Knowledge that Transforms

This paper considers the problem of finding the “best” estimator among a class that includes most of the commonly used limited information estimators in simultaneous equation systems. Concentration comparisons, based on the Edgeworth expansion of the distribution of these estimators, lead to selection rules of sufficient simplicity to be useful in applied econometric research.

This paper presents a dynamic, choice-theoretic general equilibrium model of capital accumulation in an open economy. Equilibria with and without capital mobility are described and compared. It is shown that neither is necessarily Pareto optimal and that an equilibrium with free trade in capital does not Pareto-dominate an equilibrium with autarky. The effects of restricting capital flows by taxing foreign investment earnings are discussed. It is seen that there will be no agreement within a country as to what constitutes an optimal tax. 1.

The exchange rate is recognised as a particularly tricky subject for modelling and prediction. The problems of unobservables such as expectations, of simultaneity, and of policy changes (both overt and covert) in the sample period to which models must be fitted may account for the disappointing results of recent attempts to test theories of exchange rate determination. This paper develops an appropriate empirical model to deal with these problems; it allows consideration of the proper interpretation of theoretical assumptions and determination of how far modelling for ex ante prediction can succeed.

This paper shows that if a social choice rule can be implemented in dominant strategies by an indirect mechanism, but there does not exist a direct mechanism that implements it in dominant strategies, then it must be the case that the original indirect mechanism does not implement the social choice rule in Nash strategies (under complete information) or in Bayesian strategies (under imcomplete information).

The paper is concerned with the implications of a maximin welfare function for an intertemporal society which has a nonlinear technology at its disposal, but holds conflicting preferences over time. The complete solution given shows that time-consistency and optimality of plans may or may not be compatible. The time-consistent case is generalized to a very wide class of models. This leads to the partial invalidation of a result stated in the earlier literature on the subject.

In this study a model of firm behavior that allows the level of capital utilization to be optimally chosen by cost-minimizing firms is embedded into the standard specific-factors model employed in the international trade literature. The resulting generalization of the specific-factors model provides several new insights. For instance, allowing for variable utilization in either or both sectors gives rise to a greater variety of possible trade patterns than forcing utilization to remain constant. Similarly, international differences in the willingness to work during abnormal hours generate a wider variety of trade patterns than are possible in the standard specific-factors model. Finally, this model allows a reconciliation of the “dual scarcity” explanation of the nineteenth century Anglo-American pattern of trade with the historical evidence on levels of utilization.

Sufficient conditions are found for the existence of an orderly sequence of temporary equilibria in economies with incomplete forward markets without exogenous limits on short-sales. In the absence of institutionally imposed trade restrictions, equilibrium exists under the assumption of overlapping expectations. In the institutional model a clearinghouse imposes rules of trade (interpreted as margin requirements) to reduce the likelihood of bankruptcies. Under this rule, equilibrium exists without overlapping expectations, and subsequent bankruptcies are less likely.

In practice one does not expect conflicting agents to move instantaneously to an equilibrium. Instead the final equilibrium is often the consequence of "disequilibrium dynamics". This paper, through the use of local game theory, introduces a general framework for disequilibrium dynamics based on the existence of adjustment costs. The analysis is presented within the context of oligopoly theory and shows that the existence of adjustment costs will in many cases result in a unique equilibrium at which market shares are inversely proportional to these costs. This paper also introduces two new solution concepts for n-person normal form games.

Earlier studies of labour supply in a life cycle context have typically either neglected taxes completely, or represented the income tax by a linear function. The present paper studies how the qualitative conclusions of a “traditional” life cycle model of labour supply are changed when a nonlinear tax is introduced into the model. It is shown that the comparative statics results, and the characterization of the consumption and labour supply paths, depend critically on whether capital and labour income are taxed jointly or separately, and on the progressivity (nonlinearity) of the income tax. Few of the results valid for a linear income tax carry over to the nonlinear case.

This paper establishes necessary and sufficient conditions for the approximate efficiency of Cournot equilibria in large markets. The analysis is carried out in the partial equilibrium framework of a market for a homogeneous commodity.