SIZE,OPENNESS, AND MACROECONOMIC INTERDEPENDENCE

One common, simplifying assumption in open economy macroliterature is that the rest of the world can be thought of as a representative economy. This article formally investigates conditions under which this assumption can be justified using a multicountry general equilibrium model as a laboratory. We derive the conditions that ensure the existence of the equilibrium and study the properties of the equilibrium using large N asymptotics. Thereby, we show that the two‐country framework is a valid approximation only for economies that have diversified trade linkages and only when there is no globally dominant economy among the foreign economies.     

资源约束条件下长期经济增长的动力机制--基于内生增长理论模型的研究

文章通过将存量有限且不可再生的自然资源引入生产函数,构建了一个产品种类扩张型的四部门内生增长模型。首先,通过对模型的市场均衡分析,给出了平衡增长路径的经济增长率以及均衡解存在的一个充分性条件,系统地探讨了在人口增长、自然资源不断耗竭的约束条件下内生技术进步促进长期经济增长的动力机制;其次,通过对平衡增长路径进行比较静态分析,讨论了各经济变量以及经济环境参数的变化对稳态增长率的影响效应及其作用机制,并给出其经济学解释;最后是综合结论及政策涵义。     

ON EMPLOYMENT CONTRACTS WITH ENDOGENOUS ON-THE-JOB SEARCH

We consider an equilibrium search model and employment contracts when workers have endogenous on-the-job search. When a firm tries to retain an employee by matching outside offers, variable search intensity leads to a moral hazard problem. We first consider workers with identical productivities. We derive an equilibrium where firms commit not to respond to outside offers and workers search less. Second, we investigate the case with heterogeneous workers and asymmetric information. Assuming that firms can commit to retain all workers irrespective of their ability, we establish conditions under which it is optimal to do so. This policy again reduces the incentive for active on-the-job search. We discuss an equilibrium where all firms use these so-called ‘pooling’ contracts.     

Randomized double auctions: gains from trade,trader roles,and price discovery

Experimental double-auction commodity markets are known to exhibit robust convergence to competitive equilibria under stable or cyclical supply and demand conditions, but little is known about their performance in truly random environments. We provide a comprehensive study of double auctions in a stochastic setting where the equilibrium prices, trading volumes and gains from trade are highly variable across periods, and with commodity traders who may buy or sell their goods depending on market conditions and their individual outcomes. We find that performance in this stochastic environment is sensitive to underlying market conditions. Efficiency is higher and convergence to the competitive equilibrium stronger when the potential gains from trade are high and when the equilibrium spans a wide range of quantities, implying a large number of marginal trades. Speculative re-trading is prevalent, especially among those who have little to gain under equilibrium pricing. Those with the largest expected gains typically earn far less than predicted, while those with little or no predicted earnings gain modestly from speculation, leading to some redistribution of gains from high to low expected earners. Excessive trading volumes are associated with negative efficiencies in markets with low gains from trade, but not in the high-gains markets, where zero-sum trading and re-trading appear to enforce efficiency and near-equilibrium pricing. Buyers earn more relative to their competitive equilibrium benchmark than sellers do. Introducing trader specialization leads to fewer trading errors and higher market efficiency, but it does not eliminate zero-sum trading and re-trading.

     

CORRELATED EQUILIBRIA,GOOD AND BAD: AN EXPERIMENTAL STUDY*

We report results from an experiment that explores the empirical validity of correlated equilibrium, an important generalization of Nash equilibrium. Specifically, we examine the conditions under which subjects playing the game of Chicken will condition their behavior on private third‐party recommendations drawn from publicly announced distributions. We find that when recommendations are given, behavior differs from both a mixed‐strategy Nash equilibrium and behavior without recommendations. In particular, subjects typically follow recommendations if and only if (1) those recommendations derive from a correlated equilibrium and (2) that correlated equilibrium is payoff‐enhancing relative to the available Nash equilibria.     

