We examine the rational expectations equilibrium paths of the model of search and barter in Diamond's "Aggregate Demand Management in Search Equilibrium." For some initial positions, there are two equilibrium paths converging to different steady states, with the high-activity path Pareto-dominating the low-activity path. With some parameters there is also a continuum of equilibrium paths converging to another steady state. Moreover, there can be cycles that are equilibrium paths, even though the environment is stationary.
We analyze a dynamic game between consumers and the sole seller of a durable good. Unlike previous analyses, we assume that there exists a finite collection of buyers rather than a continuum. None of the main conclusions of the literature on durable-goods monopoly survives this change in assumption. Coase's conjecture that a durable-goods monopolist cannot earn supracompetitive profits in the continuous-time limit, Bulow's proposition that renting a durable is always more profitable than selling it, and Stokey's proposition that precommitting to a time path of prices is always optimal are all false when the set of buyers is finite. Thus the assumption of a continuum of consumers--so innocuous and useful a simplification in other contexts--has proved misleading in the context of durable-goods monopoly.
In the supply of public goods, far less free-riding actually occurs than traditional theory predicts. As one explanation, the social composition function(SCF), which aggregates individual contributions into an available social total,may not always take the standard summation form. Theoretical considerations indicate that free-riding should be least for an SCF of the weakest-link type but greatest for the best-shot type. Using a sequential protocol, our experiments strongly confirmed theoretical anticipations under all three types of SCF. Even under the more onerous sealed-bid (simultaneous play) protocol, the experimental subjects were able to make some partial progress toward the theoretical ideal.
Personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers. But it is far from obvious that a compressed salary structure is morale improving since better workers may feel disenchanted by this scheme. However, when workers' rewards are based on relative comparisons, salary compression reduces uncooperative behavior that is detrimental to the firm. Relative comparisons imply that some reference group must be selected. The major result is that within the relevant groups, some wage compression is efficient.
A significant proportion of migration in low-income countries, particularly in rural areas, is composed of moves by women for the purpose of marriage. We seek to explain these mobility patterns by examining marital arrangements among Indian households. In particular, we hypothesize that the marriage of daughters to locationally distant, dispersed yet kinship-related households is a manifestation of implicit interhousehold contractual arrangements aimed at mitigating income risks and facilitating consumption smoothing in an environment characterized by information costs and spatially covariant risks. Analysis of longitudinal South Indian village data lends support to the hypothesis. Marriage cum migration contributes significantly to a reduction in the variability of household food consumption. Farm households afflicted with more variable profits tend to engage in longer-distance marriage cum migration. The hypothesized and observed marriage cum migration patterns are in dissonance with standard models of marriage or migration that are concerned primarily with search costs and static income gains.
Almost all recent research on macroeconomic fluctuations has worked with seasonally adjusted or annual data. This paper takes a different approach by treating seasonal fluctuations as worthy of study in their own right. Our results show that seasonal fluctuations are an important source of variation in all macroeconomic quantity variables but are small or entirely absent in both real and nominal price variables. The timing of the seasonal fluctuations consists of increases in the second and fourth quarters, a large decrease in the first quarter, and a mild decrease in the third quarter. The paper demonstrates that, with respect to each of several major stylized facts about business cycles, the seasonal cycle displays the same characteristics as the business cycle, in some cases even more dramatically than the business cycle. That is, we find that at seasonal frequencies as well as at business cycle frequencies, output movements across broadly defined sectors move together, the timing of production and the timing of sales coincide closely, labor productivity is procyclical, nominal money and real output are highly correlated, and prices vary less than quantities. There is a "seasonal business cycle" in the U.S. economy, and its characteristics closely mirror those of the conventional business cycle.
Data from more than 1,000 inspections to the Nuclear Regulatory Commission form the basis for an investigation into the nature of safety regulation at U.S.commercial nuclear reactors. Poisson (and binary choice) models of the rate of occurrence of violations during each inspection period are specified and are extended to control for nondetection and for the possibility that violations persist from one inspection to the next. These models are used to study the factors associated with noncompliance, relative rankings of plants according to propensity to violate, the variation in detection rates among NRC inspectors, and the relationship between undetected violations and abnormal occurrences.
A firm's entry and exit decisions when the output price follows a random walk are examined. An idle firm and an active firm are viewed as assets that are call options on each other. The solution is a pair of trigger prices for entry and exit. The entry trigger exceeds the variable cost plus the interest on the entry cost, and the exit trigger is less than the variable cost minus the interest on the exit cost. These gaps produce "hysteresis." Numerical solutions are obtained for several parameter values; hysteresis is found to be significant even with small sunk costs.
A new test of the compensating wage differential model is proposed. The logic behind Roback's model, which shows how differences in nonproduced amenities may be reflected in intercity wage differentials, is extended to the case of differences in local fiscal conditions, represented by tax rates and publicly produced services. Results show that differences in local tax rates and services provisions do generate compensating wage differentials across cities. The effects of a particularly large set of taxes and effective services output measures are examined. Differences in local fiscal conditions are shown to play important roles in explaining the variance in intermetropolitan wages.
This paper discusses the implications of rationing by waiting when consumers have different time costs and personal valuations. The joint distribution function of time costs and personal valuations is used to characterize market equilibrium. It is argued that, under certain conditions, an increase in the variance of time costs will reduce the dissipation of rent. Furthermore, it is shown that introducing a secondary market for a rationed good does not necessarily improve welfare because total surplus under rationing by waiting depends more on the variance than on the level of time costs and personal valuations. The model is also used to discuss other institutions that involve rent-seeking activities, such as the patent system and import quotas.