This paper considers discounted repeated games with boundedly rational players. In each period, player i chooses his current action on the basis of his forecast about the forthcoming n(i) action profiles; his assessment of the payoffs he will obtain next depends on his state of mind, which is non-deterministic. A limited forecast equilibrium is such that after every history the limited horizon forecasts formed by the players are correct. The set of all limited forecast equilibria is characterized and constructed. Application to the repeated prisoner's dilemma shows that limited foresight may sometimes induce purely cooperative paths while purely non-cooperative paths cannot arise.

The rules under which jurisdictions (nations, provinces) can deny immigration or expel residents are generally governed by a constitution, but there do not exist either positive or normative analyses to suggest what types of exclusion rules are best. We stylize this problem by suggesting four constitutional rules of admission: free mobility, admission by majority vote, admission by unanimous consent, admission by a demand threshold for public goods. In a simple model we characterize the equilibria that result from these rules, and provide a positive theory for which constitutional rules will be chosen.

A seller with two objects faces a group of bidders who are subject to budget constraints. The objects have common values to all bidders but need not be identical, and may be either complements or substitutes. In a simple complete information setting we show: (1) if the objects are sold by means of a sequence of open ascending auctions, then it is always optimal to sell the more valuable object first; (2) the sequential auction yields more revenue than the simultaneous ascending auction used recently by the FCC if the discrepancy in the values is large, or if there are significant complementarities; (3) a hybrid simultaneous-sequential form is revenue superior to the sequential auction; and (4) budget constraints arise endogenously.

Car prices in Europe are characterized by large and persistent differences across countries. The purpose of this paper is to document and explain this price dispersion. Using a panel data set extending from 1980 to 1993, we first demonstrate two main facts concerning car prices in Europe: (1) The existence of significant differences in quality adjusted prices across countries, with Italy and the U.K. systematically representing the most expensive markets. (2) Substantial year-to-year volatility that is to a large extent accounted for by exchange rate fluctuations and the incomplete response of local currency prices to these fluctuations. These facts are analysed within the framework of a multiproduct oligopoly model with product differentiation. The model identifies three potential sources for the international price differences: price elasticities generating differences in markups, costs, and import quota constraints. Local currency price stability can be attributed either to the presence of a local component in marginal costs, or to markup adjustment that is correlated with exchange rate volatility; the latter requires that the perceived elasticity of demand is increasing in price. We find that the primary reason for the higher prices in Italy is the existence of a strong bias for domestic brancs that generates high markups for the domestic firm (Fiat). In the U.K. higher prices are mainly attributed to better equipped cars and/or differences in the dealer discount practices. The import quota constraints are found to have a significant impact on Japanese car prices in Italy, France and the U.K. With respect to local currency price stability, a large percentage of the documented price inertia can be attributed to local costs, and a smaller fraction to markup adjustment that is indicative of price discrimination. Based on these results we conjecture that the EMU will substantially reduce the year-to-year volatility observed in the car price data, but without further measures to increase European integration, it will not completely eliminate existing cross-country price differences.

Balanced growth models are commonly used in macroeconomics because they are consistent with the well-known Kaldor facts regarding economic growth. These models, however, are inconsistent with one of the most striking regularities of the growth process—the massive reallocation of labour from agriculture into manufacturing and services. This paper presents a simple model consistent with both the Kaldor facts and the dynamics of sectoral labour reallocation.