Knowledge that Transforms

Although there has been much argument over the impact of variable inflation rates upon economic performance, there has been surprisingly little attempt to define the term "variability of inflation" carefully or to test proposed hypotheses connecting variability and the level of inflation. Precise definitions are given in the paper and a model is constructed showing that the level/variability hypothesis may be formulated in terms of the presence of heteroscedasticity in a regression model. This theoretical model is used to criticize existing studies, while an empirical study with Australian data illustrates the application of the approach.

Earlier work on aggregate production functions with capital-embodied technology showed that, when firms employ more than one capital type, conditions for partial capital ("equipment") aggregation and for total capital aggregation differ. This paper studies simultaneously existing partial and total aggregates. Existence of a total and one partial aggregate implies existence of the complementary partial aggregate. However, simultaneous existence requires each firm's production function to be strongly separable in its capital subaggregates. The use of subaggregates like "equipment" and "plant" together with an aggregate "capital" thus implies that "plant" and "equipment" are perfect substitutes and is highly questionable.

The hypothesis of non-jointness in input quantities (separate production functions) is well-known, and it plays an important role in many areas of economics. In this paper we define three additional forms of non-jointness which have received little or no attention in the literature, and which might be relevant for the firm as well as for the representation of the aggregate technology. We characterize all forms of non-jointness in terms of variable profit and joint cost functions. This yields a number of restrictions which are all testable empirically.

This paper presents a simple, multistage model of bargaining wherein a seller makes an offer that can be either accepted or refused.If rejected, the process continues.How the seller's ability to make commitments affects bargaining outcomes is analysed by comparing the commitment equilibria to those arising when commitment is impossible.The effects of increasing uncertainty about preferences and varying the length of the bargaining horizon are analysed.The ways in which the bargaining environment can be changed to improve outcomes are discussed.

This paper investigates a representative landlord's profit-maximization problem in a stationary economy. The landlord must decide on the quality of his housing units at the time of construction, maintenance expenditure over the life of the building, and the time of demolition or rehabilitation. The analysis can be applied to other problems with similar economic structure, notably equipment and durable good maintenance, overhaul and replacement.

In a perfectly competitive general equilibrium model with many periods, incomplete markets, and trading through time, we show: (a) current net market value maximization is unanimously favoured by shareholders as the objective of the firm (b) this corresponds to maximizing a relatively simple present discounted value formula (c) the formula is used to derive an Arrow-lind-type result on the absence of a risk premium in the discount factors for valuing investments whose risk is uncorrelated with social risk (d) competitive stock markets are constrained Pareto optimal in the sense of Diamond. Suppose that a perfectly competitive firm wishes to determine its intertemporal produc-tion-and-investment plan in accordance with its shareholders ' interests. Will it be able to satisfy this desideratum? And if so, what course should it pursue? In a general equilibrium model with many periods, uncertainty, incomplete markets, and trading through time, we show that 1. All initial shareholders of a perfectly competitive firm will wish that firm to choose a production-and-investment plan that maximizes its current net market value

This paper considers the wide class of problems in which a searcher can choose his sample size and whether or not to stop search at each of a sequence of decision points. Sequential search problems are the special cases in which the sample size chosen at each decision point is unity. Several properties of the optimal sample size sequence are established, with particular attention being paid to the effects of recall, decision horizons and fallback utilities. These properties yield necessary and sufficient conditions for the optimality of sequential search strategies within the class of problems considered. 1.

This paper develops Instrumental Variables statistics for testing non-nested hypotheses when the hypotheses considered are single equations from a system of linear dynamic simultaneous equations. Asymptotic distributions of those statistics and of comparable Maximum Likelihood statistics are derived under the null hypothesis, a local non-nested alternative hypothesis, and a local “comprehensive” alternative hypothesis. The asymptotic powers of the non-nested hypothesis tests are compared with those of tests of nested hypotheses, and a numerical application is given.

We study a rational expectations partial equilibrium model of a market for a single storable commodity whose output each period is a function of previous period effort on production and a realization of a shock that affects equally all producers. The final demand is non-random and depends only on each period's price. Risk-neutral producers make production and storage decisions based on forecasts of future price distributions. Existence of equilibrium is proved, and for the case of i.i.d. shocks several comparative statics results are established as well as the existence and stability of a unique stationary distribution.

Majority rule voting with smooth preferences on a smooth policy space W is examined. It is shown that there is an integer w(n), which is 2 when the size of the society n is odd and 3 when n is even such that (i) when the dimension of W is at least win) then, for almost preference profiles on W, the core of the voting game is empty (ii) when the dimension of W exceeds win I then for almost all preference profiles on W, there exist dense preference cycles in W. Moreover in dimension w(n) + I the policy space can be partitioned into a finite number of path connected components, such that any two points in one of the components can be connected by a majority voting trajectory. In dimension greater than w (n) + 1 there exists only one such component. 1.