Knowledge that Transforms

This paper presents a model in which inventories are used by a duopoly to deter deviations from an implicitly collusive arrangement. Higher inventories allow firms to punish cheaters more strongly and can thus help to maintain collusion. We show that when demand is high, the incentive to deviate increases so that increases in inventories may be optimal for the duopoly. This rationalizes the observed positive correlation between inventories and sales. In our empirical section we show that, as our model predicts, this correlation is more important in concentrated industries. We also provide several examples where inventories have been a factor in cartel behavior.

Journal Article Exact Aggregation and a Representative Consumer Get access Arthur Lewbel Arthur Lewbel Brandeis Uuniversity Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 104, Issue 3, August 1989, Pages 621–633, https://doi.org/10.2307/2937813 Published: 01 August 1989

Journal Article Trade and Insurance with Imperfectly Observed Outcomes Get access Avinash Dixit Avinash Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 104, Issue 1, February 1989, Pages 195–203, https://doi.org/10.2307/2937842 Published: 01 February 1989

Journal Article Aspects of R&D Subsidization Get access Richard E. Romano Richard E. Romano University of Florida Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 104, Issue 4, November 1989, Pages 863–873, https://doi.org/10.2307/2937871 Published: 01 November 1989

Journal Article Simultaneous Signaling in an Oligopoly Model Get access George J. Mailath George J. Mailath University of Pennsylvania Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 104, Issue 2, May 1989, Pages 417–427, https://doi.org/10.2307/2937856 Published: 01 May 1989

The importance of disturbances in financial markets for real economic activity and the positive association between price level and output movements typically are explained by appeal to a combination of nominal aggregate demand shocks (particularly money-supply shocks) and rigid prices. We argue that this view is inconsistent with evidence for short-run responsiveness of prices and gold flows to nominal disturbances during the pre-World War I gold-standard era. We offer an alternative explanation that connects financial markets and real activity through disturbances to the availability of credit. This approach links comovements in prices and output through real effects in credit markets associated with price-level shocks. Empirical analysis, using monthly data for the pre-World War I period, supports the assumption of rapid price adjustment, and the credit-supply interpretation of the transmission of financial shocks. Disturbances to credit availability, including price shocks, contribute substantially to our empirical explanation of output fluctuations during this period.

This paper applies the social custom model developed by Akerlof [1980] to the problem of explaining the logic of collective strike action. The paper demonstrates the possibility of stable long-run equilibrium levels of support for a strike. We also show that the model can be applied to the issue of explaining the existence of a trade union, and builds on the results of Booth [1985] in explaining stable intermediate equilibrium membership. The paper does not claim to provide a general theory of strikes, but demonstrates the value of the social custom approach in enhancing the understanding of this class of labor market behavior.

The fact that settlement rates are much higher, where final-offer arbitration rather than conventional arbitration is the dispute settlement procedure, is used as the basis of a test of the role of divergent and relatively optimistic expectations in causing disagreement in negotiations. Calculations of identical-expectations contract zones using existing estimates of models of arbitrator behavior yield larger identical-expectations contract zones in conventional arbitration than in final-offer arbitration. This evidence clearly suggests that divergent expectations alone are not an adequate explanation of disagreement in labor-management negotiations. A number of alternative explanations for disagreement are suggested and evaluated.

A general equilibrium macroeconomic model based on monopolistic competition is presented. The model exhibits a traditional multiplier in the short run, but due to free entry, the multiplier disappears in the long run. By construction all agents are fully rational. The Keynesian results are a consequence of the assumption of monopolistic competition, which creates a divergence between optimal private behavior and optimal social behavior.

In this paper we describe the sequential equilibria of a two-period monopoly with asymmetric information and limited commitment in the market for accident insurance. The role of learning is analyzed; and the possible sequential pooling, semiseparating, and separating equilibria are described (where the probability that a buyer will make a revealing first-period contract choice is equal to zero, is positive, and is equal to one, respectively). In the absence of discounting, we show that only pooling and semiseparating equilibria exist; provide a limited characterization of when these equilibria occur; and show that accident-contingent insurance and accident underreporting occur with positive probability along the equilibrium path of the game.