Characterization and incentive compatibility of Walrasian expectations equilibrium in infinite dimensional commodity spaces

Summary. We consider a differential information economy with infinitely many commodities and analyze the veto power of the grand coalition with respect the ability of blocking non-Walrasian expectations equilibrium allocations. We provide two different Walrasian expectations equilibrium equivalence results. First by perturbing the initial endowments in a precise direction we show that an allocation is a Walrasian expectations equilibrium if and only if it is not privately dominated by the grand coalition. The second characterization deals with the fuzzy veto in the sense of Aubin but within a differential information setting. This second equivalence result provides a different characterization for the Walrasian expectations equilibrium and shows that the grand coalition privately blocks in the sense of Aubin any non Walrasian expectations equilibrium allocation with endowment participation rate arbitrarily close to the total initial endowment participation for every individual. Finally, we show that any no free disposal Walrasian expectations equilibria is coalitional Bayesian incentive compatible. Since the deterministic Arrow-Debreu-McKenzie model is a special case of the differential information economy model, one derives new characterizations of the Walrasian equilibria in economies with infinitely many commodities.Received: 29 October 2003, Revised: 24 February 2004, JEL Classification Numbers: D51, D82, D11. Correspondence to: Emma Moreno-GarcíaThe authors are grateful to an anonymous referee for his/her careful reading and helpful comments and suggestions.C. Hervés and E. Moreno acknowledge support by Research Grant BEC2000-1388-C04-01 (Ministerio de Ciencia y Tecnología and FEDER); and support by the Research Grant SA091/02 (Junta de Castilla y León).     

Candidate stability and probabilistic voting procedures

Summary. We extend the analysis of Dutta, Jackson and Le Breton (Econometrica, 2001) on strategic candidacy to probabilistic environments. For each agenda and each profile of voters preferences over running candidates, a probabilistic voting procedure selects a lottery on the set of running candidates. Assuming that candidates cannot vote, we show that random dictatorships are the only unanimous probabilistic voting procedures that never provide unilateral incentives for the candidates to withdraw their candidacy at any set of potential candidates. More flexible probabilistic voting procedures can be devised if we restrict our attention to the stability of specific sets of potential candidates.Received: 4 February 2003, Revised: 14 September 2004, JEL Classification Numbers: D71, D72.This is a revised version of a chapter of my Ph.D. Dissertation submitted to the Universitat Autónoma de Barcelona. I am indebted to my supervisor Salvador Barberá for his advice and constant support. I am grateful to Dolors Berga and an anonymous referee for their detailed comments and suggestions. I thank José Alcalde, Walter Bossert, Bhaskar Dutta, Lars Ehlers, Jordi Massó, Diego Moreno, Clara Ponsatí, Yves Sprumont, and William Thomson for many helpful comments and discussions. I thank the hospitality of the C.R.D.E. at the Université de Montréal and the Department of Economics of the University of Warwick where parts of this research were conducted. Financial support through Research Grant 1998FI00022 from Comissionat per Universitats i Recerca, Generalitat de Catalunya, Research Project PB98-870 from the Ministerio de Ciencia y Tecnología, and Fundación Barrié de la Maza is gratefully acknowledged.     

Ascending auctions for multiple objects: the case for the Japanese design

Summary. We consider two ascending auctions for multiple objects, namely, an English and a Japanese auction, and derive a perfect Bayesian equilibrium of the Japanese auction by exploiting its strategic equivalence with the survival auction, which consists of a finite sequence of sealed-bid auctions. Thus an equilibrium of a continuous time game is derived by means of backward induction in finitely many steps. We then show that all equilibria of the Japanese auction induce equilibria of the English auction, but that many collusive or signaling equilibria of the English auction do not have a counterpart in the Japanese auction.Received: 2 September 2004, Revised: 20 April 2005, JEL Classification Numbers: C72, D44.Fabrizio Germano: Correspondence toWe are indebted to Philippe Jehiel for useful discussions and to Nicolas Vieille for suggestions in the proof of Proposition 2; we also thank seminar audiences in Athens, Basel, Beer-Sheva, Berlin, Brussels, Cambridge, Edinburgh, Exeter, Lausanne, Lisbon, London, Louvain-la-Neuve, Namur and Tel Aviv. Germano acknowledges financial support from Euopean Commission, TMR Network Grant ERBFMRXCT0055, “Cooperation and Information” as well from the Spanish Ministry of Science and Technology, Grants SEC2001-0792, SEJ2004-06319, and in form of a Ramon y Cajal Fellowship. Lovo is member of GREGHEC, unité CNRS, FRE-2810. The support of the Economic and Social Research Council (ESRC) is also gratefully acknowledged. The work was part of the programme of the ESRC Research for Economic Learning and Social Evolution.     

