The “Dorfman Steiner” rule

Conclusion When this research was started, it was guessed that the Dorfman-Steiner rule would lose its relevance in an intertemporal setting. This belief has turned out to be false: along the optimal paths ofp (t) ands (t), and must be equal. The only difference with the Dorfman-Steiner result is that they will be different from unity.The author is chargé de cours at the Faculté Universitaire Catholique de Mons (Belgium). He has greatyl benefited from comments by M. Beuthe and J. J. Lambin.     

Economics as mechanism: The mind as machine in Hayek's sensory order

InThe Sensory Order, Friedrich A. Hayek describes the human mind as an apparatus of classification that evolves through experience and that reaches decisions by modeling the alternative courses of action that are available to it. Hayek's mechanistic conception of mind argues aginst the possibility of central planning and against the cogency of any rule that denigrates subjective decision making by employers or other economic agents. As implied by Gödel's proof, no brain, human or mechanical, can ever be sufficiently complex to explain itself. There will therefore always be certain knowledge and rules that cannot be articulated to the satisfaction of a central planner or tribunal.     

Wettbewerb und langfristige Wirtschaftspolitik

Ohne ZusammenfassungÜberarbeitete Fassung eines Vortrages, gehalten am 27. September 1965 in Bad Ischl auf der 20. Tagung der Wirtschaftswissenschaftlichen Gesellschaft für Oberösterreich über Probleme einer langfristigen Wirtschaftspolitik. Die Vortragsfassung trug den Titel Die Wettbewerbspolitik im Rahmen der langfristigen Wirtschaftspolitik.     

On the generic nonconvergence of Bayesian actions and beliefs

Summary SupposeY _n is a sequence of i.i.d. random variables taking values in Y, a complete, separable, non-finite metric space. The probability law indexed by, is unknown to a Bayesian statistician with prior, observing this process. Generalizing Freedman [8], we show that generically (i.e., for a residual family of (,) pairs) the posterior beliefs do not weakly converge to a point-mass at the true. Furthermore, for every open setG , generically, the Bayesian will attach probability arbitrarily close to one toG infinitely often. The above result is applied to a two-armed bandit problem with geometric discounting where armk yields an outcome in a complete, separable metric spaceY _k. If the infimum of the possible rewards from playing armk is less than the infimum from playing armk', then armk is (generically) chosen only finitely often. If the infimum of the rewards are equal, then both arms are played infinitely often.     

Nachfragesysteme für österreich

Summary This paper gives an empirical reexamination of the Linear-Expenditure-hypothesis for Austria. It starts with a brief theoretical discussion of the principal properties and restrictions of the Linear-Expenditure-System (LES). To obtain empirical estimates of the parameters of the LES two different estimation procedures are applied, i.e. the original method used byStone and a simplified version of the Systems-Least-Squares-approach (following theMarquardt-algorithm). There are no essential differences between these estimates. They all seem plausible and satisfy the theoretical restrictions.Usually the stability (i.e. time-invariance) of the parameters is accepted without proof. Using the Moving-Window-Regression-technique, however, most of the estimates vary significantly in time. To obtain a direct proof of the time-dependence of the parameters the LES is reestimated now including trend-factors. Especially results considering time-dependent marginal-budget-shares are considerably better than the static-model results.The conclusion of this paper is that the static version of the LES does not explain the consumer behaviour in Austria and that much more effort should be spent on the estimation of dynamic demand systems.     

