Knowledge that Transforms

Part of the "conventional wisdom " on the subject of the size distribution of earnings is that earnings are approximately lognormal, but with an upper tail which is better described by the Pareto function. 1 The primary purpose of this paper is to re-examine these propositions, using British New Earnings Survey data disaggregated by occupational groups. We have several reasons for feeling that such a re-examination is timely. First, most previous studies have considered the distribution among all employees, while theoretical considerations suggest that disaggregated data might be more appropriate. We elaborate this point in Section 1 of the paper. Second, the method of estimating the parameters of the Pareto and lognormal functions has not always been given the attention it deserves. In Section 2 we address this issue, and also refer briefly to the related one of goodness of fit. The remainder of the paper presents parameter estimates for the Pareto and lognormal functions, using first aggregate data (Section 3), and then distributions within occupational groups (Section 4). Section 5 compares these two sets of results, and at the

Journal Article Spatial Competition and Spatial Price Discrimination Get access George Norman George Norman University of Reading Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 48, Issue 1, January 1981, Pages 97–111, https://doi.org/10.2307/2297123 Published: 01 January 1981 Article history Received: 01 October 1979 Accepted: 01 May 1980 Published: 01 January 1981

Charles Blackorby, R. Robert Russell; The Morishima Elasticity of Substitution; Symmetry, Constancy, Separability, and its Relationship to the Hicks and Al

Journal Article Duality Theory and Functional Forms for Dynamic Factor Demands Get access Larry G. Epstein Larry G. Epstein University of Toronto Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 48, Issue 1, January 1981, Pages 81–95, https://doi.org/10.2307/2297122 Published: 01 January 1981 Article history Received: 01 July 1979 Accepted: 01 August 1980 Published: 01 January 1981

Jess Benhabib, Richard H. Day; Rational Choice and Erratic Behaviour, The Review of Economic Studies, Volume 48, Issue 3, 1 July 1981, Pages 459–471, https://do

Slayton and Treblicock (1978)), the formal analysis of the economics of the self-regulating profession has received little attention from theorists. If a profession is self-regulating, in the sense that its current members, being the sole suppliers of a certain type of service, are free to determine, in one way or another, whether or not to admit a potential recruit, then it might seem prima facie that such a profession could simply be regarded as a monopolistic seller of the service in question, so that the effects of self-regulation would appear to involve an unambiguous welfare loss. The whole rationale for self-regulation, however, rests on the notion that it provides a vehicle through which the quality of the service may be maintained in markets where the consumer cannot readily measure this quality himself. It is the analysis of the interplay of these two elements, the enhanced price of such services associated with the monopolistic power of the profession, and the improved quality of the service which may accompany a reduction in supply, which forms the focus of the present paper. It is tempting to begin the analysis of such a profession by first positing some particular

Mark A. Satterthwaite, Hugo Sonnenschein; Strategy-Proof Allocation Mechanisms at Differentiable Points, The Review of Economic Studies, Volume 48, Issue 4

Every good economics textbook contains the cliche that market prices provide signals which facilitate the allocation of resources to their best use. In a world not subject to random shocks, consumers and producers when faced with competitive prices need look no further than their own preferences or production technology to be able to make a decision. They need give no thought to the tastes, endowments or technology of other agents. However, in a world subject to random shocks, this is no longer the case. Agents are faced with the problem of forecasting future states of nature and more importantly of forecasting the impact of these states on the actions of other agents. Rational expectations theories provide a model of how agents make those forecasts. In a world subject to random shocks, it will be the case that agents acquire (or at least attempt to acquire) information about the future realization of the shocks. It will, in general, be the case that different agents have access to different information. The fact that information is dispersed throughout the economy has the potential to cause a misallocation of resources relative to what would be the case if all agents knew everything. An efficient allocation of resources will in general require the transfer of information from consumers who have some information about their future demands to producers who can take current actions to mitigate avoidable scarcities or surpluses. Though many classical and neo-classical writers emphasize the informational role of prices, the standard Marshallian or Walrasian model of competitive equilibrium does not involve prices transferring information across traders. The purpose of this paper is to show that rational expectations models are radically different from Walrasian models in an economy where traders have diverse information. This is demonstrated by showing that unlike what occurs in a Walrasian equilibrium of an economy with heterogeneous information, if there is a complete set of insurance markets and utility is additively separable over time, then there exists a rational expectations equilibrium which gives consumers the same allocation as if each consumer has access to all of the economy's information. This implies that, under the above assumptions, a central planner with all the economy's information could not Pareto dominate the competitive allocation achieved when traders have diverse information and rational expectations. This paper makes no attempt to survey the literature on rational expectations. The reader is referred to Shiller (1978), Barro (1981) for a survey of macroeconomics and rational expectations, and Radner (1980) for a survey of the microeconomics and mathematical theory of rational expectations. This paper will, however, try to outline the evolution of the rational expectations concept from a notion of optimal forecasting to a virtually complete departure from the Walrasian model of equilibrium. The rest of this section is devoted to a discussion of pre-rational expectations ideas.

This paper is an attempt at a rigorous (albeit not exceedingly general) analysis of the diffusion of new technology. In particular, consider an industry composed of two firms, each using the current best-practice technology. The firms are assumed to be operating at Nash equilibrium output levels, generating a market price (given demand) and profit allocations. When a cost-reducing innovation is announced, each firm must determine when (if ever) to adopt it, based in part upon the discounted cost of implementing the new technology, and in part upon the behavior of the rival firm. If either firm adopts before the other, it can expect to make substantial profits at the expense of the other firm. On the other hand, the discounted sum of purchase price and adjustment costs may decline with the lengthening of the adjustment period as various quasi-fixed factors become more easily variable. Therefore, although waiting costs the firm more in terms of foregone profits, it may save money on the cost of purchasing the new technology. Thus the firm must weigh the costs and benefits of delaying adoption, as well as take account of its rival's strategic behavior.

Jonathan Eaton, Mark Gersovitz; Debt with Potential Repudiation: Theoretical and Empirical Analysis, The Review of Economic Studies, Volume 48, Issue 2, 1