Game equilibrium modelling

Summary Non-cooperative game theory has in recent years become one of the main tools in the social sciences and economics. It deals with decision problems of more than one (rational) player. The actions of those players result in outcomes that are the best that may have happened to a player, given the actions of the other players. This is precisely the content of the 'Nash equilibrium' concept. It would be nice when each game had a unique Nash equilibrium. Unfortunately, both non-existence and multiple equilibria occur. An important role in game theory is played by the information available to the players. Among the economic applications are: the Theory of Industrial Organisation, Bargaining and the Economic Theory of Information.Comments by Eric van Damme and Casper de Vries on an earlier draft of this paper have greatly improved the presentation. I have benefited from the comments of the editor and an anonymous referee ofDe Economist. For all omissions, all possible errors and the revealed views in this paper, I alone am responsible.     

Financial instability and the real economy

Summary The paper deals with three different areas of the financial sphere: national moneys, exchange rates and financial claims, markets and institutions. For each of them, it tries to identify the main forms of instability which may occur, their causes and consequences for the real economy. Depending on the area concerned, the forms of instability include inflation, fluctuations and misalignments in interest rates, exchange rates and asset prices and finally solvency and liquidity crises of institutions. It is concluded that, over the last fifteen years, significant progress has been made in the policy framework to counteract instabilities in the national and monetary spheres. The conclusion is more mixed with regard to the structure of financial markets.[/p]We are grateful to Julian Alworth, Svein Andresen, Gavin Bingham, Joe Bisignano, Michael Hutchison and Paul van den Bergh for useful comments.     

Differentiation of Skills, Firms’ Recruitment Strategy and Unemployment Benefits in an Efficiency Wage Model

It is well known that the recruitment strategy of firms depends on the state of the labour market. In order to account for this fact, we build a matching model where the differentiation of skills is explicit. Along the line of Salop (1979b) workers and firms are distributed on the same circle and the distance between two points on this circle measures the mismatch between a firm and a worker. Another feature of this model concerns wage setting. In a natural way, wages are subject to the constraint that good workers (i.e. workers who are not too far on the circle) prefer to keep their job. In addition, on a suggestion by Phelps (1992), we assume that workers who quit their job are not eligible to unemployment insurance. Two main results are established. First, the lower the tightness of the labour market the more stringent the requirements of firms are. Second, as a consequence of the incentive constraint, unemployment benefits appear to raise employment.     

Economische politiek en verbeeldingskracht naar een zesde fase in het proces van economische groei

Summary The M.I.T. report for the Club of Rome tries to indicate the limits of economic growth. The thesis submitted by the report requires us to reconsider the concept of economic growth that we have been handling during the last decades. Galbraith's thesis on the Affluent Society makes a reconsideration of the concept of growth more acceptable. What is necessary is not really slowing down growth but modifying the structure of the growth process. All this requires a clear picture of the society that we prefer: an enlightened utopia. The modification of the structure will cause such discontinuities in the growth process as to add a sixth stage to the five stages of economic growth that have been suggested by Rostow.Rede, uitgesproken bij de aanvaarding van het ambt van gewoon hoogleraar in de staathuishoudkunde aan de faculteit der sociale wetenschappen van de Nederlandse Economische Hogeschool, Hogeschool voor Maatschappijwetenschappen te Rotterdam op donderdag 12 oktober 1972.     

Tax Level and Tax Internalization Effects on Union Wage Bargaining

High taxes and generous social benefits are often blamed for causing unemployment. The conventional view is that if taxes on labour are (too) high, jobs will be lost and that generous social benefits will exert an upward pressure on unions' wage claims. In the case where unions co-ordinate their wage bargaining strategy, this need not be the case. A simple model is used to illustrate the effects of the tax rate level and tax internalization on unions' wage bargaining strategy. A high marginal tax rate along with endogeneity of the average tax rate shifts the union's trade-off between wages and employment in favour of the latter. These shifts may have contributed to the success of the so-called polder model or tulip model of the Netherlands.     