A New Variant of the Winner's Curse in a Coasian Contracting Game

We examine behavior in a Coasian contracting game with incomplete information. Experimental subjects propose contracts, while automaton property right holders or robot players with uncertain preferences respond to those proposals. The most common pattern of proposals observed in these games results in too many agreements and, in some games, payoffs that are stochastically dominated by those resulting from rational proposals (which imply fewer agreements). In this sense, we observe a winner's curse similar to that observed in bidding games under incomplete information, such as the common value auction (Kagel, J.H. and Levin, D. (1986) American Economic Review. 76, 894–920) and the takeover game (Samuelson, W. and Bazerman, M.H. (1985) In Research in Experimental Economics, Vol. 3. JAI Press, Greenwich, pp. 105–137; Ball, S.B., Bazerman, M.H., and Carroll, J.S. (1990) Organizational Behavior and Human Decision Processes. 48, 1–22; Holt, C. and Sherman, R. (1994) American Economic Review. 84, 642–652). While the naïve model of behavior nicely predicts the winner's curse in those previous bidding games, it does not do so here. Instead, an alternative model we call the guarantor model explains the anomalous behavior best. Hence, we suggest this is a new variant of the winner's curse.     

Vertical and Horizontal Trust Networks in Bureaucracies: Evidence from the Third Reich

In a seminal contribution to the literature on bureaucracy, Breton and Wintrobe (The Logic of Bureaucratic Conduct: An Economic Analysis of Competition, Exchange, and Efficiency in Private and Public Organization. New York, NY: Cambridge University Press, 1982) develop a model wherein subordinates and superiors in a bureaucratic structure trade with each other to advance the objectives of the superiors. The success of such an organizational arrangement (for superiors) is based upon the development of vertical trust networks in a way that facilitates the promise of informal payments by superiors in return for informal services provided by their subordinates. Breton and Wintrobe [Journal of Political Economy 94 (1986) 905] also provide a theoretical application of their model by describing the Nazi bureaucracy as a conglomeration of competing agencies that zealously carried out the Final Solution to the Jewish question. As an extension, this note develops two compelling empirical examples of vertical and horizontal trust networks within the Nazi regime: Einsatzgruppen As (Special Action Detachments) attempt to liquidate all Lithuanian Jews after the German invasion of the U.S.S.R. in 1941 and the 20 July 1944 attempt to assassinate Adolf Hitler.JEL Classification: D23, D73.     

Finance,investment and innovation: A theoretical and empirical comparative analysis

The paper compares the relative efficiency of country models in the relationship between finance and investments. Results, confirmed under three different panel data estimates (Arellano-Bond GMM method, random and fixed effect estimates) suggest that: i) the UK thick market reduces informational asymmetries for large firms and for those firms providing good signals to shareholders; ii) the Japanese vertical (between firms and banks) integration and horizontal (among firms) integration almost eliminates financial constraints (the horizontal integration effect) and equates agency costs across firms (the vertical integration effect). These results are consistent with the short-termist hypothesis which assumes that the Japanese economic system can process information more efficiently reducing managerial myopic behaviour and thereby determining positive effects on long term growth.     

From “tax state” to “debt state”

The paper is motivated by Joseph A. Schumpeter's The Crisis of the Tax State. It inquires whether the buildup of government debt in peacetimeprosperity is a threat to the stability, existence or creation of viable tax states. The paper begins by setting out Schumpeter's conception of the tax state and the nature of recent political-economic events which have reinvigorated the concept. Next the paper sets out some simple debt dynamics and sketches a debt-induced business cycle arising from heavy reliance on debt finance in peacetimeprosperity. Finally, the paper assesses threats to the tax state in light of recent work on path dependence and positive feedback. An attempt is made to throw some light on whether the plethora of new, and often small, states spawned by the demise of communism can be viable tax states.Essay on Government, the Tax State and Economic Dynamics submitted to the Third Schumpeter Prize Competition.     

