Congressional voting on proposed floor amendments concerned solely with setting the level of the election campaign expenditure ceiling provision of the House Administration Committee's broad campaign finance reform bill of 1974 is analyzed for consistency with either the public-interest or economic theories of regulation. The benefit or cost to the individual congressman of a given ceiling is defined as the implied increase or decrease in his probability of reelection under the ceiling. Logit regression analysis provides the preponderant support for the economic theory of regulation by indicating that the likelihood of voting for a given ceiling varies directly with the implied change in reelection probability under the ceiling and is quite sensitive to the implied change.
The paper is concerned with economies in which agents find sellers and employers in a time-consuming search process while they simultaneously trade with their current partners. A symmetric steady-state equilibrium does not exist, but asymmetric steady-state equilibria exist and are such that larger firms offer higher wages and charge lower prices than smaller firms, but still make more profits. These profits can be seen as rents from a superior market position.
The paper develops a model that shows the effects of rational expectations, and of efficient markets, on public utility regulation. It is shown that the feedback from investor expectations to regulatory behavior, together with investor expectations that take account of this feedback, basically alters the consequences of regulatory decisions. The analysis examines the effects of a deviation between the allowed rate of return and the cost of capital, with both perfect and imperfect investor foresight. It also assesses the consequences of differing expected growth rates. Conclusions are drawn for the effects of regulatory decisions on resource misallocation and of regulatory lag on incentives.
The existence of backwardation in futures markets has remained an intriguing and controversial issue since Keynes first argued that it was the "normal" state of affairs. Most theoretical explanations for the existence of backwardation are quite restrictive. Among the assumptions are pure forward as opposed to true futures trading, differences in probability beliefs, degrees of risk aversion, or the level of commodity commitments among long and short hedgers. In a simple model of short and long commodity hedgers, we show that a backwardation equilibrium can occur in a true futures (as opposed to forward) market even when hedgers are identical in these respects and speculators hold the same probability beliefs as hedgers. This result is driven by Houthakker's completely neglected intuitive notion that one possible explanation for backwardation is the high correlation between cash and futures prices when inventories of a commodity are large. While the simple existence of such an "inventory effect" does not necessarily imply backwardation, we prove that backwardation will occur under an appropriately specified inventory effect.
This paper considers two questions: (i) what is the purpose of legal restrictions intended to separate "money" from "credit markets," and (ii) is such a separation desirable? It is argued that historical legal restrictions meant to achieve such a separation were designed to preclude the occurrence of sunspot equilibria. It is also shown that a coherent model can be constructed in which sunspot equilibria exist in the absence of legal restrictions, but not if money and credit markets are separated. Nevertheless, there is no obvious welfare justification for such a separation.
We analyze equilibrium in a labor market model wherein it takes time for the workers to contact firms. Workers, assumed identical, repeatedly sell their labor services all through their work lives, choosing their search intensity endogenously. Identical firms attempt to maximize their steady-state profit flow. We focus on the importance and consequences of balanced matching, in which workers are more likely to contact a larger firm. A unique equilibrium is shown to exist wherein all firms offer the same wage and select an employment level at which wage equals marginal product. The effect of traditional labor market policies and empirical implications are discussed.
The paper presents a simple explanation of price dispersion by a monopolist assuming only that consumers arrive in a random order and are served on a first-come-first-served basis. A firm can sometimes increase its profits by charging two different prices for the same good and rationing sales at the lower price. However, it is never necessary to charge more than two prices, and a single price is sufficient as long as either the marginal revenue curve is everywhere downward sloping or the marginal cost of production is constant.
It is feared that low fertility and older age distributions in the developed countries might cause lower life cycle consumption because of the increased pension and health cost burden. The theoretical literature on intergenerational transfers has addressed this question but has considered only the consumption of market goods and has made no serious empirical attempt to measure the theoretical concepts necessary to assess the problem. This paper develops a theoretical model of intergenerational transfers incorporating time use. With the aid of time budget and consumer expenditure surveys, empirical estimates of the age profiles of various types of time and goods consumption are presented, and we conclude that (1) the net direction of intergenerational transfers is from younger to older ages; (2) under the golden-rule assumption, these transfers largely constitute an externality to childbearing; and (3) they are not large enough to offset the capital dilution effect that would result from higher fertility and more rapid population growth.