Taxation,insurance, and precautionary labor

We examine optimal taxation and social insurance with adverse selection in competitive insurance markets. In a previous literature, it has been shown that, with perfect insurance markets, social insurance improves welfare since it is able to redistribute without creating distortions. This result has been taken as robust to the introduction of adverse selection as this would only provide additional justifications for social insurance. We show, however, that adverse selection can weaken the case for social insurance compared to a situation with perfect markets. Whenever social insurance mitigates private underinsurance, it also causes welfare-reducing effects by decreasing precautionary labor supply and hence tax revenue. In addition, adverse selection may reduce the redistributive potential of social insurance. We illustrate our general results using different equilibrium concepts for the insurance market. Notably, we derive conditions under which a complete renunciation of social insurance is optimal and the government only relies on income taxation to achieve its redistributive objectives.     

Profit Sharing,Credit Market Imperfections and Equilibrium Unemployment*

We investigate the interaction between labour and credit market imperfections for equilibrium unemployment in the presence of profit sharing. In a partial equilibrium with exogenous outside options, increased bargaining power of banks has adverse employment effects. In a general equilibrium with endogenous outside options, this relationship is frequently reversed; reduced credit market imperfections increase equilibrium unemployment if the labour market imperfections—measured by the bargaining power of trade unions—are sufficiently strong and the benefit–replacement ratio is sufficiently high. Finally, we show that higher bankruptcy risks increase equilibrium unemployment under similar conditions.     

Information transmission during the trial: The role of punitive damages and legal costs

This paper studies an incomplete information model in which a preventable accident occurred. The judge determining punitive damages observes the firm's (defendant) investment decisions, but is uninformed about the firm's experience adopting safety measures. Our model allows firms to file an appeal if the judge's verdict is incorrect, which the judge may accept or reject. We identify under which conditions a separating equilibrium exists where the firm's investment decisions signal its type to the judge, who responds with a correct verdict, thus avoiding future appeals. Our paper also finds conditions under which a pooling equilibrium exists whereby the firm's investment in precaution conceals its type from the judge, who can respond with an incorrect verdict thus giving rise to appeals. Furthermore, we show that the separating equilibrium is more likely to arise if the percentage of revenue that defendants are required to pay in punitive damages decreases, if the punitive‐to‐compensatory ratio increases, and if the legal cost of filing an appeal increases.     

Computing minimal state space recursive equilibrium in OLG models with stochastic production

Using order-theoretic methods, we derive sufficient conditions for the existence, characterization, and computation of minimal state space recursive equilibrium (RE), as well as Stationary Markov equilibrium (SME) for various classes of stochastic overlapping generations models. In contrast to previous work, our methods focus on constructive methods. Our existence results are obtained for models that include public policy (e.g., social security policies, transfers, taxes, etc), production nonconvexities, elastic labor supply, non-monotone income processes, and long-lived agents. We distinguish conditions under which there exist various subclasses of minimal state space RE, including bounded, monotone, non-monotone, semicontinuous, Lipschitz continuous RE. Finally, we provide monotone equilibrium comparative statics results on the space of economies for some RE.     

Generalized least squares and maximum likelihood estimation of the logistic function for technology diffusion

Given a simple stochastic model of technology adoption, we derive a function for technological diffusion that is logistic in the deterministic part and has an error term based on the binomial distribution. We derive two estimators—a generalized least squares (GLS) estimator and a maximum likelihood (ML) estimator—which should be more efficient than the ordinary least squares (OLS) estimators typically used to estimate technological diffusion functions. We compare the two new estimators with OLS using Monte-Carlo techniques and find that under perfect specification, GLS and ML are equally efficient and both are more efficient than OLS. There was no evidence of bias in any of the estimators. We used the estimators on some example data and found evidence suggesting that under conditions of misspecification, the estimated variance-covariance of the ML estimator is badly biased. We verified the existence of the bias with a second Monte-Carlo experiment performed with a known misspecification. In the second experiment, GLS was the most efficient estimator, followed by ML, and OLS was least efficient. We conclude that the GLS estimator of choice.     

