A state-dependent income tax is incorporated into an intertemporal production economy. Methods are developed for establishing the existence and uniqueness of an equilibrium, and for explicitly constructing this equilibrium. Some tax-policy experiments are suggested, the results of which may have important implications in quantifying the effects of various tax policies.
A matching problem is considered in which sellers can publicly commit to a trading price that differs from the price at which buyers expect to trade elsewhere in the market. When demand and supply are nearly equal, the equilibrium ex ante price offer lies below the price associated with the Nash bargaining split. This relationship reverses when the level of excess demand is large. Sellers always have an incentive to make ex ante offers when prices elsewhere are determined by Nash bargaining. This can be interpreted to mean that Nash bargaining is an unstable pricing institution. Copyright 1991 by The Econometric Society.
The authors study fair allocation in economies with indivisible goods. They look for subsolutions of the no-envy solution satisfying the property of consistency which says that the desirability of an allocation for some economy is unaffected by the departure of some of the agents with their allotted bundles. The authors show that essentially there is no proper subsolution of the no-envy solution satisfying consistency. However, many subsolutions satisfy a bilateral version of the condition and many satisfy its converse. But again, there is essentially no proper subsolution satisfying bilateral consistency and converse consistency together. Copyright 1991 by The Econometric Society.
The preference reversal phenomenon is usually interpreted as evidence of nontransitivity of preference, but has also been explained as the result of the difference between individuals' responses to choice and valuation problems; the devices used by experimenters to elicit valuations; and the "random lottery selection" incentive system. This paper reports an experiment designed so that none of these factors could generate systematic nontransitivities; yet systematic violations of transitivity were still found. The pattern of violation was analogous with that found in previous preference reversal experiments and is consistent with regret theory. Copyright 1991 by The Econometric Society.
The authors examine the effects of renegotiation in an agency relationship. They show how renegotiation affects (1) the set of actions the principal can induce the agent to take and (2) the cost of implementing a given action. The authors show that, when the principal receives an unverifiable signal of the agent's action, renegotiation can improve welfare. This result stands in contrast to earlier findings that renegotiation lowers welfare when the principal receives no signal about the agent's action prior to renegotiation. Copyright 1991 by The Econometric Society.
This paper investigates whether there are simple versions of the permanent income hypothesis which are consistent with the aggregate U.S. consumption and output data. Our analysis is conducted within the confines of a simple dynamic general equilibrium model of aggregate real output, investment, hours of work and consumption. We study the quantitative importance of two perturbations to the version of our model which predicts that observed consumption follows a random walk: (i) changing the production technology specification which rationalizes the random walk result, and (ii) replacing the assumption that agents' decision intervals coincide with the data sampling interval with the assumption that agents make decisions on a continuous time basis. We find substantially less evidence against the continuous time models than against their discrete time counterparts. In fact neither of the two continuous time models can be rejected at conventional significance levels. The continuous time models outperform their discrete time counterparts primarily because they explicitly account for the fact that the data used to test the models are tine averaged measures of the underlying unobserved point-in-time variables. The net result is that they are better able to accommodate the degree of serial correlation present in the first difference of observed per capita U.S. consumption.
In a repeated partnership game with imperfect monitoring, we distinguish among the effects of (1) reducing the interest rate, (2) shortening the period over which actions are held fixed, and (3) shortening the lag with which accumulated information is reported.All three changes are equivalent in games with perfect monitoring.With imperfect monitoring, reducing the interest rate always increases the possibilities for cooperation, but the other two changes always have the reverse effect when the interest rate is small.
An allocation for an exchange economy with smooth preferences is shown to be Walrasian if there is a set of net trades that is closed under addition, contains the negations of net trades that would improve any agent's final bundle, and is such that each agent's final bundle is weakly preferred to the sum of the initial endowment and any allowed net trade. These conditions characterize the sets of net trades available in equilibria of market games in which randomly paired agents bargain repeatedly and imply that steady state equilibria are Walrasian. Copyright 1991 by The Econometric Society.
This paper is concerned with the theory of saving when consumers are not permitted to borrow, and with the ability of such a theory to account for some of the stylized facts of saving behavior.When consumers are relatively impatient, and when labor income is independently and identically distributed over time, assets act like a buffer stock, protecting consumption against bad draws of income.The precautionary demand for saving interacts with the borrowing constraints to provide a motive for holding assets.If the income process is positively autocorrelated, but stationary, assets are still used to buffer consumption, but do so less effectively, and at a greater cost in terms of foregone consumption.In the limit, when labor income is a random walk, it is optimal for impatient liquidity constrained consumers simply to consume their incomes.As a consequence, a liquidity constrained representative agent cannot generate aggregate U.S. saving behavior if that agent receives aggregate labor income.Either there is no saving, when income is a random walk, or saving is contracyclical over the business cycle, when income changes are positively autocorrelated.However, in reality, microeconomic income processes do not resemble their average, and it is possible to construct a model of microeconomic saving under liquidity constraints which, at the aggregate level, reproduces many of the stylized facts in the actual data.While it is clear that many households are not liquidity constrained, and do not behave as described here, the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life-cycle models.