Knowledge that Transforms

In a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from workinq periods to retirement. Static models of international trade based on the specific-factors model incorporate only the first of these. Once the second is recognized the supply of capital and evaluation of land can be derived from underlying intertemporal optimization behavior.

The transactions cost for alternative exchange mechanisms for the household exchange problem can be characterized by the computational complexity of the exchange process. The computational complexity for any exchange mechanism is at least nH, where n is the number of goods and H is the number of households. Imposing the conditions of conservation, nonnegativity and quid pro quo results in a command exchange mechanism whose computational complexity is nH. Multiparty barter exchange, formalized using graph theory, has computational complexity equal to the minimum of (nH2, n2H). Introducing an auxiliary good, money, reduces the computational complexity to nH. A problem with decentralized information is demonstrated.

This paper considers a multisector Gorman-Lancaster linear characteristics model of earnings in which workers cannot unbundle their skills. Conditions are presented under which characteristics are uniformly priced across sectors. Empirical evidence is presented for the U.S. labour market that rejects the hypothesis of uniform pricing of characteristics.

This paper considers the existence and properties of approximate Bertrand equilibria in a replicated industry. Price setting firms produce a homogeneous product with weakly convex costs. The main results are that: (a) Given ɛ > 0, an ɛ-equilibrium exists if the industry is large enough; (b) If the ɛ is small enough, and the industry large enough, any ɛ-equilibrium is approximately competitive. These results depend on how contingent demand is specified.

In this paper, we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future. We show that there is a stationary representation of the optimal contract when the agent's conditional discounted expected utility is used as a state variable. This representation reduces the multi-period problem to a static variational problem which can be analyzed using standard variational techniques. This reduction is used to obtain several properties of the contract.

Many previous studies have found a strong positive effect of job seniority (tenure) on wages. This paper re-examines the evidence using a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage. We use the variation of tenure over a given job match as the principal instrumental variable for tenure. The variation in tenure over the job is uncorrelated by construction with the fixed individual and job match specific components of the error term of the wage equation. Our main finding is that the partial effect of tenure on wages is small, and that general labour market experience and job shopping account for most wage growth over a career. The strong cross section relationship between tenure and wages is due primarily to heterogeneity bias.

Journal Article Prices vs. Quantities vs. Laissez-faire Get access Martin Browning Martin Browning McMaster University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 54, Issue 4, October 1987, Pages 691–694, https://doi.org/10.2307/2297490 Published: 01 October 1987 Article history Received: 01 December 1986 Accepted: 01 March 1987 Published: 01 October 1987

We derive the information matrix test, suggested by White, for the normal fixed regressor linear model, and show that the statistic decomposes asymptotically into the sum of three independent quadratic forms. One of these is White's general test for heteroscedasticity and the remaining two components are quadratic forms in the third and fourth powers of the residuals respectively. Our results show that the test will fail to detect serial correlation and never be asymptotically optimal against heteroscedasticity, skewness and non-normal kurtosis.

A risk neutral principal wishes to exact a payment from a risk neutral agent whose wealth he does not know, but may verify through a costly auditing procedure. We characterize efficient schemes for the principal when he is allowed to choose schedules for preaudit and postaudit payments and audit probabilities, subject to the constraint that only monetary incentives can be used and that the principal may never make a net payment to the agent. The main results are that efficient schemes involve preaudit payments which are increasing in the agent's wealth, audit probabilities are decreasing in the agent's wealth and also satisfy certain constraints as equalities. In general, such schemes involve stochastic auditing and rebates after an audit.

The paper presents two models of races in which there is both technological uncertainty and strategic interaction between competitors as the race unfolds. Most of the existing literature examines one or other of these features, but not the two combined. Our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them. In our principal model, whch is of a one-dimensional race, it is shown that the leader in the race makes greater efforts than the follower, and efforts increase as the gap between competitors decreases. Under certain conditions the same results hold in our second, related model, which is of a two-dimensional race.