Knowledge that Transforms

This paper extends models of search market equilibrium to incorporate general-equilibrium considerations. The model we treat is one with a single product market and a single labor market. An equilibrium distribution of prices and wages is the result of optimal price- and wage-setting behavior by firms in conjunction with optimal search by individuals. We prove the existence of a degenerate equilibrium and of a two-point dispersion equilibrium.

Journal Article Unscrambling the Concept of Chaos Through Thick and Thin: Reply Get access Richard H. Day Richard H. Day University of Southern California Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 101, Issue 2, May 1986, Pages 425–426, https://doi.org/10.2307/1891124 Published: 01 May 1986

The production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong. Yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework, but actually to argue that the basic idea of production smoothing is all wrong. Most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales. This paper first documents the stylized facts. Then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts. Finally, it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions.

Journal Article Commodity Price Stabilization: The Massell Model and Multiplicative Disturbances Get access Christopher L. Gilbert Christopher L. Gilbert Oxford University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 101, Issue 3, August 1986, Pages 635–640, https://doi.org/10.2307/1885702 Published: 01 August 1986

This paper compares the social welfare of a simple economy with asymmetric information under two different exchange market structures, Walrasian and the monopolistic, price-setting schemes. It is found that the relative efficiency depends on the nature of uncertainties in the economy. For some environments, the price-setting allocation with a market maker Pareto dominates the rational expectations equilibrium allocation in a competitive market. This finding provides a justification for the existence of the market maker system, which is the predominant institutional arrangement in many exchange markets.

This paper examines the resource allocation effects of two policies widely employed by developing countries to improve their trade balances. Compared to free-trade, both export performance and export-import linkage policies may actually worsen the balance of trade unless they are coupled with an import barrier on final goods. Even with such barriers, an export-import linkage policy still may not cause the trade balance to improve. The effects of both policies on a number of domestic variables are discussed. Profit and output of domestic exporters can increase under trade performance policies.

Francois Melese, William Transue; Unscrambling Chaos Through Thick and Thin, The Quarterly Journal of Economics, Volume 101, Issue 2, 1 May 1986, Pages 419

This paper examines the problem of a regulated utility that sells output according to a nonlinear price schedule. Three results are obtained. First, rate-of-return regulation lowers the price schedule charged by the firm along its entire length. Second, some units of output will always be sold at a marginal price below true marginal cost. Third, a move from linear to nonlinear prices at a given fair rate-of-return can lead to an unambiguous increase in welfare.

Pension compensation is shown to rise with age and tenure until the worker becomes eligible to receive benefits. At this point, pension compensation drops sharply. If workers are paid their marginal product in each period, earnings grow at a lower rate prior to eligibility but must increase when the worker reaches the age of eligibility. This hypothesis is tested using data from the Retirement History Study, and earnings are found to rise significantly after eligibility. This finding supports the concept of spot market compensation and is in direct conflict with the predictions of Lazear-type lifetime contracts.

Two new features are introduced in a standard model of forward vertical integration by an intermediate good monopolist into a contestable downstream industry. First, U-shaped average costs replace constant returns in the downstream industry. Second, the effect of subjecting the monopolist to the pressure of upstream entry is explored. It is found that monopoly pricing of the intermediate good can distort the scale as well as the input proportions of the downstream firms. Either distortion leads to integration, but here integration may be partial rather than full. Prices rise with partial integration when there is no upstream entry, but prices fall when upstream entry is free.