Partha Dasgupta, Eric Maskin; The Existence of Equilibrium in Discontinuous Economic Games, I: Theory, The Review of Economic Studies, Volume 53, Issue 1, 1 Jan
The paper analyzes the effect of tax-deferred individual retirement accounts (IRAs) in the United States on net individual saving. The results are based on a model of constrained optimization with the limit on tax-deferred saving the principle constraint. The estimates suggest that contributions to IRAs represent substantial net saving increases. Were the IRA limit to be increased, only about 10 to 20% of resulting increase in IRA contributions would be taken from other savings. About 50% would come from reduced consumption and about 35% from reduced taxes.
The public good aspect of entry prevention is examined in an industry characterized by an established oligopoly facing a potential entrant. Although incumbent firms act noncooperatively, underinvestment in entry-deterrence does not occur and in fact incumbents may find themselves in a Pareto dominated arrangement (in terms of profits) by preventing entry.
This paper argues that adverse selection in the labour market, when viewed as part of a three-way interaction among workers, their current employers and a universe of alternative employers, may seriously impair a worker's freedom to change jobs. When current employers are better informed about the abilities of their workers than potential alternative employers, they will presumably concentrate their efforts to prevent turnover on their better workers. If these efforts lead to fewer quits among better workers, the stream of job changers should be composed disproportionately of less able ones. This will inhibit turnover in two ways. First, firms should be unwilling to hire from the job-changing pool except at low wages. Second, workers who change jobs are marked by being part of an inferior group, which lowers their future bargaining power and wages. Models of these phenomena can be made to account for many aspects of observed labour market behaviour.
This note considers a stochastic version of the Baumol-Tobin model of the demand for money. A dynamic demand function is derived for the case in which independent variables change to new, steady-state values. The (S, s) inventory policy is shown to give rise to an aggregate, partial-adjustment equation with a variable adjustment speed. The methodology is that introduced to target-threshold models by Milbourne, Buckholtz, and Wasan (1983) in their study of the Miller-Orr model.
In a partnership game, each player's utility depends on the other players' actions through a commonly observed consequence (e.g. output, profit, price), which is itself a function of the players' actions and an exogenous stochastic environment. If a partnership game is repeated infinitely, and each player's payoff in the infinite game (supergame) is the long-run average of his expected one-period utilities, then efficient combinations of one-period actions can be sustained as Nash equilibria of the supergame even if the players cannot observe other players' actions or information, but can only observe the resulting consequences.
Between 1969 and 1972, real U.S. social security retirement benefits rose by 20%. The rise was unanticipated and followed over 15 years of relatively constant real benefits. This paper proposes a model of retirement behaviour in which workers respond differently, although in a theoretically consistent manner, to the anticipated and unanticipated components of the social security benefit they can receive upon retirement. The retirement age decision in the presence of unanticipated benefit changes is shown to be a special case of utility maximization under a nonlinear budget constraint. The model is estimated using the Longitudinal Retirement History Survey.
This paper estimates a utility maximising model of the joint determination of male and female labour supplies using a sample of married couples from the U.K. Family Expenditure Survey. The emphasis is on the estimation of within period preferences that are consistent with intertemporal two-stage budgeting under uncertainty. However, the approach we adopt provides an alternative method of estimating certain aspects of life-cycle behaviour to the fixed effects λ-constant approach of Heckman and MaCurdy (1980), MaCurdy (1981) and Browning, Deaton and Irish (1985). Moreover, it relaxes some of the underlying restrictions that are implicit in these λ-constant models under uncertainty.
When do oligopolists gain by sharing their private information about their costs with one another? What are the social welfare effects of such information exchange? I study these questions by comparing the oligopolists' expected profits under a cost sharing agreement with their expected profits in the Bayesian equilibrium that would arise without cost sharing. I also analyse the firms' decisions to form a trade association to share their cost data. Under conditions of linear demand and Cournot behaviour, industrywide information exchange is the unique point in the core of the trade association membership game. The exchange of cost data increases expected profits and welfare, but reduces expected consumer surplus. Cost sharing increases efficiency by raising the market shares of lower cost firms and reducing the variability of aggregate output. Consumer surplus is diminished, however, because the variance of output is reduced, and consumer surplus is a convex function of output.
In this note we introduce a weak optimality condition for tests, called complete consistency. We argue that complete consistency is a more appropriate weak optimality condition for tests than is test consistency. Complete consistency is a testing analogue of estimator consistency. It is shown that a sequence of estimators is consistent, if and only if certain tests based on the estimators (such as Wald or likelihood ratio tests) are completely consistent, for all simple null hypotheses. The above notwithstanding, the relationship between consistent and completely consistent tests shows that test consistency is a relevant concept. Consistent tests can be used to show the existence of, and to construct, completely consistent tests. Further, completely consistent tests cannot be generated from nested families of inconsistent tests.