Anonymous sequential games: Existence and characterization of equilibria

Summary In this paper we consider Anonymous Sequential Games with Aggregate Uncertainty. We prove existence of equilibrium when there is a general state space representing aggregate uncertainty. When the economy is stationary and the underlying process governing aggregate uncertainty Markov, we provide Markov representations of the equilibria.Table of notation Agents' characteristics space ( ) - A Action space of each agent (aA) - Y Y = x A - Aggregate distribution on agents' characteristics - (X) Space of probability measures onX - C(X) Space of continuous functions onX - _X Family of Borel sets ofX - State space of aggregate uncertainty ( ) - x _t=1 aggregate uncertainty for the infinite game - = (₁,₂,...,_t,...) - ^{t t} (₁, ₂,..., _t) - L₁(^t,C ×A),v _t Normed space of measurable functions from ^t toC( x A) - 8o(^t,( x A)) Space of measurable functions from ^tto( x A) - X^t X^t= x _s=1 ^t X - _X ^t Borel field onX ^t - v Distribution on - v_t Marginal distribution of v on ^t - v(^t)((¦^t)) Conditional distribution on given ^t - v^t(^s)(v_t(¦^s)) Conditional distribution on ^t given ^s (wheres) - _t Periodt distributional strategy - Distributional strategy for all periods =(₁,₂,...,_t,...) - _t Transition process for agents' types - ( _t,^t,y)(P _t+1(, _t , ^t ,y)) Transition function associated with _t - u _t Utility function - V _t (, a, , ^t) Value function for each collection (, a, , ^t ) - W _t (, , ^t ) Value function given optimal action a - C() Consistency correspondence. Distributions consistent with and characteristics transition functions - B() Best response correspondence (which also satisfy consistency) - E Set of equilibrium distributional strategies - x _t=1 ( ^t , (x A)) - S Expanded state space for Markov construction - (, a, ) Value function for Markov construction - P( _t ^* , _t y)(P(, _t ^* , _t , _y )) Invariant characteristics transition function for Markov game We wish to acknowledge very helpful conversations with C. d'Aspremont, B. Lipman, A. McLennan and J-F. Mertens. The financial support of the SSHRCC and the ARC at Queen's University is gratefully acknowledged. This paper was begun while the first author visited CORE. The financial support of CORE and the excellent research environment is gratefully acknowledged. The usual disclaimer applies.     

Knowledge Questions: Hayek,Keynes and Beyond

This paper discusses the knowledge problem in terms of both the use and generation of knowledge. This is analyzed in the context of Hayek's failure to respond to the Keynes Challenge—the claim that markets fail to produce relevant knowledge—by suggesting that in the aftermath of The General Theory he was not well-positioned to address that problem. Ironically, his post-World War II work in cognitive psychology, The Sensory Order, offers a theory of the generation of knowledge which can provide a useful analogy for understanding the generation of market-level knowledge.     

Die fluktuation der Arbeitskräfte

Zusammenfassung Es konnten vier Typen der Fluktuation isoliert werden, die neben persönlichen Komponenten für die Fluktuation der Arbeitskräfte maßgebend sind. Ein Teil der Fluktuation geht auf das Ausprobieren des Arbeitsplatzes — angesichts der Unvollkommenheit der Information — zurück (Probe-Fluktuation). Die Wechselneigung ist daher bei Personen mit kurzer Betriebszugehörigkeitsdauer sowie jüngeren Arbeitskräften (20 bis 30 Jahre) relativ hoch.Eine weitere Form der Fluktuation ist die Reaktion der Arbeinehmer auf Unterschiede in den Nettovorteilen verschiedener Arbeitsplätze (Lohn-Fluktuation). Die Arbeitskräfte wandern per Saldo aus Niedrig- in Hochlohnbetriebe, aus Klein- in Großbetriebe und aus schrumpfenden in expandierende.Das Bestehen eines dualen Arbeitsmarktes impliziert, daß benachteiligte Arbeitskräfte (Ungeschulte mit geringem betriebsspezifischem Training) häufig kündigen, während begünstigte Arbeitskräfte (Geschulte) relativ selten wechseln (Hilfskräfte-Fluktuation). Tatsächlich ist die Wechselneigung von Ungeschulten und Arbeitern (vor allem im industriell-gewerblichen Sektor) weit überdurch-schnittlich. Die Zahl der Wechselfälle wird neben der Wechselneigung durch die alternativen Beschäftigungsmöglichkeiten bestimmt (Konjunktur-Fluktuation). Die Fluktuation schwankt so deutlich mit der Anspannung auf dem Arbeitsmarkt, daß sie als Anspannungsindikator angesehen werden kann.die Branchenunterschiede in verschiedenen Maßzahlen der Fluktuation lassen sich im wesentlichen auf die dargestellten vier Fluktuationstypen zurückführen. (Zur Messung des Arbeitsplatzwechsels empfiehlt es sich, Verbleibenswahrscheinlichkeiten der betrieblichen Zugänge und dienstalterspezifische Fluktuationsraten zu errechnen.)