Rational spirits and the post Keynesian macrotheory of microeconomics

Summary The argument that post Keynesian theory rejects rationality and maximization as a basis of agent behaviour and is thus non-rational and lacking micro-foundations is contrasted by reference to Keynes' use of his early work on probability in the General Theory. Instead of presuming rational choice over perfectly known events, post Keynesian theory builds on Keynes' explanation of agents' rational beliefs in uncertain propositions about their knowledge of the world. These rational spirits lead to the recognition of the macro constraints to individual action or a macrofoundations of microeconomics linked to the role of money and to the role of liquidity preference as both a measure of rational belief and a determinant of money prices which equate the rates of return on all existing and newly produced goods. In this equilibrium prices will generally diverge from costs of production, in contrast to perfect competition but in concordance with the post Keynesian microeconomic theories of mark-up pricing.Comments by L. Hoogduin are gratefully acknowledged. He is relieved from any responsibility for my impressionistic presentation of Keynes' views on probability.     

Shocks and the Viability of a Fixed Exchange Rate Commitment

The incentive to renege on a commitment to a fixed exchange rate is shown to be state contingent. A fixed exchange rate policy is not viable under unusual circumstances, and the incentive to violate the commitment is larger in the case of contractionary shocks than in the case of expansionary shocks. The possibility that the exchange rate regime is changed in unusual circumstances has significant effects also under normal circumstances, implying systematic devaluation expectations, excessive real wages and (ex post) real rates of interest, lower output and loss of reserves, which in turn reduces the incentive to initiate a fixed exchange rate policy. Moreover, policyshifts may be contagious among countries.     

Smoke of leets

Summary This is a review of some of Mrs. Joan Robinson's ideas, and the author's conclusion is that these ideas do not contribute to the present state of economic theory. Her view on international trade is lopsided, her criticism of traditional capital theory goes too far, her refutation of income distribution theory is mainly unfounded. Basically, Mrs. Robinson rejects the notion of relative scarcity of capital; the author believes that this is a useful notion in economics. Moreover, her recent work shows a strong anti-empiricist tendency. If Mrs. Robinson's negative train of thought were to be applied to all concepts of macro-economic theory (total labour force, real national income etc.) these concepts would vanish in thin air. The whole of macro-economics might go up in smoke.     

The Dutch Transportation System in the nineteenth Century

The actual discussion on the Betuwe-line and the construction of this new railway for freight transportation from Rotterdam to Germany is placed into a historical perspective. Right from the beginning of railway history in the Netherlands, the construction of an Iron Rhine was disputed. As analytical tool, the social saving approach is used. The conclusion of this cost-benefit analysis is that it did not and does not matter that much for the level of welfare in the Low Countries or the Rhineland whether the goods from major coastal ports are transported on the river Rhine or by the four Iron Rhines.     

Testing Korteweg's rational expectations model for a small open economy

Summary Korteweg extended the Barro, Lucas, Sargent, Wallace type of rational expectations model to a small open economy. This paper tests Korteweg's model with Dutch data. A major error in the specification and estimation is pointed out and corrected: the differenced expected variables are not defined consistently. This error implies that Korteweg's and Bomhoff's previous empirical results on the model are invalid. The test results for the corrected model indicate that this model has to be rejected for The Netherlands. The restrictions implied by an extremely simple empirical alternative are, however, not rejected.I would like to thank Dr. Th.E. Nijman, Professors F. van der Ploeg, W.H. Buiter and J.J.M. Theeuwes and Dr. A. J. de Zeeuw for their stimulus and helpful comments on previous versions of this paper, and Professor P. Korteweg for his open-minded attitude towards this research. Responsibility for the contents remains, of course, with the author. Financial help, from the Stichting Bekker-La Bastide-Fonds and the Stichting A.A. van Beek-Fonds is gratefully acknowledged.     

Economische orde,economische politiek en sociale politiek

Naar aanleiding van een bundel opstellen van dr J. Zijlstra, Economische Orde en Economische Politiek, H. E. Stenfert Kroese N.V., Leiden 1956, 143 blz. en een bundel opstellen van dr G. M. J. Veldkamp, Economische Orde en Sociale Politiek, H. E. Stenfert Kroese N.V., Leiden 1957, 156 blz.     