A model of endogenous political party platforms

Summary. We develop a model of endogenous party platform formation in a multidimensional policy space. Party platforms depend on the composition of the parties primary electorate. The overall social outcome is taken to be a weighted average of party platforms and individuals vote strategically. Equilibrium is defined to obtain when no group of voters can shift the social outcome in its favor by deviating and the party platforms are consistent with their electorate. We provide sufficient conditions for existence of equilibria.Received: 20 November 2002, Revised: 21 August 2003JEL Classification Numbers: D72, C62.Correspondence to: Ignacio Ortuño-OrtínWe thank A. Caplin, S. Chattopadhyay, C. Martinelli and J. D. Moreno-Ternero and two anonymous referees for helpful comments. This research started while Ortuño-Ortín was a visitor in the Department of Economics at NYU; he thanks for the kind hospitality of this institution. F. Marhuenda and I. Ortuño-Ortín gratefully acknowledge financial support from the Spanish Ministry of Science and Technology Project BEC2001-1653 and Project BEC2001-0980, respectively; A. Gomberg gratefully acknowledges the financial support from the Asociación Mexicana de Cultura.     

Optimality of the competitive equilibrium in the Uzawa-Lucas model with sector-specific externalities

Summary. In this paper, we show that the competitive equilibrium is optimal in the Uzawa-Lucas model with sector-specific externalities associated to human capital in the goods sector. Thus, these external effects do not provoke a market failure and do not provide a rationale for government intervention.Received: 1 November 2002, Revised: 3 June 2003, JEL Classification Numbers: E62, H21, O41.I wish to thank Sandra López Calvo and an anonymous referee for their valuable comments. Financial support from the Spanish Ministry of Science and Technology and FEDER through Plan Nacional de Investigación Científica, Desarrollo e Innovación Tecnológica (I+D+I) Grant SEC2002-03663 is gratefully acknowledged.     

Quasi-linear preferences in the macroeconomy: Indeterminacy,heterogeneity and the representative consumer

We use aggregation theory to investigate the link between one-consumer and multi-consumer economies under a quasi-linear class of preferences. Our study is carried out in the context of the neoclassical growth model. The quasi-linear preferences considered are additive in consumption and leisure and linear in leisure. We first show that in a homogeneous agents economy, the individual hours worked are not uniquely determined. We then demonstrate that the indeterminacy can be resolved by introducing heterogeneity. For example, idiosyncratic shocks to productivities or imperfect substitutability of labor restore the uniqueness of equilibrium. As a special case, our analysis includes the indivisible labor model by Hansen (1985).JEL Classification: C73, D90, E21We are grateful to Morten Ravn for his guidance. We have benefited from the comments of an anonymous referee, Jordi Caballé, Finn Kydland, Franck Portier, Michael Reiter, Xavier Sala-i-Martin, William Schworm and Andrew Scott. Any remaining errors are ours. This research was supported by the Instituto Valenciano de Investigaciones Económicas and the Ministerio de Ciencia y Tecnología de España, the Ramón y Cajal program, and BEC 2001-0535.     

