The observed practice of contracting for labor services in advance introduces stickiness or friction into the economic system. In the presence of monetary and real stochastic disturbances the stability of the levels of employment and output hinges on the nature of the wage contracts. In this paper we demonstrate the existence of optimal indexation schemes that are capable of eliminating the aforementioned friction by duplicating the equilibrium that would obtain if labor services were contracted for after the stochastic disturbances were realized.
This paper examines the existence of competitive equilibria in markets for exhaustible resources where there are initial economies of scale in either the extraction of the resource or the utilization of the resource as an input in production. In such instances, which are fairly common, we find that the classic Hotelling rule for competitive extraction does not apply, since competitive price equilibria generally do not exist. This is in marked contrast to static markets where the usual textbook example of firms with U-shaped average cost curves is not inconsistent with the existence of competitive equilibria. Furthermore, oligopolistic market equilibria in which resource firms act as Nash producers may also fail to exist when there are returns to scale in production.
Markets for many products are dominated by small group of states or countries with a natural advantage in the marketplace because of some initial endowment of resources, favorable climate, or location. The purpose of this paper is to explore how such markets involving a few political jurisdictions interact noncooperatively. We examine how such a market might be structured and operate and the extent of monopoly rent that can be extracted in the absence of collusion. We answer these questions for an empirically estimated model of western U.S. coal in which two states (Montana and Wyoming) dominate production. We demonstrate that in this market the amount of rent that can be extracted is greatly reduced through competition (relative to a cartel). Nevertheless, even with two producing states competing against each other, significant rents can be captured--significant enough to refute the contention that little rent can accrue without a cartel.
While many development theorists assume saving propensities vary among different groups, there has been limited theoretical justification for this view. This paper analyzes two complementary theories stressing the effect on saving of physiological consequences of poor nutrition at low incomes. One influence is on the probability of survival; another is on workers' productivity. Either effect means that the average propensity to save can rise with income. Issues considered include annuities, exogenous changes in survival and efficiency, implications for the efficiency wage theory of unemployment, and distinctions between wage and nonwage income. Implications of nutritional effects for econometric specification of saving functions are stressed.
This paper develops a technique for extracting the expectations embedded in the current prices of energy-using durable goods and applies it to used car markets during the two energy "crises" of the 1970s. The resulting estimates indicate that consumers took the energy crises seriously and formed expectations about future gasoline prices that appear rational when compared with the historical gasoline price series, with the forecasts of specialists and experts, or with the actual postsample behavior of gasoline prices. The evidence therefore supports the view that consumers are able to make rather complex choices with a great deal of rationality and casts doubt on the wisdom of policies based on assumptions to the contrary.
This paper examines the pattern of trade in used asset markets where firms have differing factor prices and utilization rates of capital goods. Depreciation is modeled as an increase in down time as machines age, and a measure of comparative advantage is derived that will explain the pattern of trade when there are two types of firms. It is shown that with heterogeneous firms, the price of used machines will reflect the characteristics of firms as well as the productivity of used machines, and the implications of this result for the study of depreciation are discussed. Finally, the relationship between firm characteristics and choice between purchasing new and used truck tractors is presented as an illustration of the predictions of the model.
Inflation in Hungary after World War II was the most intense on record. The reforms of August 1946 were immediately and entirely successful in stabilizing prices. This paper describes and analyzes the unique policies and institutions that produced these phenomena. Despite its severity, the Hungarian experience was consistent with the less extreme inflation and stabilization experiences examined by Sargent. Price stabilization was accomplished by fiscal rather than purely monetary measures and was, paradoxically, accompanied by rapid and prolonged money growth.
This paper examines the relation between nominal and real interest rates, and the nominal and real term structure under uncertainty. We show that two separate risk terms cause the Fisher theorem to fail. One risk term is related only to the variability of money prices, while the other is related to the purchasing power riskiness of the nominal bond. Monetary policy can affect the value of both these risk terms. We also show that the pure expectations hypothesis of the term structure fails for both real and nominal bonds because of risk premia. Even if the economy is neutral with respect to monetary policy, monetary policy can alter the nominal term structure.