Endogenous timing,strategic tariff game and bilateral trade in vertical oligopoly

This paper builds an observable delay game in endogenous timing to study the possible occurrence of trade wars in a vertical, bilateral trade model. It examines the effects of production cost differences and order of moves on optimal tariffs, market equilibria, dumping margin and social welfare in both fixed timing and endogenous timing games. In a fixed timing game, it shows that price dumping in the intermediate good market arises from differences in country-specific final good production costs. Different from Bernhofen (1995; Journal of International Economics), trade costs resulting from reciprocal tariffs in upstream markets can reverse the price dumping under certain conditions. In an endogenous timing game, this paper finds that the magnitude of cost differences significantly influences countries’ decisions on the order of moves in a strategic tariff-making game. Both countries want to be the first movers under a small cost difference and consequently reach a simultaneous equilibrium result. This demonstrates that the second-best equilibrium proceeds under certain conditions. Under a large cost difference, sequential policy-making is the subgame perfect Nash equilibrium. If the cost difference is sufficiently large, both countries have an incentive to launch a trade war as a multiple equilibrium game.     

Regulating collateral-requirements when markets are incomplete

In this paper we examine the effects of default and collateral on risk sharing. We assume that there is a large set of assets which all promise a risk less payoff but which distinguish themselves by their collateral requirements. In equilibrium agents default, the assets have different payoffs, and there are as many linearly independent assets available for trade as there are states of the world. We derive necessary and sufficient conditions for equilibria to be Pareto-efficient in the presence of uncertainty. We explore some examples for which the collateral equilibrium allocation is identical to the Arrow–Debreu allocation, either when agents have a high preference for the durable good, or when the endowment distribution of the durable good is relatively homogeneous. We examine a series of examples to understand which collateral-levels prevail in equilibrium and under which conditions there is scope for regulating margin-requirements, that is, restricting the sets of tradable assets through government intervention. In these examples equilibrium is always sub-optimal but regulation never leads to a Pareto-improvement. While the competitive equilibria are constrained efficient, there do exist regulations which make large groups of agents in the economy better off. These regulations typically restrict all trades to take place in the low-collateral loans and benefit the poor and the rich agents in the economy through their effects on the equilibrium interest rate and the equilibrium prices of the durable goods.     

Endogenous current account balances in a world CGE model with international financial assets

This paper presents an applied computable general equilibrium world model with financial assets and endogenous current account, and capital and financial account balances. The capital and financial account equilibrium conditions, rather than exogenous rules, constrain the current account balance. International capital flows which balance the current account are constrained by supply-and-demand equilibrium conditions on the market for international debt securities, under portfolio managers' optimizing behavior. The asset–liability structure of the financial portfolio is endogenous, and it is possible for a country-agent to have negative net financial assets. In simulations, the interaction of portfolio choices with trade supply and demand behavior leads to endogenous sign reversals in some current account balances, and it results in a different allocation of investment among regions, compared to a model with exogenously determined current account balances. In the reference scenario, this allocation generates growth that is about the same globally, but differently distributed between regions.     

Learning foreign languages: Theoretical and empirical implications of the Selten and Pool model

In this paper we adopt the Selten–Pool [Selten, R., Pool, J., 1991. The distribution of foreign language skills as a game equilibrium. In: Selten, R. (Ed.), Game Equilibrium Models, vol. 4. Springer-Verlag, Berlin, pp. 64–84] framework of language acquisition based on “communicative benefits” derived from the ability to communicate with other speakers of an acquired language, and “learning costs” incurred by acquiring a foreign language. We show that, under some mild conditions, there exists a unique interior linguistic equilibrium. We then derive demand functions for foreign languages, that we estimate for English, French, German and Spanish in 13 European countries and demonstrate that the properties of these functions are consistent with our theoretical results.     