Procedurally fair and stable matching

Summary. We motivate procedural fairness for matching mechanisms and study two procedurally fair and stable mechanisms: employment by lotto (Aldershof et al. , 1999) and the random order mechanism (Roth and Vande Vate, 1990, Ma, 1996). For both mechanisms we give various examples of probability distributions on the set of stable matchings and discuss properties that differentiate employment by lotto and the random order mechanism. Finally, we consider an adjustment of the random order mechanism, the equitable random order mechanism, that combines aspects of procedural and endstate fairness.Received: 9 September 2003, Revised: 12 December 2004, JEL Classification Numbers: C78, D63. Correspondence to: Flip KlijnWe thank two referees and a co-editor for helpful comments and suggestions. B. Klauss and F. Klijns research has been supported by Ramón y Cajal contracts of the Spanish Ministerio de Ciencia y Tecnología. The work of the authors has also been partially supported by Research Grant BEC2002-02130 from the Spanish Ministerio de Ciencia y Tecnología and by the Barcelona Economics Program of CREA. This paper is part of the Polarization and Conflict Project CIT-2-CT-2004-506084 funded by the European Commission-DG Research Sixth Framework Programme. This article reflects only the authors views and the Community is not liable for any use that may be made of the information contained therein.     

Firm-provided training and temporary contracts

This paper analyses the relationship between workers type of contract and the probability of receiving firm-provided training. In particular, we raise the following question: do workers with temporary contracts face the same probability of receiving training as workers with permanent contracts, once we account for the fact that both types of workers have different probabilities of being employed in a firm providing training? The results from our empirical analysis using data from the Spanish labour market suggest that workers with temporary contracts not only are less likely to be employed in training firms but, once they are in those firms, they also have a lower probability of being chosen to participate in firm-provided training activities.JEL Classification: J23, M53Authors gratefully acknowledge financial support from Universidad de Alcalá under research project La relación entre temporalidad y formación en la empresa: un análisis comparativo entre los países de la Unión Europea (award no. UAH2002/022) and from the Spanish Ministry of Science and Technology under research project Observatorio del mercado de trabajo (SEC2001-0061). We have also benefited from our participation in the research project Estudio sobre la situación actual de la contratación temporal e indefinida en España financed by the Spanish Employment Office (INEM). We are grateful to participants in the XXVII Simposio de Análisis Económico (Salamanca), V Jornadas de Economía Laboral (Reus-Tarragona), and a seminar in the Istituto de Ricerca Sociale (Milano), and to one anonymous referee. The usual disclaimer applies.     

Computing equilibria in finance economies with incomplete markets and transaction costs

Summary. Transaction costs on financial markets may have important consequences for volumes of trade, asset pricing, and welfare. This paper introduces an algorithm for the computation of equilibria in the general equilibrium model with incomplete asset markets and transaction costs. We show that economies with transaction costs can be analyzed with differentiable homotopy techniques and thus in the same framework as frictionless economies despite the existence of non-differentiabilities of agents asset demand functions and the existence of locally non-unique equilibria. We introduce an equilibrium selection concept into the computation of economic equilibria that picks out a specific equilibrium in the presence of a continuum of equilibria.Received: 2 December 2002, Revised: 15 November 2004, JEL Classification Numbers: C61, C62, C63, C68, D52, D58, G11, G12. Correspondence to: P. Jean-Jacques HeringsThis research started when Jean-Jacques Herings enjoyed the generous hospitality of the Cowles Foundation for Research in Economics at Yale University. His research has been made possible by a fellowship of the Royal Netherlands Academy of Arts and Sciences and a grant of the Netherlands Organisation for Scientific Research. We thank audiences at Stanford University, UC San Diego, and Venice for discussions on the subject. We are very grateful to an anonymous referee for very helpful comments on an earlier draft.     

