A risk averse buyer and seller contract over the trade of an item. At the time of trading they each privately know their value s and cost r respectively, but these are not known when the contract is drawn up. The contract specifies a Bayesian revelation mechanism for implementing a trading rule and prices, as functions of their types s and r. An optimal (second-best) contract balances the goal of efficient trading and risk sharing against the need to provide the agents with incentives to reveal their type truthfully. An optimal contract is characterized. First, it is efficient to have some insurance from a third party: even though neither the buyer nor the seller will be fully insured, there is no need for the buyer to be exposed to the seller's risk or vice versa. Second, there will be less than first-best trade (underproduction). Third, once they have privately learnt their type—but before they have played the mechanism—both the buyer and the seller prefer that the final outcome will be trade rather than no trade. Fourth, although the trade prices increase with s and r, the rest of the contract need not be monotonic. This lack of monotonicity means that the standard methodology fails: it is not enough simply to appeal to local incentive compatibility, since global incentive constraints may bind. A nonstandard technique has to be used to find the nature of the second-best distortions.

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 studies the stability of competitive equilibria in a model of aggregate employment when the representative agent uses a least-squares forecasting procedure. It is shown that the Pareto inferior low employment steady state is always unstable under least-squares learning, even if it is stable under perfect foresight. The high employment steady state is stable under learning if and only if it is saddle point stable under perfect foresight. This weakens multiple equilibrium theories of coordination failure that purport to explain persistently high unemployment. The Pareto superior high employment steady state will be the focal point of individual forecasting.

Journal Article The Pasinetti Paradox Revisited Get access B. J. Moore B. J. Moore Wesleyan University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 2, April 1974, Pages 297–299, https://doi.org/10.2307/2296719 Published: 01 April 1974

The paper characterizes the choice rules that can be implemented when agents are unable to commit themselves not to renegotiate the mechanism.

Journal Article Announcements Get access Charles Bean, Charles Bean Search for other works by this author on: Oxford Academic Google Scholar John Moore John Moore Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 56, Issue 4, October 1989, Page 475, https://doi.org/10.1093/restud/56.4.475 Published: 01 October 1989

This study examines a disequilibrium model of a small, open economy with explicit links between periods due to inventory accumulation, as well as the more conventional channels through current account imbalances and the government budget constraint. The key features of the model are that agents have perfect foresight with neutral public debt and that inventories adjust to smooth production intertemporarily. The paper explores the extent to which fiscal policy can be used selectively for coping with an export slump without running into a balance of payments constraint. Copyright 1989 by The Review of Economic Studies Limited.

In the last few years, a new area has emerged in economic theory, which goes under the heading of 'incomplete contracting'. However, almost since its inception, the theory has been under attack for its lack of rigorous foundations. In this paper we evaluate some of the criticisms that have been made of the theory, in particular, those in Maskin and Tirole (1998a). In doing so, we develop a model that provides a rigorous foundation for the idea that contracts are incomplete.

Charles Bean, Mathias Dewatripont, John Moore; Special Issue: The Econometrics of Financial Markets, The Review of Economic Studies, Volume 58, Issue 3, 1

Journal Article Resource Allocation in a Non-convex Economy Get access James C. Moore, James C. Moore Purdue University Search for other works by this author on: Oxford Academic Google Scholar Andrew B. Whinston, Andrew B. Whinston Purdue University Search for other works by this author on: Oxford Academic Google Scholar Joseph S. Wu Joseph S. Wu Purdue University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 39, Issue 3, July 1972, Pages 303–323, https://doi.org/10.2307/2296361 Published: 01 July 1972 Article history Received: 01 April 1971 Revision received: 01 November 1971 Published: 01 July 1972