Income mobility and horizontal inequity are two common examples of the phenomenon of “distributional change”: the transformation of an “old” distribution vector into a “new” distribution vector. An attempt is made to supplement the sundry ad hoc methods of measuring this change with a system of axioms that might command support as general principles of measurement. Variants on the axiom system are examined and the associated class of measures is derived.
If a firm does not know the individual ex post outside opportunities of its contracted workforce, then it can use hours, wages, and redundancy payments to screen them. Will a second-best contract have underemployment inefficiency, or overemployment? And, with a stochastic contract, are those workers randomly selected for layoff worse off than their retained colleagues (involuntary layoff), or vice versa (involuntary retention)? The answers depend on the nature of the workers' preferences. Two polar cases are looked at, corresponding to permanent and temporary layoff. The former is characterized by overemployment and involuntary retention; the latter by underemployment and involuntary layoff. Also examined are “simple contracts” where all retained workers are paid a common wage and all laid-off workers receive a common redundancy payment. Handling asymmetric information in stochastic contracts has led to two technical innovations. First, a number of results are proved even though all the truth-telling constraints are explicitly included. Second, a new regularity condition is found under which the local constraints are sufficient to ensure global incentive compatibility at an optimum.
This paper considers the aggregation of discrete distributed lags in the spirit of Houthakker and Johansen. Well-known distributed lag models in econometrics are shown to arise from aggregation across heterogeneous microeconomic units. The technique of analysis is based on the statistical theory of compound distributions. The paper goes on to consider how consistently estimated macro distributed lags may be decomposed into two components which represent, respectively, the microeconomic response and the heterogeneity in that response. Related problems of identification and estimation and the interpretive value of the approach are also discussed and illustrations provided.
This paper examines the existence of n-firm Cournot equilibrium in a market for a single homogeneous commodity. It proves that if each firm's marginal revenue declines as the aggregate output of other firms increases (which is implied by concave inverse demand) then a Cournot equilibrium exists, without assuming that firms have nondecreasing marginal cost or identical technologies. Also, if the marginal revenue condition fails at a "potential optimal output", there is a set of firms such that no Cournot equilibrium exists. The paper also contains an example of nonexistence with two nonidentical firms, each with constant returns to scale production.
"A general method of introducing demographic effects into any demand system, using modifying functions, is described which permits complicated interactions of demographic variables with prices and expeditures. Theorems give properties the modifying functions must have to ensure integrability of the resulting system. Demand equations of the new system are given explicitly as functions of the original demand equations and the modifying functions. The procedure is interpreted as altering a household's technology, and is shown to encompass adult equivalent scales and related methods. Examples of modifying functions are derived and applications of the technique to uses other than demographic variation are considered."
In a duopoly where one firm has the idea for a non-patentable innovation, the expected profits from the innovation will not be a monotonic function of the cost of innovating. Furthermore, a costly innovation may be undertaken, where an inexpensive one would not have been, all other things being equal.
This paper considers the effects of wage taxes, employment subsidies and unemployment benefits in a simple model of equilibrium search. Unemployment is determined by the equality of job matchings and job separations, job vacancies are determined by a zero-profit condition and wages by a Nash bargain between the meeting firm and worker. I show that marginal wage taxes influence the firm's and worker's equilibrium sharing rule, whereas employment subsidies and unemployment benefits influence only the surplus shared. Hence, tax-financed subsidies reduce wages and raise employment and vacancies, whereas tax-financed unemployment benefits raise wages and reduce employment and vacancies.
A model of product differentiation which combines elements of both spatial and representative consumer formulations is used to examine the properties of single- and multiple-price equilibria. Conditions under which decreases in the intensity of consumer preferences reduce price are given. It is shown that, with certain types of demand curves, entry can eliminate price-cost markups even given product differentiation. If competition is localized, it is demonstrated that entry does not affect the markup. Finally, the effect of spurious product differentiation on price is examined.
A Cournot model of oligopoly in which otherwise identical firms have private differential information about the common cost of production and a shared (but unknown) demand curve is examined. A Bayesian equilibrium of the corresponding game of incomplete information is solved for explicitly and analysed. In the symmetric equilibrium, different firms produce at different output levels because they have different information. Because the information individual firms have is random, total output and hence market price is also random for any finite number of firms. The main result of the paper relates to the asymptotic properties of the equilibrium, when the number of firms becomes large. Under fairly general conditions on the joint distribution of demand and individual firms' information about demand, the random equilibrium price converges almost surely to a constant in the limit. More importantly, this price equals the perfectly competitive price. In other words, in large markets, even if no firm knows the true market demand curve and firms are not price-takers and do not use price as a signal to improve their information, the competitive price will prevail with certainty. In the limit, aggregate outcomes are as if all firms shared their private information with each other.