Journal Article Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points Get access L. Hurwicz L. Hurwicz University of Minnesota Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 2, April 1979, Pages 217–225, https://doi.org/10.2307/2297046 Published: 01 April 1979 Article history Received: 01 November 1976 Accepted: 01 December 1978 Published: 01 April 1979
Journal Article Straightforward Individual Incentive Compatibility in Large Economies Get access Peter J. Hammond Peter J. Hammond University of Essex Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 2, April 1979, Pages 263–282, https://doi.org/10.2307/2297050 Published: 01 April 1979 Article history Received: 01 December 1976 Accepted: 01 September 1978 Published: 01 April 1979
Partha Dasgupta, Peter Hammond, Eric Maskin; The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility, The Review of Econ
For the last twenty years economists have debated the advantages of free and fixed exchange-rate regimes. Milton Friedman argues that if internal prices and wages were inflexible, it would be preferable to allow adjustment to occur through a depreciation of domestic currency. Svend Laursen and Lloyd Metzler, Egon Sohmen, and Murray Kemp argue in favor of free (floating) exchange rates by the familiar insulation properties of free rates. Jerome Stein classifies a conflict (compatible) economy as one in which a decline in output is accompanied by an excess demand (supply) of foreign exchange. When output falls for a compatible economy in a free (fixed) exchange-rate regime, the resultant appreciation of domestic currency (increase in the level of money balances) tends to reinforce (mitigate) the initial decrease in output. When output falls for a conflict economy in a free (fixed) exchangerate regime, the resultant depreciation of domestic currency (decrease in the level of money balances) tends to mitigate (reinforce) the initial decline in output. Stein then concludes that a free (fixed) exchange-rate regime is optimal for the conflict (compatible) economy. There are two major shortcomings of previous comparisons of different exchangerate regimes: the first is the lack of disequilibrium behavior. In this paper, I develop a disequilibrium model for the analysis.' It will be assumed that the money wage adjusts slowly and transactions can occur at labor market disequilibrium. Unemployment gein erated from this type of economic behavior is typically involuntary. The second shortcoming is that the results are limited to static short-run comparisons. Most of the previous analyses are based on the standard Keynesian variable income model with rigid wages and prices.2 Though wages and prices may be considered as fixed in the short run, they must adjust in the long run. In the literature, these long-run aspects have never been satisfactorily analyzed.3 Indeed, this leaves a good part of the problem out of the picture. In order to evaluate the overall efficiency of exchange-rate regimes, in addition to short-run comparisons, we should also consider the shapes (or speeds of adjustment) of long-run time paths of different exchangerate regimes. To overcome these setbacks, I construct a disequilibrium model that traces out the long-run time path of different exchange-rate regimes. Not only will the short-run comparative statics be considered, but also the long-run adjustments of those sticky prices. My analysis shows that Stein's classification can be extended to a long-run dynamic framework. For a conflict (compatible) economy, a free (fixed) exchange-rate regime is superior to a fixed (free) exchange-rate regime, even though the latter regime may have a faster speed of adjustment than the former. In Section I, the analytical framework of the model is developed. Section II analyzes the short-run level of unemployment for each exchange-rate regime; and Section III is an examination of the long-run time paths for