This paper provides two results that are useful in proving the exist ence of and characterizing separating equilibria in signaling games. A key element in the analysis of separating equilibria is the examina tion of the implied incentive compatibility constraints. It is shown that these constraints imply differentiability of strategies. In addi tion, a monotonicity condition (which is similar to the single crossi ng condition) is analyzed that is necessary and sufficient for there to be a strategy satisfying the incentive compatibility constraints. As a direct consequence of these two results, the analysis of Paul Milgrom and John Roberts (1982) is considerably strengthened.
A collective choice problem involves a set of agents and a set of feasi ble utility vectors. Many solutions to the collective choice problem (e.g., the Nash solution) are collectively rational, i.e., consistent with the maximization of some ordering of utility space. In this pap er, a stability condition due to J. C. Harsanyi is used to obtain the following integrability result: any solution satisfying Pareto optim ality, continuity, and bilateral stability can be represented by an a dditively separable Bergson-Samuelson social welfare function.
This paper formulates a simple, regenerative, optimal-stopping model of bus-eng ine replacement to describe the behavior of Harold Zurcher, superinte ndent of maintenance at the Madison (Wisconsin) Metropolitan Bus Comp any. Admittedly, few people are likely to take particular interest in Harold Zurcher and bus engine replacement per se. The author focuses on a specific individual and capital good because it provides a simp le, concrete framework to illustrate two ideas: (1) a "bottom-up" a pproach for modeling replacement investment and (2) a "nested fixed point" algorithm for estimating dynamic programming models of discre te choice.
This paper studies pure exchange economies with infinite dimensional commodity spacces in the setting of Riesz dual systems. An Edgeworth equilibrium is an allocation that belongs to the core of every replication of the ec onomy. Under some mild conditions, it is shown that (1) Edgeworth equ ilibria exist, (2) an allocation is an Edgeworth equilibrium if and o nly if it is an approximate quasiequilibrium, and (3) if preferences are uniformly proper, then every Edgeworth equilibrium is a quasiequi librium. The obtained results specialize to most exchange economies t hat have appeared in the literature of general equilib rium theory.
The authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially-weighted function of accumulated past consumption. This implies that the current price of the good does not decline by as much to accommodate any given level of current consumption. Our an alysis is conducted in terms of a differential game. It is found that the equilibrium price corresponding to the open-loop Nash equilibriu m strategies approaches the static Cournot equilibrium price while th e equilibrium price corresponding to the closed-loop Nash equilibrium strategies, which are subgame perfect, approaches a price below it.
The existence of competitive equilibrium is established for economies with a produc tion sector and an infinite dimensional space of commodities. The cru cial assumptions which are required (beyond those required in the fin ite dimensional setting) are bounds on marginal rates of substitution and marginal rates of transformation.
THE EFFECT OF MONETARY GROWTH on an economy's investment has long been of interest to economists, and monetary growth models provide a convenient tool for the analysis of this question. The standard optimizing growth model postulates that money is injected into the private sector through transfer payments which typically either are of lump sum form or are proportional to wealth, income, or money holdings. (See, for example, Brock (1974), Calvo (1979), Fischer (1979), and Gertler and Grinols (1982).) In these models monetary changes are tied directly to changes in subsidy or tax rates, and greater expected money growth generally either has no effect on investment or increases it through a Tobin (1965) effect. In this paper we analyze the effects that a stochastic monetary policy has on investment in an economy with individual optimization, rational expectations, and a government which makes expenditures and finances them through borrowing, money creation, and proportional income taxes. With such a formulation, money can be injected into the private sector through government purchases and open market operations as well as through transfers, and the link between money growth and subsidy or tax rates is weakened or nonexistent. We assume that the nominal income tax rates are constant over time. Given tax rates and (stochastic) government consumption, the stochastic monetary growth rule followed by the government induces a stochastic government debt policy. The effects that changes in the stochastic monetary growth rate have on investment depend on the nature of the depreciation deduction and on the relationship between the coefficient of relative risk aversion and the tax rate on production income. When depreciation deductions are based on historical costs, an equilibrium is unique so long as the coefficient of relative risk aversion is greater than the tax rate applicable to production income. In this case an increase in the mean rate of money growth decreases equilibrium investment while a mean preserving spread in the money growth rate increases investment. Given Friend and Blume's (1975) finding that the coefficient of relative risk aversion is substantially greater than one, this seems to be the empirically relevant case. If the coefficient of relative risk aversion is less than the tax rate on production income, multiple equilibria are possible, and the effects on investment of changes in the stochastic money growth rate are generally indeterminate. When depreciation deductions are based on replacement costs, investment is independent of the stochastic money growth rate. The paper is organized as follows. Section 2 develops the optimization problem of the representative individual when depreciation deductions are based on historical costs. Section 3 describes the behavior of the government and develops the rational expectations equilibrium for this economy. Section 4 examines the effects on investment of changes in the stochastic money growth rate. Section 5 briefly reconsiders the model when depreciation deductions are based on replacement costs.
This paper shows that: (1) the "preference reversal" phenomenon can be consistent with transitive preferences if these preferences violate the independence axiom of expected utility theory and (2) for the class of experiments that were used to produce the evidence concerning "preference reversal, " the elicitation of certainty equivalents is possible if, and only if, the respondent's preferences can be represented by functionals that are linear in the probabilities. Furthermore, a more general class of experiments is not immune to "preference reversal" if nonexpected utility preferences are admitted.