Knowledge that Transforms

Journal Article A Self-administered Solution of the Bargaining Problem Get access Vincent P. Crawford Vincent P. Crawford University of California, San Diego Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 47, Issue 2, January 1980, Pages 385–392, https://doi.org/10.2307/2296999 Published: 01 January 1980 Article history Received: 01 January 1978 Accepted: 01 May 1979 Published: 01 January 1980

Journal Article Structure of the Correspondence Principle at an Extremum Point Get access Tatsuo Hatta Tatsuo Hatta Johns Hopkins University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 47, Issue 5, October 1980, Pages 987–997, https://doi.org/10.2307/2296928 Published: 01 October 1980 Article history Received: 01 January 1978 Accepted: 01 February 1980 Published: 01 October 1980

Journal Article A Note on Regime Classification in Disequilibrium Models Get access Nicholas M. Kiefer Nicholas M. Kiefer University of Chicago and CORE Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 47, Issue 3, April 1980, Pages 637–639, https://doi.org/10.2307/2297314 Published: 01 April 1980 Article history Received: 01 December 1978 Accepted: 01 May 1979 Published: 01 April 1980

Linda Cohen, Steven Matthews; Constrained Plott Equilibria, Directional Equilibria and Global Cycling Sets, The Review of Economic Studies, Volume 47, Issu

Grayham E. Mizon, David F. Hendry; An Empirical Application and Monte Carlo Analysis of Tests of Dynamic Specification, The Review of Economic Studies, Vol

Journal Article Expectations and the Dynamics of Devaluation Get access Stephen J. Turnovsky Stephen J. Turnovsky Australian National University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 47, Issue 4, July 1980, Pages 679–704, https://doi.org/10.2307/2296936 Published: 01 July 1980 Article history Received: 01 May 1978 Accepted: 01 October 1979 Published: 01 July 1980

Christopher J. Heady, Pradeep K. Mitra; The Computation of Optimum Linear Taxation, The Review of Economic Studies, Volume 47, Issue 3, 1 April 1980, Pages

Considerable attention has been devoted in recent years to the study of markets which are quasi-competitive in the sense that they retain the notion of a large number of firms selling a homogeneous product, but depart from perfect competition in relaxing the assumption that consumers are perfectly informed as to the prices of the various firms. The initial surge of interest in this type of model was motivated by the need, first noted by Arrow (1956), to deal with the firm, even in a competitive environment, as a price setter, in order adequately to tackle the analysis of disequilibrium behaviour. Thus early work in the field, beginning with Fisher ((1970), (1972), (1973)) focussed on the question of whether an initial market distribution of prices would, over time, converge to a unique equilibrium price. More recent work has, however, developed the idea that market equilibrium might be characterized by a persistent distribution of prices. That this is more reasonable in the light of the variety and volatility of prices (which is) the commonplace of our experience was argued by Rothschild (1973). A further, and theoretically more compelling, reason for exploring this question, however, is provided by what is probably the most striking aspect of the literature on these markets: the fact that for a very wide range of apparently quite reasonable assumptions, the distribution of prices converges to the monopoly price (Diamond (1971), Hey (1974)). Indeed, where prices do converge, they converge to the competitive price only under very strong conditions: for example, where firms are artificially constrained to behave as if they were perfect competitors (Fisher, Rothschild, op. cit.). Thus it would seem that in order to tackle the question of whether, under conditions of imperfect price information, any competitive features of the market may be preserved, we are compelled to examine market equilibria of this more general class. Such price dispersion as is empirically observed in many markets undoubtedly owes its origin to a wide range of contributory factors. This suggests representing the firm as experiencing a succession of exogenous random shocks, as in Lucas and Prescott (1974). An alternative approach is to explore the possibility that firms set a range of suboptimal prices via their various estimates of actual demand conditions, as deduced by following an optimal estimation procedure (stopping rule), as explored by Rothschild (1974). More germane to our present concerns as to whether the range of actual prices, or their average, might be drawn by competitive pressures below the monopoly price, is the more recent work which begins from the notion that consumers differ in their costs of acquiring information, so that firms partition themselves permanently into subgroups patronized predominantly by different mixtures of consumer types; the better informed consumers being associated, as it were, with the lower price firms . (Salop and Stiglitz (1978), Axell (1977).) The present model adopts a rather different type of approach; we aim to model equilibrium in the quasi-competitive economy as an ongoing process, in which firms continually compete with each other to increase their respective sales to a number of identical customers.

As Oliver Hart (1975) has forcefully shown, economies with incomplete markets can have surprising welfare properties. These examples, or counter-examples, bring out the need for further analysis of public policies in the presence of uncertainty and incomplete markets. Various policies are examined here in simple models with two goods, two types of agents, and two states of nature. The basic model has an ex ante decision by suppliers, made with rational expectations, followed by a competitive exchange economy after the state of nature is known. The paper analyses the changes in expected utilities of demanders and suppliers from small changes in the ex ante decision away from the competitive equilibrium. Such changes generally have the potential of increasing the sum of expected utilities and can result in a Pareto improvement. The paper focuses on distinguishing between situations where the gain comes from stabilizing output across states of nature and those where the gain comes from destabilizing. Then two policies are examined which work on the ex post market-use of taxes and subsidies to stabilize suppliers' incomes and use of government demand policy to maximize social welfare.