depends on all others for either its current account or its capital inputs. If this condition is not satisfied a balanced growth solution may still exist. Conditions for its existence relate the overall growth rate to the growth rates which groups of sectors would have if they were isolated from the rest of the economy.]