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Summary There are four main features of labour turnover. A substantial part of turnover is due to job shopping in view of imperfect information. Therefore, workers with short job tenure and younger employees (20–30 years) reveal a high propensity to quit. Another type of quit behaviour is the reaction of workers to differences in the net advantages of various jobs. The employed move from the low wage to the high wage sector, from small to largescale enterprises and from shrinking to expanding firms. The existence of a dual labour market implies that disprivileged workers (with low general and specific training) quit frequently and privileged workers rarely change the job. In fact, the turnover rate of white-collar workers and persons with higher formal education is far below average. The actual level of labour turnover does not only depend on the propensity to quit but also on the alternative job opportunities. Voluntary quits are so closely related to the tightness of the labour market that they can be regarded as a labour market indicator. Regression analysis shows that the differences in various measures of turnover are essentially due to these four features of turnover. (For measurement of labour turnover it is recomended to use the probabilities of a batch of entrants to survive certain points in time. as well as job tenure-specific turnover rates.)

     

A law of large numbers for large economies

Summary LetX(i),i[0; 1] be a collection of identically distributed and pairwise uncorrelated random variables with common finite mean and variance ². This paper shows the law of large numbers, i.e. the fact that ₀ ¹ X(i)di=. It does so by interpreting the integral as a Pettis-integral. Studying Riemann sums, the paper first provides a simple proof involving no more than the calculation of variances, and demonstrates, that the measurability problem pointed out by Judd (1985) is avoided by requiring convergence in mean square rather than convergence almost everywhere. We raise the issue of when a random continuum economy is a good abstraction for a large finite economy and give an example in which it is not.I am indebted to Hugo Hopenhayn. Furthermore I would like to thank Dilip Abreu, Glenn Donaldson, Ed Green, Ramon Marimon, Nabil Al-Najjar, Victor Rios-Rull, Timothy van Zandt and the editor for useful comments. The first version of this paper was written in 1987.     

Strategy-proof and individually rational social choice functions for public good economies

Summary We consider the problem of choosing an allocation in an economy in which there are one private good and one public good. Our purpose is to identify the class of procedures of choosing an allocation which satisfy strategy-proofness, individual rationality, no exploitation and non-bossiness. Any such procedure is a scheme of semi-convex cost sharing determined by the minimum demand principle.I wish to thank Professors Salvador Barbera, Matthew Jackson, Herve Moulin and William Thomson for their helpful suggestions and two anonymous referees for their detailed comments. Conversations with Professors Hideo Konishi, Shinji Oseto Ken-ichi Shimomura and Stephen Ching were helpful. This work is supported by the Japan Economic Research Foundation and Research Grants PB89-0294 and PB89-0075 from the Direcion General de Investigacion Cientifica y Tecnica, Spanish Ministry of Education.     

