Knowledge that Transforms

It is shown that when resources are privately owned, the institution of voting is irrelevant to the choice of non-exclusive public goods: the total bundle of such goods produced by Society is the same whether or not minority coalitions are permitted to produce them. This is in sharp contrast to the cases of redistribution and of exclusive public goods, where public decisions depend strongly on the vote. The analytic tool used is the Harsanyi-Shapley non-transferable utility value.

This paper examines the decision to enter into a sector dominated by a monopoly if demand is random at entry time. Given a two-period world, the monopolist enters initially and enjoys an uncontested monopoly for one period, while the entrant may enter and compete during the second period. Demand is random one period earlier and independently distributed in both periods and entry corresponds to an irreversible capacity choice, made under certain demand. All other production decisions take place after demand has been revealed. Risk-neutrality is assumed on both sides. If entry occurs then there is a Cournot duopoly in the second period. It is shown that concurrently with this Cournot production game, there is a separate Stackelberg-type game with capacities as decision variables. Entry-deterrence conditions are derived under general demand and cost assumptions. It is shown that demand uncertainty changes several of the results of similar certain demand models.

This paper argues that if the disincentive effects of unemployment insurance result from higher reservation wages, they may be eliminated by financing benefits with a progressive income tax. The result is obtained within an equilibrium model with stochastic job matchings. An optimal tax formula is derived for a linear income tax, and shown to imply that the average tax rate should increase faster with income the higher the level of UI benefits relative to other government expenditure. In some cases optimal financing may require the subsidization of low-wage jobs.

The paper studies the problem of optimal intertemporal allocation in an aggregative model with a non-convex technology set and a discounted sum of consumptions as the objective function. The study demonstrates the existence of a threshold initial stock such that the long-run behaviour of optimal programmes depends critically on whether the initial stock is, above or below the threshold. This is in contrast with the standard turnpike theory of convex models in which the long-run behaviour of optimal programmes is independent of the initial stock.

This paper examines the problem of estimating the parameters of an underlying linear model using data in which the dependent variable is only observed to fall in a certain interval on a continuous scale, its actual value remaining unobserved. A Least Squares algorithm for attaining the Maximum Likelihood estimator is described, the asymptotic bias of the OLS estimator derived for the normal regressors case and a "moment" estimator presented. A "two-step estimator" based on combining the two approaches is proposed and found to perform well in both an economic illustration and simulation experiments.

In this paper we view the labour market experience of individuals as a process of movement between the states of employment and unemployment. We note that there are three main ways of sampling members of the labour force namely sampling the members of a specific state, sampling the people entering or leaving a state and sampling the population regardless of state. The joint distribution of observable and unobservable characteristics of individuals depends on the mode of sampling adopted. We examine this dependence and its implications for the interpretation of estimates of models of labour market behaviour.

This paper explains the phenomenon of price rigidity (or price smoothing) as the outcome of the optimal inventory policy of a multi-period profit-maximizing firm under demand and output uncertainties. Price smoothing may be manifested in two forms. First, price changes may be moderated with respect to those implied by the demand function; and second, the firm may choose to restrict price fluctuations by establishing upper and/or lower bounds on prices. We show that the extent of the asymmetry in price smoothing depends on the relationship between the inventory holding cost and the backlog penalty cost. Our model accommodates a wide range of price behaviour as observed in empirical studies on the issue.

The necessary and sufficient conditions for the solution to an optimal population growth model with overlapping generations, using the sum of total utility per generation as the objective function are derived. The solution for a specific, steady state model and an example are presented, and compared to that for a similar model without overlapping generations. In both cases, a positive, but less than infinite, optimal growth rate is found. Next, since an additively separable individual utility function is used, the differences between a total utility per generation model and a total utility per period model, a la Lerner, are discussed. Finally, the results of the total utility model are compared to those from a model in which the discounted sum of per capita utility is the objective function. An extension to the Samuelson-Lerner Utility Paradox, concerning the optimal rate of population growth, is discussed.

Oliver D. Hart, Grayham E. Mizon; 50th Anniversary of the Review of Economic Studies, The Review of Economic Studies, Volume 50, Issue 4, 1 October 1983, P

This paper provides a systematic study of planning procedures with public goods in which local truthful revelation of preferences is a dominant strategy. These procedures are said to be strongly locally individually incentive compatible (SLIIC). We first characterize the (time invariant) continuously differentiable planning procedures that are SLIIC. Then, we study properties such as balancedness, cheatproofness with respect to coalitions, neutrality, individual rationality and we point out the connection with the MDP procedures.