Price and tick size preferences in trading activity changes around stock split executions

We investigate the low prices preferences and the optimal relative tick size hypotheses, as possible explanations of the stock split execution effects in a pure order-driven and multi-tick market. Using intraday data for the Spanish Stock Exchange during 1997-2001, we find that stock splits do not improve liquidity but do change trading composition. Following splits, small trades from retail investors increase significantly, especially in the larger stock splits. However, we find that this effect seems to disappear with the new tick-size rules adopted by Spanish market in 1999. We extend the optimal relative tick size hypothesis for a multi-tick market by considering the effects of stock splits on the absolute tick size. We observe that the increase in small trades occurs only in those splits that increase the relative tick and decrease the tick-size simultaneously. Our findings suggest that small investors are attracted by stock splits that cause an absolute tick-size reduction, which are those with relatively lower transaction costs.JEL Classification: G19, G32, G35We thank two anonymous referees and the editor, J.M. Campa, for their comments and for providing us very helpful guidance on how to improve the paper. The authors gratefully acknowledge financial support from the Dirección General de Investigación del Ministerio de Ciencia y Tecnología, grant BEC2002-03797. A first version of this study has been published in the working paper series of the Instituto Valenciano de Investigaciones Económicas, IVIE. Any remaining errors are the authors responsibility.     

Bertrand-Edgeworth duopoly with unit cost asymmetry

Summary This paper characterizes the set of Nash equilibria in a price setting duopoly in which firms have limited capacity, and in which unit costs of production up to capacity may differ. Assuming concave revenue and efficient rationing, we show that the case of different unit costs involves a tractable generalization of the methods used to analyze the case of identical costs. However, the supports of the two firms' equilibrium price distributions need no longer be connected and need not coincide. In addition, the supports of the equilibrium price distributions need no longer be continuous in the underlying parameters of the model.As an application of our characterization, we examine the Kreps-Scheinkman model of capacity choice followed by Bertrand-Edgeworth price competition and show that, unlike in the case of identical costs, Cournot equilibrium capacity levels need not arise as subgame-perfect equilibria. The low-cost firm has greater incentive to price its rival out of the market than exists under Cournot behavior.We are grateful to Joseph Harrington, Marie Thursby, Casper de Vries and, especially, William Novshek for helpful discussions and comments. Thomas Faith and Ioannis Tournas provided valuable research assistance. This paper was presented at the Winter Meetings of the Econometric Society in December 1988, the Midwest Mathematical Economics Conference in April 1989, the Sixteenth Annual Congress of the European Association for Research in Industrial Economics in August 1989, the European Meetings of the Econometric Society in September 1989, and in seminars at the Ecole Nationale des Ponts et Chaussées, Erasmus University Rotterdam, Indiana University, INSEAD, Texas A&M University, Tilburg University, the University of Bonn and the University of Florida. Deneckere acknowledges financial support through National Science Foundation Grant SES-8619012 and the Kellogg Graduate School of Management's Beatrice/Esmark Research Chair. Kovenock acknowledges financial support through Erasmus University Rotterdam, the Purdue Research Foundation, the Ford Motor Company Fund, and an Ameritech Foundation Summer Faculty Research Grant.     

A new model of equilibrium involuntary unemployment

Summary. We show that equilibrium involuntary unemployment emerges in a multi-stage game model where all market power resides with firms, on both the labour and the output market. Firms decide wages, employment, output and prices, and under constant returns there exists a continuum of subgame perfect Nash equilibria involving unemployment and positive profits. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the undercutting firm out of both markets. Full employment equilibria are payoff dominated by unemployment equilibria, and the arguments are robust to decreasing returns.Received: 21 May 2001, Revised: 15 April 2003, JEL Classification Numbers: D43, E24.Correspondence to: Leo KaasWe thank an anonymous referee, Woojin Lee, Klaus Ritzberger and seminar participants in Konstanz, Manchester, Milan, Prague, Vienna, and Warwick for helpful comments. Financial support from the Economic and Social Research Council (UK) under grant L138251030 and from the Manchester School Visiting Fellowship Scheme is gratefully acknowledged.     