On the structure and diversity of rational beliefs

Summary The paper proposes that the theory of expectations be reformulated under the assumption that agents do not know the structural relations (such as equilibrium prices) of the economy. Instead, we postulate that they can observe past data of the economy and form probability beliefs based on the data generated by the economy. Using past data agents can compute relative frequencies and the basic assumption of the theory is that the system which generates the data is stable in the sense that the empirically computed relative frequencies converge. It is then shown that the limit of these relative frequencies induce a probability on the space of infinite sequences of the observables in the economy. This probability is stationary. Abelief of an agent is a probability on the space of infinite sequences of the observable variables in the economy. Such a probability represents the theory or ypothesis of the agent about the mechanism which generates the data. A belief is said to becompatible with the data if under the proposed probability belief the economy would generate the same limit of the relative frequencies as computed from the real data. A theory which is compatible with the data is a theory which cannot be rejected by the data. A belief is said to be aRational Belief if it is (i) compatible with the data and (ii) satisfies a certain technical condition. The Main Theorem provides a characterization of all Rational Beliefs.This research was supported by NSF Grant IRI-8814954 to Stanford University and by the Summer 1990 Economics Program at the Santa Fe Institute. The author is thankful to Steven N. Durlauf for many stimulating conversations related to this research; to William Brock for extensive comments on an earlier draft; to Andrzej Ruszczynski, Maxwell B. Stinchcombe and an anonymous referee for valuable suggestions. Carsten K. Nielsen made invaluable contributions to the final draft.     

Framing Effects in Public Goods Experiments

Three effects of apparently superficial changes in presentation (framing effects in a broad sense), were replicated together in the same repeated linear public goods experiment with real financial incentives. First, 32 repetitions were presented as four phases of 8 repetitions with a break and results summary in between. Contribution levels decayed during each phase but then persistently returned to about 50% after each re-start. Second, subjects contributed more when the payoff function was decomposed in terms of a gift which is multiplied and distributed to the other players, rather than the equivalent public good from which everyone benefits. Third, subjects contributed more following a comprehension task which asks them to calculate the benefits to the group of various actions (the We frame), rather than the benefits to themselves (the I frame). These results suggest that aspects of presentation may have strong and replicable effects on experimental findings, even when care is taken to make the language and presentation of instructions as neutral as possible. Experimental economists should therefore give careful consideration to potential framing effects—or, better still, explicitly test for them—before making claims about the external validity of results.     

Democracy and Opinion Falsification: Towards a New Austrian Political Economy

Hayek's view of democracy as a process of forming opinion is taken as a starting point for inquiring into issues largely neglected by Public Choice and Constitutional Economics. In an Austrian perspective, fallible individual knowledge, political entrepreneurs and dissenting minorities attain a distinctive role in the process of political competition. Based on the observation that political opinions consist of preferences and theories, the concept of opinion falsification is introduced. It is a spontaneous result of social interaction creating preference falsification - the disguise of true feelings, but also knowledge falsification – the discovery of false beliefs. Democratic constitutions can limit the scope of preference falsification and increase the potential for knowledge falsification, thus supporting Hayek's view that it is in its dynamic, rather than its static, aspects, that the value of democracy proves itself.     

Wilhelm Weber—50 Jahre

Ohne ZusammenfassungFerner zahlreicheBuchbesprechungen, insbesondere in der Zeitschrift für Nationalökonomie, und Zeitungsartikel.     

Hugging Trees: Claiming de Facto Property Rights by Blockading Resource Use

This paper explores conflicts between two groups,the industry and theenvironmentalists, over whether an indivisible resource (e.g., an ancient tree) should be harvested or preserved. In a complete information war ofattrition the environmentalists' willingness to blockade harvest attemptsmay control resource use as effectively as if they held property rights. Optimal government intervention will override this ability for somebenefit/cost combinations but may augment it for other combinations.Introducing uncertainty about the environmentalists' benefits results inextended disputes and consequent lack of efficiency. Governmentintervention for welfare reasons generally reduces these efficiencylosses.     

Hot vs. Cold: Sequential Responses and Preference Stability in Experimental Games

In experiments with two-person sequential games we analyze whether responses to favorable and unfavorable actions depend on the elicitation procedure. In our hot treatment the second player responds to the first player's observed action while in our cold treatment we follow the strategy method and have the second player decide on a contingent action for each and every possible first player move, without first observing this move. Our analysis centers on the degree to which subjects deviate from the maximization of their pecuniary rewards, as a response to others' actions. Our results show no difference in behavior between the two treatments. We also find evidence of the stability of subjects' preferences with respect to their behavior over time and to the consistency of their choices as first and second mover.