Knowledge that Transforms

The college admissions problem is perhaps the simplest model of many-to-one matching in two-sided markets, such as labor markets. The authors show that the set of stable outcomes (which is equal to the core defined by weak domination) has some surprising properties not found in models of one-to-one matching. These properties may help to explain the success that this kind of model has had in explaining empirical observations. Copyright 1989 by The Econometric Society.

In this paper, the authors examine the consequences of adopting the random utility hypothesis as an approach for randomizing a system of demand equations. Random utility models are appealing since they allow the usual assumption of deterministic utility-maximizing behavior by each consumer to coexist with the apparent randomness across individuals that is exhibited by data. Their results show that the use of random utility models implies that the disturbances of the demand equations may not be homoskedastic, but must be functions of prices and/or income. Copyright 1989 by The Econometric Society.

The article develops a bargaining model of spatial competition. Sellers compete by choosing locations in a market region. Consumers face a cost to moving from one place to another. The price of the good is determined as the perfect equilibrium of a bargaining game between seller and buyer. In this game, the buyer has the outside option to move to another seller and so the prices at all stores are interdependent. Existence of a location-price equilibrium is established. The outcome approaches the perfectly-competitive one if the consumer's cost of traveling becomes negligible or if the number of sellers tends to infinity. Copyright 1989 by The Econometric Society.

This paper examines conditions for the uniqueness of an equilibrium price distribution in stochastic macroeconomic models with rational expectations.A model is developed in which many price distributions, each with a finite variance, satisfy the equilibrium requirements of rationality.Hence, the condition that the variance of the equilibrium price distribution be finite, or equivalently, that the conditionally expected price path be stable, does not guarantee uniqueness.In such cases it is shown that an arbitrary random quantity which is widely publicized can become a leading indicator of prices and, consequently, influence the behavior of actual prices.However, by extending the finite variance (stability) condition to a minimum variance condition, these nonuniqueness problems can be avoided.Such stability or minimum variance conditions suggest a kind of collective rationality which, although not unreasonable, has not yet been fully analyzed in rational expectations models.

[Priority service rations available supplies according to contracts that specify each customer's priority or rank order. This alternative market form can achieve most of the efficiency gains attributed to spot markets, which in some industries are expensive to organize. Rationing by priorities is prominent in capital-intensive industries with non-storable outputs, as well as in service-sector and make-to-order industries where service is queued or congested. This paper describes the role of priority service and sketches a basic model. The main topic is efficient implementation by public enterprises and by competitive firms.]

The paper provides conditions on the primitives of a continuous-time economy under which there exist equilibria obeying the Consumption-Based Capital Asset Pricing Model (CCAPM). The paper also extends the equilibrium characterization of interest rates of Cox, Ingersoll, and Ross (1985) to multi-agent economies. We do not use a Markovian state assumption.

The authors model an oligopoly facing uncertain demand where each firm chooses as its strategy a "supply function" relating its quantity to its price. A supply function adapts better to an uncertain environment than either a fixed price or a fixed quantity; it could be committed to through the choice of organizational structure and employee decision rules. The authors give conditions for existence and for uniqueness of a Nash equilibrium in supply functions under uncertainty. They compare the equilibrium with the Cournot and Bertrand equilibria as they vary the demand and cost curves, the number of firms, and the form of uncertainty.

A lifetime utility model, in which the date of death is uncertain and in which bequests give utility, is analyzed and estimated. The parameter estimates imply that most bequests are accidental, the result of mortality risk, and that the shape of the desired consumption path is sensitive to variations in mortality rates. On average, the elderly in the sample dissave, which is consistent with a life-cycle model in which utility does not depend on bequests. Copyright 1989 by The Econometric Society.

In this paper, we analyze the problem of designing incentive compatible mechanisms in pure exchange economic environments when agents have incomplete information. The equilibrium concept employed is Bayesian Nash equilibrium and the notion of implemantation is full implementation, which is stronger than the more commonly employed notion of truthful implementation. An allocation rule is truthfully implementable if there exists a direct mechanism to which truth telling is an equilibrium and which yields the allocation rule as its truthful equilibrium outcome. An allocation rule is fully implementable if there exists mechanism which yields the allocation rule as its unique equilibrium outcome. More generally, a set of allocation rules, or a social choice set, is fully implementable if there exist a mechanism whose equilibrium outcomes coincide with the set. This stronger notion of implemention avoids the well known problems of multiple equilibria which arise in direct revelation games. We develop a condition, termed Bayesian monotonicity, which we show is necessary for full implementation. An incentive compatibility condition is also necessary. We prove that Bayesian monotonicity and a slightly stronger incentive compatibility condition are sufficient for full implementation when there are at least three agents. We present several examples of allocation rules which do and do not satisfy our condition. One example is that of an allocation rule which is fully inplementable by an indirect mechanism, but for which every equivalent direct mechanism has multiple equilibrium outcomes.

On analyse l'équilibre d'un marché confrontant d'un côté le vendeur monopolistique d'un bien stockable, qui doit adapter son prix à l'inflation environnante mais pour lequel les changements de prix sont coûteux, et de l'autre ses clients, qui spéculent constamment sur les dates d'ajustement du prix, cherchant à stocker juste avant ces augmentations.Le problème est modélisé comme un jeu dynamique à horizon infini entre vendeur et spéculateurs.On montre qu'il existe un seul équilibre Markovien parfait et l'on caractéris.e complètement les dynamiques de prix et de stockage qui en résultent.Celles-ci comprennent en général une phase de stratégies mixtes, pendant laquelle le vendeur essaye de déjouer la spéculation en introduisant de l'incertitude dans son prix, tandis qu'un nombre croissant de spécu 1 ateurs stocke, culminant parfois en "ruée" spéculative généralisée sur le bien.On examine ensuite les conséquences macroéconomiques de ce type d'équilibre, calculant les coûts sociaux du tandem inflation-spéculation et établissant d'autre part un résultat d'agrégation des stratégies de prix aléatoires d'un grand nombre de vendeurs identiques.Les résultats du modèle montrent en particulier qu'en situation de concurrence imparfaite, la spéculation peut être déstab i 11 sante, et surtout ils fournissent un fondement théorique à l'idée fréquemment rencontréeet confirmée empiriquementque l'inflation, même anticipée, engendre de l'incertitude sur les prix.