Knowledge that Transforms

This paper presents a model in which a country's measured average propensity to save endogenously rises when its economy industrializes. The model has agricultural and manufacturing sectors. Only agriculture uses land. If at early dates income per capita is low, agricultural consumption is important, land is valuable, and capital gains on land may constitute most wealth accumulation, leaving the country's NIPA APS low. If exogenous technological progress raises incomes over time, Engel's law shifts demand to manufactured goods. Then land's portfolio importance relative to reproducible capital diminishes and the national income and products account saving rate can rise.

This paper develops a model where voters trade-off two different motives when deciding how to vote: they care about current decision-making (they are “strategic”), but they also care about communicating their views about their most-preferred candidate so as to influence future elections, by influencing other voters' opinion and/or party positioning. In effect, voters in this model are intermediate between “strategic” and “sincere” voters of conventional models in elections with more than 2 candidates. This allows us to better investigate the relative efficiency of various electoral systems: our main conclusion is that since voting is used as a communication device electoral systems should be designed to facilitate efficient communication, e.g. by opting for 2-round systems rather than 1-round systems.

We consider the problem of bargaining over the disclosure of interimresearch knowledge between two participants in an R&D race for an ultimate,patentable invention. Licence fee schedules that are functions of the'amount of knowledge disclosed', by the leading to the laggingagent, are examined for their abilities to attain efficient outcomes andvarying shares of the surplus arising from disclosure. In hersequential-offers bargaining games, the uninformed buyer is able to elicitfull disclosures without sharing the incremental surplus with any type ofthe licensor, and thus do as well as a perfectly informed and discriminatingknowledge licensee.

We present a model of anonymous collective bargaining where individuals' preferences and information may be significantly interdependent. We show that the bargaining outcome becomes independent of individuals' preferences and information as the bargaining group increases in size. As a corollary, we show that anonymous voluntary bargaining completely fails in large groups. Either the difference between the bargaining outcome and the status quo vanishes as the size of the group becomes larger, or, the bargaining becomes coercive and results in a violation of at least some individuals' rights. The result provides a rationale for the inherent difficulty of reform in the presence of asymmetric information. “There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things.” Niccolò Machiavelli, The Prince (1532)

This paper uses microeconomic data from the U.K. Family Expenditure Surveys (FES) and the General Household Surveys (GHS) to describe and explain changes in the distribution of male wages. Since the late 1970s wage inequality has risen very fast in the U.K., and this rise is characterized both by increasing education and age differentials. We show that a large part of the changes in the U.K. can be summarized quite simply as increases in eduction differentials and a decline of growth of entry level wages which persist subsequently. This fact we interpret as cohort effects. We also show that, like in the U.S., an important aspect of rising wage inequality is increased within-group wage dispersion. Finally we use the GHS to evaluate the role of alternative education measures.

This paper analyses a strategic bargaining game where the firm may or may not be able to sell out of its inventory of finished goods during a strike. Firms and the union are both risk neutral and have the same discount rate. It is shown that the wage equilibrium corresponds to the axiomatic Nash bargaining solution where the threatpoints are the agents' payoffs should bargaining continue indefinitely. We use the 1980 and 1982 Employment Acts to test this theory, interpreting that legislation change as changing the firm's threatpoint but not its bargaining power. This allows us to identify the value of the firm's threatpoint post-1982. Formal tests support the theory. Also consistent with the theory, it is found that union wages decrease with inventories after 1982, but not before, and that the union wage gap is smaller after 1982.

It is well known that economies of scale that are external to the individual decision makers can lead to self-fulfilling prophecies and the multiplicity or even indeterminacy of equilibrium. We argue that the importance of this source of multiplicity and indeterminacy is overstated in representative agent models, as they ignore the potential stabilizing effect of heterogeneity. We illustrate this in a version of Matsuyama's (1991) two-sector model with increasing returns to scale. Two main results are shown. First, sufficient homogeneity with respect to individual productivity leads to the instability and non-uniqueness of a given stationary state and the indeterminacy of the corresponding stationary state equilibrium. Second, sufficient heterogeneity leads to the global saddle-path stability and the uniqueness of a given stationary state and the global uniqueness of equilibrium.

In the framework of symmetric Cournot oligopoly, this paper provides two minimal sets of assumptions on the demand and cost functions that imply respectively that, as the number of firms increases, the minimal and maximal equilibria lead to (i) decreasing industry price and increasing or decreasing per-firm output; and (ii) increasing industry price (and decreasing per firm output.) In both cases, per-firm profits are decreasing. The analysis relies crucially on lattice-theoretic methods and yields general, unambiguous and easily interpretable conclusions of a global nature. As a byproduct of independent interest, new insight into the existence of Cournot equilibrium is developed.

We study the optimal (i.e. revenue maximizing) auction of multiple products. We make three major points. First, we extend the relationship between price discrimination and optimal auctions from the single-product case to the multiple-product case. A monopolist setting prices for multiple products may offer discounts on purchases of bundles of products; similarly, the optimal auction of multiple products facilitates price discrimination by allocating products inefficiently to customers who are willing to purchase both products. Second, we demonstrate that optimal auctions are qualitatively distinct from monopoly sales of multiple products. Because of uncertainty about the values of other consumers, two products are bundled probabilistically in an optimal auction for a customer who is willing to buy both of them. A customer may then receive a discount on a lower-valued product without receiving a higher-valued product. Third, we show that in an optimal auction of two products the allocation of one product may vary with the amount of competition for the other product.

We characterize the values of government debt and the debt's maturity structure under which financial crises brought on by a loss of confidence in the government can arise within a dynamic, stochastic general equilibrium model. We also characterize the optimal policy response of the government to the threat of such a crisis. We show that when the country's fundamentals place it inside the crisis zone, the government may be motivated to reduce its debt and exit the crisis zone because this leads to an economic boom and a reduction in the interest rate on the government's debt. We show that this reduction can be gradual if debt is high or the probability of a crisis is low. We also show that, while lengthening the maturity of the debt can shrink the crisis zone, credibility-inducing policies can have perverse effects.