Knowledge that Transforms

This paper analyses the transitory and long run effects of devaluation and tariffs, as well as the effects of alterations in the domestic money supply and the terms of trade, for a small country on fixed exchange rates. These issues are investigated in a self-contained dynamic optimization model of the sort popularized by Brock (1974, 1975). Familiar results in the trade literature are thereby explicated for the nonspecialist who is nonetheless familiar with Brock's work. There are some new results regarding the role played by income and substitution effects in determining the consequences of terms-of-trade shifts.

The paper considers the problem facing a consumer deciding whether to purchase a good whose effect on utility is unknown. The consumer is allowed to learn about the effect over time according to a Bayesian updating procedure. Of interest is the quantity of the good the consumer will purchase in the first period. The paper allows the consumer's budget constraint to be spread over more than one period and consequently generates results which contradicts earlier work.

In this paper we link two exchange rate literatures by showing how threats of asset controls yields determinate exchange rates in general equilibrium models with otherwise perfect capital markets and by showing how, for certain sequences of threats, exchange rate determination may be well explained by monetary variables. We find that in general there exists no natural exchange rate, and market rates may be sensitive to changed perceptions about future exchange rate intervention.

Properties are derived for the profit-maximizing price schedule in a market where the firm can observe the size of any given purchase, but cannot directly observe the number of purchases made by any given consumer. In such a market, A consumer may make multiple purchases to minimize the amount paid for a given quantity of the good. It is shown that when purchase numbers are unobservable the schedule may entail quantity premia and may be strikingly different from the schedule that obtains when the numbers of purchases are observable. In particular, some individuals may consume more under the profit-maximizing outcome than under the first-best outcome.

We study a simple model of the determination of the level of employment in which a capitalist decides how many workers to hire, and then bargains over the wage with those whom he hires. If the capitalist hires all the available workers, his position is weak since, in the event of a strike, he is unable to hire strike-breakers; for this reason he chooses to leave some workers ("involuntarily") unemployed. An increase in unemployment benefits which raises the cost of hiring strike-breakers affects the bargaining power of both capitalist and workers; under some conditions it leads to a reduction in unemployment. 1.

This paper develops a simple spatial equilibrium model of a city served by competing commuter railways and analyses the effects of different transportation policies on their pricing and investment decisions. It is shown that a system of competitive railway companies does not achieve the optimal allocation. We then examine whether or not three types of government intervention, i.e. subsidies to railway companies, a rate-of-return regulation, and the ownership of residential land by railway companies, can achieve the optimal allocation.

This study compares how well current spot prices predict future spot prices for a variety of commodities in a non-futures market environment and examines how the predictive power of the price system is altered after the initiation of futures trading. The results indicate a positive association between the inability of a non-futures market price system to predict the future spot price and the subsequent development of a futures market. The claim that traders can earn a return on information collection after the introduction of a futures price into the pricing system is supported for some, but not all, commodities.

This paper shows that the discounted sum of instantaneous equivalent or compensating variations (generalized to allow for expenditure changes) is never an exact welfare indicator for a consumer whose preferences are represented by a continuous, increasing inter-temporal utility function.

The resolution of any bargaining conflict depends crucially on the relative urgency of the agents to reach agreement and the information each agent has about the others' preferences. This paper explores, within the context of an infinite-horizon bargaining model with two-sided uncertainty, how timing and information affect the rational behaviour of agents when commitment is not possible. Since the bargainers are uncertain about whether trade is desirable, they must communicate some of their private information before an agreement can be reached. This need for learning, due to incomplete information about preferences, results in bargaining inefficiencies: trade often occurs after costly delay. Thus, the model provides an explanation for the inefficient bargaining behaviour that appears to occur often in practice.

The paper considers a bilateral monopoly with uncertainty and asymmetric information, and characterizes necessary and sufficient conditions for the existence of contracts that are efficient and incentive compatible. These contracts can be implemented by a truthful sequential revelation mechanism. Alternatively, they can be interpreted as specifying a class of payment schedules, designating the seller to choose a schedule from this class, and the buyer to pick a point on the chosen schedule. Requirements contracting is similar.