Smiling under stochastic volatility

This paper studies the behavior of the implied volatility function (smile) when the true distribution of the underlying asset is consistent with the stochastic volatility model proposed by Heston (1993). The main result of the paper is to extend previous results applicable to the smile as a whole to alternative degrees of moneyness. The conditions under which the implied volatility function changes whenever there is a change in the parameters associated with Hestons stochastic volatility model for a given degree of moneyness are given.JEL Classification: G12, G13Mathematical assistance provided by José Alcalde (Universidad de Alicante) is much appreciated, and we have also benefited from discussions with Eva Ferreira (Universidad del País Vasco) and Javier Fernández Navas (Instituto de Empresa). We also thank José M. Campa (IESE) and two anonymous referees, whose suggestions have helped us improve this paper substantially. Gonzalo Rubio and Ángel León acknowledge the financial support provided by Ministerio de Ciencia y Tecnología grants BEC2001-0636 and BEC2002-03797 respectively. Ángel León also acknowledges Generalitat Valenciana grant CTIDIA/2002/103. The contents of this paper are the sole responsibility of the authors.     

Are Temporary Help Agencies changing mobility patterns in the Spanish labour market?

This paper examines to what extent the intermediation of Temporary Help Agencies affects workers transitions into and out of employment in the Spanish youth labour market throughout the 1990s. The results obtained show that this type of intermediation presents a positive impact on the likelihood of leaving unemployment, although only for short-term unemployed individuals; at the same time, however, the employment hazard rate is substantially higher for agency workers. We also find that employment hazard rates were substantially affected in the 1990s by the extensive use of fixed-term contracts, although the 1997 labour market reform is found to slightly reduce this hazard rate. Finally, very young workers, women and those with low qualification levels are more likely to be affected by high labour turnover.JEL Classification: J24, J62This work has benefited from financial support by CICYT SEC2002-04471 and SEC 2003-C4028. We would like to express our gratitude to the Spanish Ministry of Labour for providing the database for this research, and to the seminar participants at IV Jornadas de Economía Laboral (Valencia), XXVI Simposio de Análisis Económico (Alicante), U. Santiago, U. Toulouse, U. Pompeu Fabra, the Workshop on Job Stability and Security in European Labor Markets (IZA, Bonn) and the XIV EALE Conference (Paris) for valuable suggestions. The comments from the editor and one referee were very useful to improve the final version of this paper. The usual disclaimer applies.     

Bankruptcy games and the Ibn Ezra’s proposal

Summary. This paper explores an old solution for bankruptcy problems, described by Ibn Ezra in the XII century. Particularly, we introduce a new way of extending the Ibn Ezras proposal, the Generalized Ibn Ezra solution, by imposing that the general distribution principle from which it is inspired remains fixed. In this context, we follow the interpretation of bankruptcy problems in terms of TU games given in ONeill (1982), and propose the analysis of the Transition Game associated to bankruptcy problems to provide a characterization for the Generalized Ibn Ezra solution.Received: 14 October 2003, Revised: 26 May 2004, JEL Classification Numbers: C71, D63, D71. Correspondence to: José Alcalde: alasur@merlin.fae.ua.esWe are grateful to Carmen Herrero, Juan de Dios Moreno, William Thomson and an anonymous referee for helpful comments. Authors work is partially supported by the Institut Valenciá dInvestigacions Económiques. Alcalde and Silva acknowledge support by FEDER and the Spanish Ministerio de Educación y Cultura under project BEC 2001-0535. Marco acknowledges support by the Fundación Séneca, and the Spanish Ministerio de Educación y Cultura under projects SEC2000-0838 and BEC 2001-0781.     

Self-enforcing international environmental agreements with a stock pollutant

In this paper the stability of an International Environmental Agreement (IEA) among N identical countries that emit a pollutant are studied using a two-stage game. In the first stage each country decides noncooperatively whether or not to join an IEA, and in the second stage signatories jointly against nonsignatories determine their emissions in a dynamic setting defined in continuous time. A numerical simulation shows that a bilateral coalition is the unique self-enforcing IEA independently of the gains coming from cooperation and the kind of strategies played by the agents (open-loop or feedback strategies). We have also studied the effects of a minimum participation clause finding that for this case a self-enforcing IEA just consists of the number of countries established in the clause.JEL Classification: C73, D62, Q28 Corresponding author : Santiago J. RubioThis paper is based on chapter four of Begoña Casinos Ph. Dissertation. Financial support from the Instituto Valenciano de Investigaciones Económicas, the Ministerio de Ciencia y Tecnología under grant BEC2000-1432 and Fundación BBVAis gratefully acknowledged. We also appreciate the helpful comments of three anonymous referees, whose suggestions improved the paper. Regarding any remaining inadequacies, the usual caveat applies.     

