We prove the general existence of steady states with positive consumption in an N goods and fiat money version of the Kiyotaki-Wright model by admitting mixed strategies. We also show that there always exists a steady state in which everyone accepts a least costly-to-store object. In particular, if fiat money is one such object, then there always exists a monetary steady state. We also establish some other properties of steady states and comment on the relationship between steady states and (incentive) feasible allocations.
The supergame-theoretic model of price competition (Rotemberg and Saloner, 1986) is reexamined in the case of serially correlate demand shocks. The equilibrium price is shown to exhibit the same counter-cyclical movement as the i.i.d. case if the discount factor and the number of firms satisfy a certain relationship.
The effect that the entry of additional firms has on consumer welfare and efficiency in a simple equilibrium-search model is considered. Special attention is given to the case where an arbitrageur enters. It is shown that entry can increase the monopoly power of firms and so reduce welfare. In particular, arbitrage always makes consumers worse off and can increase price dispersion and reduce efficiency in the market. The source of the results is that, unlike other forms of product differentiation, the amount of monopoly power that firms have in a search model is determined endogenously by consumers.
This paper provides sufficient conditions for the identification of both static and dynamic models containing endogenous regressors from panel data by utilizing the restrictions across time periods on the parameters. It is shown that identification is achieved under quite weak conditions even in the presence of a general pattern of correlation between the errors and the time-varying variables. Efficient estimation procedures for the models considered and some specification tests are outlined. Finally, static formulations relating individuals' intakes of nutrients in the previous twenty-four hours to household income are estimated using (ICRISAT) panel data from rural India.
This paper concerns a decision problem of an agent, searching to find a low price, whose memory is represented by a partition of the set of possible past prices. The number of elements in the partition is limited. I characterize the optimal partition for the case of a single decision, and then consider memory allocation among several decisions. I consider a case in which a consumer who must allocate a single bit of memory among two decision problems would do better to allocate it exclusively to one of the problems than to use it to convey joint information about both.
Learning-by-doing and increasing returns are often perceived to have similar implications for market structure and conduct. We analyse this in the context of an infinite-horizon price-setting game. Learning is shown to not reduce the viability of market-sharing collusion between a given number of firms, whereas intra-period increasing returns invariably does. We subsequently develop a model where the number of active firms is determined endogenously, under the assumption that the post-entry game is collusive. In this model, learning has no effect on concentration, while scale economies increase concentration.
The authors formulate a simultaneous-equation model to explain the wages, output, education, and quit propensities of a sample of production workers. Their principal finding is that individuals that choose more education than they would expect from their observed characteristics have lower than expected quit propensities. This relationship would bias standard estimates of rates of return to education. The authors also find that the output of nonwhites was no lower than that of whites, although their wages on previous jobs were lower, and that workers with high levels of output were more likely to quit than were workers whose output was average.
This paper extends the analysis of wage determination in a search environment to the case where firms employ numerous individuals and benefit from team production. It is shown that monopsony wage offers may display perverse comparative statics properties. Interesting problems then arise concerning the uniqueness of search equilibria. These problems are addressed in a simple equilibrium setting where it is shown that multiple equilibria may exist, with an equilibrium that displays bootstrap properties. Our results suggest the possibility of explaining unsatisfactory equilibria as the consequence of profit-maximizing wage choices in environments with imperfectly coordinated trading.
Decisions made under ongoing uncertainty and costly reversibility entail a range of the state variable where inaction is optimal, which in turn produces hysteresis--permanent effects of temporary shifts. The range is usually defined by nonlinear equations that need numerical solutions. In this paper, a technique of analytical approximations is developed and applied to two models--menu costs and investment. The resulting explicit solutions help clarify why hysteresis is important even for small irreversibility. In the menu cost model, hysteresis is two orders of magnitude larger than under the Akerlof-Yellen or Mankiw assumptions.
The paper compares implications of three kinds of models of households' consumption behaviour: the basic permanent-income model, several models of liquidity-constrained households, and a model of an informationally-constrained efficient contract. These models are distinguished in terms of implications regarding the present discounted values of net trades to households at various levels of temporary income, and the households' marginal rates of substitution. Martingale consumption is studied as an approximation to the predicted consumption process of the efficient-contract model.