Money illusion, taking the form of lagged price perceptions and viewed in a competitive general equilibrium context, is shown in this paper to reduce the change in a country's balance of payments attributable to a devaluation of given size. Illusion's effect on adjustment is also shown to be probably greater under flexible than under fixed exchange-rate arrangements. The results contrast with a view that illusion, in disguising real-income changes, facilitates the elimination of a balance-of-payments deficit.
This paper examines the impact of private pension coverage on the saving behavior of men in their preretirement years. The empirical work is based on the Ando-Modigliani model which permits explicit recognition of differences in expected retirement age between covered and noncovered groups. The data originated in the 5-year Labor Department sample of men aged 45-59 in 1966. The results clearly indicate that, contrary to earlier work by Cagan and Katona, pension coverage reduces saving in other forms.
This paper describes and elaborates a process first discovered by Edward H. Clarke that motivates individuals to reveal their true preferences for public goods. The essence of the process is that each individual is offered a chance to change the outcome that would occur without his vote by paying a special charge equal to the net cost to others that results from including his vote in the decision. Because the special charge on any one person is not paid to any other person, a very small budget surplus results. Applications to both discrete and continuous decisions are illustrated.
A model of government enterprise is developed which contrasts the supply behavior of government and proprietary organizations. Refutable implications are derived from an explicit information structure in which the productivity of management must be monitored indirectly and differently for the two types of organizations. Managers of both are assumed to be wealth maximizers. It nevertheless is suggested that the output behavior of government enterprises will differ from that of proprietary enterprises in predictable ways--even where Congress intends the output of government bureaus to be identical to that of proprietary firms. Numerous specific implications are developed and tested with reference to the operation of Veterans' Administration hospitals.
This paper investigates the effect of organized futures trading on information in spot markets. First, a model is developed that relates spot-price behavior and market information. The model can be viewed as a particular efficient markets model; this connection provides additional implications about price behavior and information. Next, price series for six different commodities are investigated for an information effect of futures trading. For each commodity, the empirical evidence indicates that futures trading increases traders' information about forces affecting supply and demand.
The concept of "economically rational" expectation formation is developed for a regime in which the acquisition and use of some information sets are nonnegligible. The concept provides a middle ground between "autoregressive" expectation formation and "rational" expectation formation. A necessary condition for the use of nonnegligible cost information sets is that such sets serve as leading indicators or more formally satisfy the causality conditions of Granger (1969). Using a time series modeling identification methodology developed by Box and Jenkins (1970) and Haugh (1972), we test the causal relationship between the rate of inflation and various monetary and fiscal aggregates. Surprisingly, we cannot reject the hypothesis that the rate of inflation is independent of the monetary and fiscal aggregates considered. Since the proposed leading indicator series contain no incremental predictive power once the information contained in the past history of inflation is efficiently utilized, we conclude that autoregressive expectation models may indeed represent economically rational price expectation formation.