Knowledge that Transforms

Journal Article Review of Economic Studies European Meetings Get access The Review of Economic Studies, Volume 67, Issue 4, October 2000, Page 811, https://doi.org/10.1111/1467-937X.00155 Published: 01 October 2000

We study the aggregate implications of (S, s) inventory policies in a dynamic general equilibrium model with aggregate uncertainty. Firms in the model's retail sector face idiosyncratic demand risk, and (S, s) inventory policies are optimal because of fixed order costs. The distribution of inventory holdings affects the aggregate outcome in two ways: variation in the decision to order and variation in the rate of sale through the pricing decisions of retailers. We find that both mechanisms must operate to reconcile observations that orders are more volatile than, and inventory investment is positively correlated with, sales, while remaining consistent with other salient business cycle characteristics. The model exhibits strong amplification for some shocks and persistence to a limited extent.

We characterize an equilibrium development process driven by the interaction of the distribution of wealth with credit constraints and the distribution of entrepreneurial skills. When efficient entrepreneurs are relatively abundant, a “traditional” development process emerges in which the evolution of macroeconomic variables accord with empirical regularities and income inequality traces out a Kuznets curve. If, instead, efficient entrepreneurs are relatively scarce, the model generates long-run “distributional cycles” driven by the endogenous interaction between credit constraints, entrepreneurial efficiency and equilibrium wages.

I model people in a coordination game who use a communication network to tell each other their willingness to participate. The minimal sufficient networks for coordination can be interpreted as placing people into a hierarchy of social roles or "stages": "initial adopters", then "followers", and so on down to "late adopters". A communication network helps coordination in exactly two ways: by informing each stage about earlier stages, and by creating common knowledge within each stage. We then consider two examples: first we show that "low dimensional" networks can be better for coordination even though they have far fewer links than "high dimensional" networks; second we show that wide dispersion of "insurgents", people predisposed toward participation, can be good for coordination but too much dispersion can be bad.

This paper introduces a theory of market incompleteness based on the information transmission role of prices and its adverse impact on the provision of insurance in financial markets. We analyse a simple security design model in which the number and payoff of securities are endogenous. Agents have rational expectations and differ in information, endowments, and attitudes toward risk. When markets are incomplete, equilibrium prices are typically partially revealing, while full relevation is attained with complete markets. The optimality of complete or incomplete markets depends on whether the adverse selection effect (the unwillingness of agents to trade risks when they are informationally disadvantaged) is stronger or weaker than the Hirshleifer effect (the impossibility of trading risks that have already been resolved), as new securities are issued and prices reveal more information. When the Hirshleifer effect dominates, an incomplete set of securities is preferred by all agents, and generates a higher volume of trade.

When viewed as taxes, lotteries are routinely criticized as being both inequitable and inefficient. But is this an entirely fair comparison? Frequently lotteries are used in lieu of voluntary contributions by private charities and governments when taxes are not feasible. When heterogeneous individuals with quasi-linear preferences participate in lotteries whose proceeds will be used to fund a public good, we find that, relative to voluntary contributions, wagers in the unique lottery equilibrium (a) increase the provision of the public good, (b) are welfare improving, and (c) provide levels of the public good close to first-best as the lottery prize increases.

Why do individuals participate in charitable gambling activities? We conduct a laboratory investigation of a model that predicts risk-neutral expected utility maximizers will participate in lotteries when they recognize that lotteries are being used to finance public goods. As predicted by the model, we find that public goods provision is higher when financed by lottery proceeds than when financed by voluntary contributions. We also find support for other comparative static predictions of the model. In particular we find that ticket purchases vary with the size of the fixed prize and with the return from the public good: lotteries with large prizes are more effective, and ticket purchases drop dramatically when the public good is not valued by subjects.

Journal Article Consumer Durables and Inertial Behaviour: Estimation and Aggregation of (S, s) Rules for Automobile Purchases Get access Orazio P. Attanasio Orazio P. Attanasio University College London, Institute for Fiscal Studies and NBER Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 67, Issue 4, October 2000, Pages 667–696, https://doi.org/10.1111/1467-937X.00149 Published: 01 October 2000 Article history Received: 01 September 1995 Accepted: 01 October 1999 Published: 01 October 2000

This paper examines the bidding for school milk contracts in Florida and Texas during the 1980s. In both states firms were convicted of bid-rigging. The data and legal evidence suggest that the cartels in the two states allocate contracts in different ways: One cartel divides the market among members, while the other cartel also uses side payments to compensate members for refraining from bidding. We show that both forms of cartel agreements are almost optimal, provided the number of contracts is sufficiently large. In the auction the cartel bidder may face competition from non-cartel bidders. The presence of an optimal cartel induces an asymmetry in the auction. The selected cartel bidder is bidding as a representative of a group and has on average a lower cost than a non-cartel bidder. The data support the predicted equilibrium bidding behaviour in asymmetric auctions in accordance with optimal cartels.