Voluntary Export Restraints and Economic Welfare: A General Equilibrium Analysis

We derive some sufficient conditions for the Suzumura-Ishikawa proposition on voluntary export restraints to hold when their model is extended to a general equilibrium framework. The sufficient conditions are concerned with the magnitude of income effects which play no role in the partial-equilibrium analysis of Suzumura and Ishikawa.     

Skill acquisition,credit constraints,and trade

In this paper we develop a general equilibrium model where credit constraints limit the ability of agents with heterogeneous abilities and wealth to acquire skills. We identify a new effect, the induced Rybczynski effect, that works in the opposite direction from the normal supply response and may result in relative supply being downward-sloping. We analyze the effects of trade and show that under some conditions trade may reduce welfare. Finally, we study the effects of trade on income distribution and inequality.     

Identity,homophily and in-group bias

Many instances of social interaction display either or both of the following well-documented phenomena. People tend to interact with similar others (homophily). They also tend to treat others of shared social identity more favorably (in-group bias). While both phenomena involve some degree of discrimination towards others, a systematic study of their relations and interplay is yet missing. In this paper we report the findings of an experiment designed to address this issue. Participants are exogenously and randomly assigned to one of two groups. Subsequently they play a sequence of eight games with either an in-group or an out-group member. In treatment EXO in- and out-group matches are formed exogenously, while in ENDO participants can choose between in- and out-group matches. We find strong evidence of in-group bias in EXO, and strong evidence of homophily in ENDO. In-group biases, however, either decrease or disappear altogether under endogenous matching. We show that self-selection of homophilous agents into in-group matches cannot explain this fact. We also find that homophily is strongly correlated with risk aversion, and we build on this evidence to derive a rationale for both the existence of homophily and the disappearance of in-group biases under endogenous matching.     

Government expenditure,external and domestic public debt,and economic growth

This paper analyzes the relationship between government expenditure, tax on returns to assets, public debt, and growth in an endogenous growth model. Public debt is composed of two components, domestic debt and external debt. We show conditions for existence, uniqueness, and multiplicity of the steady states. More precisely, existence of steady state requires a sufficiently high productivity and a sufficiently low tax on returns to assets. We also provide the effects of an increase in the tax rate on returns to assets on the steady state. In particular, the relation between public spending and the tax rate has a bell shape. Domestic debt unambiguously increases with tax whereas external debt displays an inverted U‐shaped curve. A high tax rate leads to a reallocation of public debt in favor of domestic debt (to the detriment of external debt). The effect of taxation on consumption (and production) also displays a nonlinear pattern when the output elasticity of capital is lower than unity (the effect is monotonously increasing if this elasticity is unity). We also derive the conditions under which a tax increase can boost or reduce the balanced growth rate.     

DISCRIMINATION IN A MODEL OF CONTESTS WITH INCOMPLETE INFORMATION ABOUT ABILITY

We study contests with private information and identical contestants, where contestants' efforts and innate abilities generate output of varying qualities. The designer's revenue depends on the quality of the output, and she offers a reward to the contestant achieving the highest quality. We characterize the equilibrium behavior, outcomes, and payoffs for both nondiscriminatory and discriminatory (where the reward is contestant‐dependent) contests. We derive conditions under which the designer obtains a larger payoff when using a discriminatory contest and describe settings, where these conditions are satisfied.     

Stick,Carrot and Skill Acquisition*

We evaluate the impact of specially designed youth unemployment programmes (YUPs), intended to provide young unemployed unskilled workers with skills. If unemployment among skilled workers is lower than among unskilled workers, YUPs imply that unemployment falls. However, YUPs potentially crowd out ordinary training. We set up an equilibrium matching model with endogenous skill choice and examine the impact of an increase in programme participation. We derive a condition for crowding out of ordinary training, as well as a condition for an increase in the skilled labour force and thereby reduced unemployment. The impact of YUPs on welfare and wage dispersion is also considered.