Kapitaalverkeer met het Buitenland

Summary A model of portfolio behaviour is developed, based on the assumption that the distribution of a portfolio over different countries is determined by the general level of returns and costs of investments in those countries. From the model an isocapital exports line is derived. With the help of this line it is shown under which circumstances perverse capital movements will occur. The model implies that only temporary compensating operations on the domestic money and capital markets may be sufficient to make a domestic monetary policy effective.A partial adjustment version of the model is estimated for company pension funds.De heer M. J. Broekhuisen, evenals de auteur werkzaam op de sectie wetenschappelijk onderzoek en econometrie van de Studiedienst van de Nederlandsche Bank N.V., is mij op voortreffelijke wijze behulpzaam geweest bij de berekeningen voor dit onderzoek. De verantwoordelijkheid voor eventuele tekortkomingen is echter volledig de mijne. In een bijlage wordt de betekenis van de gebruikte symbolen samengevat.     

Over het sociaal-economische gemenebest

Summary The title of this essay reflects the responsibility that people share in today's society for the outcome of the economic process to be efficient and equitable for everybody.Overcoming both the pursuit of Economic Welfarism and the separation of Efficiency and Equity, in welfare economics one has to look to a general understanding of the maintenance and furtherance of welfare on the physical, subjective and ethical levels. For that purpose, a recognition of the pluriformity of the ingredients of welfare is necessary. External effects, ecological problems and the scale of private, mixed and public goods, fall into that pattern.Openbare les, gegeven bij de aanvaarding van het ambt van gewoon lector in de staathuishoudkunde aan de Vrije Universiteit to Amsterdam op 22 september 1972.     

Trade policies,imperfect competition,and endogenous growth

Summary This paper analyses the effects of trade policies in a general equilibrium two-conutry model with imperfect competition. This model generalizes the models of monopolistic and Cournot competition. Trade is shown to be welfare-increasing in the monopolistic completition model. The same holds true in the case of endogenous growth. In the model of Coumot competition, the welfare effects of trade policies depend upon the type of entry and exit. Indeed, it is possible for two countries to increase their welfare by pursuing a coordinated policy of protection. In an endogenous growth setting, the validity of the latter finding depends upon the consumer rate of time preference.At the time of writing, the author was affiliated with the Ministry of Economic Affairs. An earlier version of this paper was presetned at the ECOZOEK-day, June 11, 1993, Tilburg and was awarded theKVS-prize 1993 of the Royal Netherlands Economic Association. The author would like to thank an anonymous referre, P.A.G. van Bergeijk, R.A.de Mooij, A. Nieuwenhuis, F. van der Ploeg, J. van Sinderen, S. Smulders, and P.M. Waasdorp for useful comments. The views expressed in this paper are strictly presonal.     

Gescheiden Valutamarkten en het Korte Kapitaalverkeer

Summary In this article an analysis has been made of the influences of the dual exchange rate system on short-term capital movements and the balance of payments. An effort has been made to connect the till now separate theories of the dual exchange rate system and the short-term capital movements. In the analysis the role of the forward exchange market has been explicitly taken into account. Several doubts as expressed in literature about the feasibility of an effectively operating dual rate system are examined. Some conclusions are drawn about the probable resultant of the forces which affect the size of the premium of the financial spot rate with respect to the commercial spot rate.De basis voor dit artikel werd gevormd door een bijdrage van de auteur aan een wetenschappelijke statbijeenkomst, die gehouden werd aan de Economische Faculteit van de V.U. op 11 november 1974. Hij wenst alle deelnemers aan deze bijeenkomst dank to zeggen voor hun waardevolle kritiek en in het bijzonder Dr. W. J. B. Smits, die daarna zo vriendelijk was het uiteindelijke concept nog eens grondig met hem door to nemen. 1 In de Nederlandse literatuur komt het systeem voor onder diverse benamingen, zoals de dubbele wisselmarkt en de tweevoudige wisselmarkt, terwijl in de Engelstalige literatuur hiervoor termen als dual exchange rate system en two-tier foreign exchange market gebezigd worden. Opvallend is dat de literatuur over de gescheiden valutamarkt niet bepaald dicht gezaaid is, hoewel hierin de laatste tijd enige kentering to bespeuren valt. Recente bijdragen betreffen Fleming (1974) en Decaluwé (1974) en een bijdrage m.b.t. de Belgische ervaring is Abraham (1973).     

