Knowledge that Transforms

Hall has shown that, with perfect competition and price flexibility, total factor productivity measured using labor's share either in revenues or in costs will be acyclical regardless of the level of labor hoarding. We show that if firms producing a homogeneous good under constant returns must pick their prices before demand is known, both measures of productivity become procyclical. The model implies that productivity should be more procyclical the more important is labor hoarding. Empirically, productivity is more procyclical in industries and in nations where labor hoarding appears more important.

We study (costless) information transmission from a job applicant to an employer who must decide whether to hire him and, if so, which position to give him. We construct equilibrium payoffs requiring at least two signaling steps, or even that no deadline be imposed on the (plain) conversation. The set of communication equilibrium payoffs (achieved with the help of a communication device) is larger than the set of equilibrium payoffs of the plain conversation game but coincides with the set of correlated equilibrium payoffs.

The authors consider an economy in which all firms are unionized and bargain with their own union. If unions bargain over employment as well as wages, employment will be the same as if they bargain over wages only, provided that the production function is Cobb-Douglas. (Employment will be higher if the elasticity of substitution between labor and capital is smaller than unity.) If the authors start from a fully competitive labor market and then move to one of efficient bargaining (over wages and employment), employment falls. This is so even if the marginal utility of income is constant, so that bargaining is "strongly efficient."

A given amount of seigniorage revenue can be collected at either a high or a low rate of inflation. Thus there ray be two equilibria when a government finances its deficit by printing money--implying that an economy may be stuck in a high inflation equilibrium when, with the same fiscal policy, it could be at a lower inflation rate. We show that under rational expectations the high inflation equilibrium is stable and the low inflation equilibrium unstable; under adaptive expectations or lagged adjustment of money balances with rational expectations, it may be the low inflation equilibrium that is stable. Extending the model to allow for bond as well as money financing of deficits, we show that one of the equilibria disappears if the government sets a nominal anchor for the economy, for instance by fixing the growth rate of money. The dual equilibria and their stability.

Journal Article Relationship-Specific Investment Get access Vincent P. Crawford Vincent P. Crawford University of California, San Diego Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 105, Issue 2, May 1990, Pages 561–574, https://doi.org/10.2307/2937801 Published: 01 May 1990

Suppose that the government were to announce the economy will be booming in six months, and this announcement is based on false data. What effect would such an announcement have on future aggregate activity? This paper employs revisions of the series of leading economic indicators to test the hypothesis that such an announcement would have a positive effect on future activity. We find that the evidence is generally consistent with the hypothesis and that for the time period 1976–1988 the expectational shocks measured by these revisions explain over 20 percent of the fluctuation in the quarterly growth rate of industrial production.

Pairwise extension of credit is introduced into the barter-search economy previously analyzed by the author. The penalty for failure to repay a debt is modeled as the end of trading opportunities. Since credit availability makes access to trade more valuable, there may be multiple equilibrium credit limits. Since the credit limit affects the implicit interest rate and the stock of inventories, it is necessary to check the net impact of the credit limit on the incentive to repay. In a calculated example, with lumpy credit availability, multiple equilibria are very common with a greater credit limit associated with a lower implicit interest rate. With smooth credit availability no multiple equilibria were found. Surprisingly, credit can break the no-production equilibrium.

Journal Article Borrowing Constraints and Portfolio Choice Get access Christina Paxson Christina Paxson Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 105, Issue 2, May 1990, Pages 535–543, https://doi.org/10.2307/2937799 Published: 01 May 1990

This paper presents a class of preferences that yield closed-form solutions to dynamic stochastic choice problems. These preferences are based on a set of axioms that were proposed by Kreps and Porteus. The Kreps-Porteus axioms allow one to separate an agent's attitudes to risk from his or her intertemporal elasticity of substitution. RINCE preferences have the properties of Risk Neutrality and Constant Elasticity of substitution.

For more than a half a decade the fact that expenditure on durables can be well approximated by a random walk has remained a hidden puzzle, challenging almost any theory in which agents smooth the use of their wealth. This paper shows that once a nonparsimonious approach is used, or lower frequencies of the data are examined, the fact itself disappears; changes in expenditures on durables reveal a degree of reversion consistent with the permanent income hypothesis (PIH), although this reversion occurs at a rate significantly slower than what is suggested by a frictionless PIH model.