Knowledge that Transforms

This study compares how well current spot prices predict future spot prices for a variety of commodities in a non-futures market environment and examines how the predictive power of the price system is altered after the initiation of futures trading. The results indicate a positive association between the inability of a non-futures market price system to predict the future spot price and the subsequent development of a futures market. The claim that traders can earn a return on information collection after the introduction of a futures price into the pricing system is supported for some, but not all, commodities.

This paper shows that the discounted sum of instantaneous equivalent or compensating variations (generalized to allow for expenditure changes) is never an exact welfare indicator for a consumer whose preferences are represented by a continuous, increasing inter-temporal utility function.

The resolution of any bargaining conflict depends crucially on the relative urgency of the agents to reach agreement and the information each agent has about the others' preferences. This paper explores, within the context of an infinite-horizon bargaining model with two-sided uncertainty, how timing and information affect the rational behaviour of agents when commitment is not possible. Since the bargainers are uncertain about whether trade is desirable, they must communicate some of their private information before an agreement can be reached. This need for learning, due to incomplete information about preferences, results in bargaining inefficiencies: trade often occurs after costly delay. Thus, the model provides an explanation for the inefficient bargaining behaviour that appears to occur often in practice.

The paper considers a bilateral monopoly with uncertainty and asymmetric information, and characterizes necessary and sufficient conditions for the existence of contracts that are efficient and incentive compatible. These contracts can be implemented by a truthful sequential revelation mechanism. Alternatively, they can be interpreted as specifying a class of payment schedules, designating the seller to choose a schedule from this class, and the buyer to pick a point on the chosen schedule. Requirements contracting is similar.

The paper employs a model of monopolistic competition and product differentiation with consumers who are not well informed about the specification of the offered brands. Welfare analysis of the degree of product differentiation in such a market concludes that the socially desirable product variety is limited due to consumers' imperfect information. Consequently, when the number of consumers is sufficiently large or economies to scale in production are sufficiently weak, the market would offer excessive variety.

This paper uses recursive competitive theory to develop a general equilibrium asset pricing model. In this framework all prices and rates of return are endogenously determined, thus enabling us to analyze the effects of changes in preferences, technological uncertainty, and expectations on the structure of security prices. In particular we focus on how the market risk premium varies with changes in the underlying economic environment, an issue which other asset pricing models have chosen not to address.

A first-bid auction to allocate the leadership role is used to choose a public decision and a balanced set of transfers. The mechanism is shown to implement an equal-sharing of the surplus above the "average" utility level. At the equilibrium an agent's message reveals the other agent's utility (when only two players are involved) and the exact value of the joint surplus. A variety of other contexts allow for the construction of similar auction-like mechanisms displaying the same mirror-image effect.

In this paper, we present the primal characterizations of the technologies that are consistent with capital aggregation. These characterizations are dual to the profit function restrictions obtained by Gorman and complete the closed-form production function restrictions obtained by Fisher. We use the result to solve a problem recently posed by Fisher. In addition, we pose and solve a natural extension of the usual capital aggregation problem.

In this paper, we extend to a general equilibrium context Bertrand's classic critique of Cournot. We present a game-theoretic model of a pure exchange, monetary economy, in which buyers as well as sellers announce both quantities and prices. When buyers act strategically, the "Edgeworth nonexistence problem" is circumvented: under weak conditions, a pure strategy Nash equilibrium exists for this game. We make precise the Bertrand idea that when agents in a finite economy are permitted to compete-by-price the resulting allocations will be competitive. Specifically, the Nash equilibria for our game yield allocations that are "competitive" allocations for the underlying exchange economy, provided that there are at least two buyers and two sellers actively trading in every market. Under this characterization of strategic behaviour, then, "two is enough for competition."