Het Liquid Iteiskarakter Van Spaartegoeden

Summary Before 1964, the Netherlands Bank did not count savings balances at money-creating banks and savings banks as secondary liquid assets or secondary liquidity (that is, near-money). Secondary liquid assets comprise claims on the public authorities and money-creating institutions, so far as they are held by other than money-creating institutions, which can be converted in large amounts into money at relatively short term without much expense or great loss on the transaction, or which can be used at their par value to make payments in satisfaction of current tax assessments.However, towards the end of the 1950's it became apparent from the rising value of the velocity of circulation of savings balances at financial institutions that these assets were acquiring increased significance for current payments. In 1964, this phenomenon induced the Netherlands Bank to count a certain part of the savings balances — indicated as liquid savings balances — as secondary liquidity, whereas the remaining part (true savings balances) was not. The Bank did so for better being able to impute the responsibility for monetary disturbances to the various sectors of the economy.Savings balances acquiring increased significance for current payments is a result of increased competition among financial institutions for the savings of the households sector. This increased competition is due to the fact that the households feel the need of more services rendered by the financial institutions as their income rise. Nowadays those financial institutions whose balance sheets do not comprise an item Current Accounts permit households to use their savings balances for making current payments. On the other hand, there is a tendency towards creating new types of accounts that serve as current accounts for the households in particular. If this tendency is followed up, the liquid assets character of savings balances will grow weaker.Rede, uitgesproken bij de aanvaarding van het ambt van gewoon hoogleraar in de staathuishoudkunde aan de Nederlandse Economische Hogeschool te Rotterdam op 28 september 1967.     

Post- war European economic development as an out of equilibrium growth path. The case of the Netherlands

The paper examines a number of aspects of post-war economic development of the Netherlands in the light of recent out of equilibrium growth theory. It contains a comparison of the stylized facts of the long run performance of the economies of the United States and the Netherlands which suggests that the US has been on an equilibrium growth path for more than a century, but that the Netherlands followed a radically different growth path, especially after 1945. It is attempted to explain this erratic behaviour of the investment ratio and the wage share after 1945 by examining two aspects more in detail: the financing of the acceleration of growth after 1945 and the phase of too rapid growth during the 1950s and 1960s, when the growth of the demand for labour tended to be higher than the increase in its supply.     

Interpretation of error covariances with nonrandom data: An empirical illustration of returns to college education

Conclusion This paper reviews two models of selectivity and gives an interpretation of the covariance terms that are particular to self-selectivity models. While the second model examined in this paper has been discussed elsewhere, the estimates presented for the first model have not been discussed in previous papers. More importantly though, the paper proposes an hypothesis about the expected relationship between error covariances. According to this hypothesis, if all individuals who are faced with the choice between two regimes (1 and 2) choose the regime which yields a maximum value, then the expected relationship between covariances is ₁ < ₂ . If all individuals choose that regime which yields a minimum value, then the expected relationship between covariances is ₁ > ₂ . This relationship holds for a very general class of selectivity models, so long as individuals are choosing between regimes by comparing the expected value (to them) of each regime.This paper was written while I was working under the professional development program at CNA.     

Interdisciplinary economics

Summary Starting from Robbins and Hennipman and with the help of Becker and Lindenberg a theoretical framework has been constructed within which the strong points of economics and sociology are combined,viz,. the formal but relatively bare-bones modelling of economics and the often so much richer, in terms of social content, analysis of sociology. This theoretical framework also appears to enable more balanced analyses of the effectiveness and efficiency of legislation and regulation than the kind of law and economics so much in fashion at the moment, which is often not devoid of economism and in whichhomo econornicus still all too often figures as the prototype of man.(Economic Institute/Centre for Interdisciplinary Research on Labour Market and Distribution Issues (CIAV)); Associate of The Netherlands Interdisciplinary Demographic Institute (NIDI) in The Hague and the Interuniversity Center for Social Science Theory and Methodology (ICS). This article is an adapted version of my inaugural lecture.     

Bijdrage tot de theorie van de commerciele prijspolitiek

Tweede lezing voor de Economische Faculteitsvereniging te Groningen, gehouden op 21 februari 1958. Zie voor de eerste lezing, Variaties op een thema van Böhm-Bawerk, De Economist, April 1957, blz. 292 e.v.