Fiscal policy and private consumption behaviour: The Spanish case

In this article we analyse whether the Ricardian equivalence hypothesis is a valid approximation for Spains economic reality or whether there exist deviations from that situation which would be more in line with the conventional Keynesian perspective of the effects of debt on private consumption-savings decisions.Our aim is to contribute to the rather sparse empirical literature on the subject for the Spanish case. The analysis is based on annual aggregate data for Spain covering the years 1955 to 2000, and uses both the structural and the Euler equation approaches to test the neutrality proposition, and is thus to be considered as a generalization of foregoing work on the Spanish economy.The findings indicate that support for Ricardian equivalence is mixed, while we also find very little support for the Keynesian specification of consumption and fiscal policy.First revision received: March 2003 / Final version received: October 2003The authors wish to thank M. Ferré, J.M. González-Páramo, A. Marchante, P. Meguire, F. Pedraja, J.L. Raymond, J. Salinas and two anonymous referees for their helpful comments and suggestions on this paper. We also thank the participants in the V Encuentro de Economía Aplicada (Oviedo, Spain, June 2002) and the XVII Simposio de Análisis Económico (Salamanca, Spain, December 2002) for their comments. Any remaining defects are our responsibility. We also are grateful to the Institute for Fiscal Studies of Spain (Ministerio de Hacienda, Secretaría de Estado de Hacienda) for its financial support.     

Dynamic equilibria with unemployment due to undernourishment

Summary We provide characterization and stability results for the stationary equilibria of a competitive infinite-horizon model that incorporates the nutritional requirements of physical labor. We find that for many aggregate land stocks, there is a large continuum of stationary equilibrium unemployment rates. Since unemployment can be seen to stem from inequality in the initial distribution of land ownership, we suggest that certain land reforms can reduce unemployment.Many of our results were developed while Streufert visited the Indian Statistical Institute. Ray is grateful for financial support from the Warshow Endowment of Cornell University, and Streufert thanks the Institute for Research on Poverty and the Graduate School, both at the University of Wisconsin-Madison. We are also thankful for the useful comments of an editor, a referee, and seminar participants at Wisconsin, Yale, the Federal Reserve Bank of Minneapolis, and the Midwest Mathematical Economics Conference.     

Monetary policy and the financial decisions of firms

Summary. In this paper we develop a general equilibrium model with heterogeneous, long-lived firms where financial factors play an important role in their production and investment decisions. When the economy is hit by monetary shocks, the response of small and large firms differs substantially, with small firms responding more than big firms. As a result of the financial decisions of firms, monetary shocks have a persistent impact on output. Another finding of the paper is that monetary shocks lead to considerable volatility in stock market returns.Received: 20 November 2003, Revised: 26 August 2004 JEL Classification Numbers: E5, G3.T.F. Cooley, V. Quadrini: We have received helpful comments on earlier versions of this paper from Jeff Campbell, David Chapman, Thomas Cosimano, Joao Gomes, Boyan Jovanovic, José-Víctor Ríos-Rull, and Harald Uhlig. Correspondence to: V. Quadrini     

A market game approach to differential information economies

In this paper we recast a differential information economy as a strategic game in which players propose net trades and prices. Pure strategy Nash equilibria are strong and determine both consumption plans and commodity prices that coincide with the Walrasian Expectations equilibria of the underlying economy. The authors acknowledge support by research grants BEC2003-09067-C04-01 (Ministerio de Educación y Ciencia and FEDER), PGIDT04XIC30001PN (Xunta de Galicia) and SA070A05 (Junta de Castilla y León). JP Torres-Martínez is also grateful to CNPq-Brazil and University of Vigo for financial support. We are indebted to N.C. Yannelis for helpful comments and insights.