Complex solutions of nonconcave dynamic optimization models

Summary In this paper we consider a class of time discrete intertemporal optimization models in one dimension. We present a technique to construct intertemporal optimization models with nonconcave objective functions, such that the optimal policy function coincides with any pre-specifiedC ² function. Our result is a variant of the approach presented in a seminal paper by Boldrin and Montrucchio (1986). Whereas they solved the inverse problem for the reduced form models, we address the different question of how to construct both reduced and primitive form models. Using our technique one can guarantee required qualitative properties not only in reduced, but also in primitive form. The fact that our constructed model has a single valued and continuous optimal policy is very important as, in general, nonconcave problems yield set valued optimal policy correspondences which are typically hard to analyze. To illustrate our constructive approach we apply it to a simple nonconcave model.We are grateful for the helpful comments of L. Montrucchio, K. Nishimura, T. Mitra and an anonymous referee. Financial support of the Austrian Science Foundation under contract No. P7783-PHY and No. J01003-SOZ is gratefully acknowledged. This paper was written while M. Kopel was visiting the Department of Economics, Cornell University.     

The measurement of marketing efficiency in the presence of spillovers: theory and evidence

We develop a model of marketing efficiency based on a directional distance function that allows for marketing spillovers. A parametric model is used to test for spillovers from rival marketing and from a firm's marketing activity of its other related products. We then show how this information can be incorporated into a non‐parametric model and used to estimate marketing inefficiency. We apply brand level data from the US brewing industry to the non‐parametric model to determine the effectiveness of television, radio, and print advertising. We find that advertising spillovers are important in brewing and show that efficiency estimates are inaccurate when spillover effects are ignored. Our results also suggest that marketing efficiency may be an important component to firm success in brewing, a result that may apply to other consumer goods industries. Copyright © 2006 John Wiley & Sons, Ltd.     

Can oil shocks explain asymmetries in the US Business Cycle?

We consider whether oil prices can account for business cycle asymmetries. We test for asymmetries based on the Markov switching autoregressive model popularized by Hamilton (1989), using the tests devised by Clements and Krolzig (2000). We find evidence against the conventional wisdom that recessions are more violent than expansions: while some part of the downturn in economic activity that characterises recessionary periods can be attributed to dramatic changes in the price of oil, post-War US economic growth is characterized by the steepness of expansions. First Version Received: December 2000/Final Version Received: September 2001     

Conditional mean functions of non-linear models of US output

We compare a number of models of post War US output growth in terms of the degree and pattern of non-linearity they impart to the conditional mean, where we condition on either the previous period's growth rate, or the previous two periods' growth rates. The conditional means are estimated non-parametrically using a nearest-neighbour technique on data simulated from the models. In this way, we condense the complex, dynamic, responses that may be present in to graphical displays of the implied conditional mean. First version received: Feb. 1999/Final version received: June 2001     

Learning by doing,spillovers and shakeouts

This paper studies industry evolution driven by non strategic learning by doing and spillovers. We characterize a dynamic process of cost and output changes and its effect on welfare and industry profits. The paper gives conditions for shakeouts to occur and analyzes the key factors affecting these conditions. Since shakeouts could lead to a long-run social loss due to higher market concentration, there is a role for a government to play in limiting unnecessary shakeouts. The most effective way to do so is to enhance spillovers.JEL Classification: L11, L13, O31Correspondence to: Michael TroegeWe would like to thank Hans Mewis, Christophe Moussu and an anonymous referee for valuable comments and suggestions. We also benefited from comments of seminar participants at WZB, Humboldt University, Northwestern University and the EEA/ESEM 1999 meetings. Part of the research was carried out while Michael Tröge was visiting Northwestern University. Financial support by the German Research Council (DFG) is gratefully acknowledged.     

Transboundary Environmental Problems with Mobile but Heterogeneous Populations

Most of the literature on transboundaryenvironmental problems treats population ineach country or region as constant, ignoringpopulation mobility. We showed previously thatif there is perfect population mobility betweenregions, and populations are homogeneous, asocially efficient outcome can be supported asa Nash equilibrium of the game of uncoordinatedpolicy setting, even without any internationalenvironmental agreement. In the present paperwe introduce heterogeneous population, and showthat when people differ, a non-cooperativeoutcome is generally inefficient. We alsodemonstrate that for a particular set ofobjective functions for the regionalgovernments, there is an equilibrium of thegame of uncoordinated policy setting that isefficient. Finally, we give an example wherethe decentralized outcome is efficient whenthere is no population mobility, butinefficient when there is population mobility.     

Policy Discrimination with and without Interpersonal Comparisons of Utility

Can the Pareto criterion guide policymakers who do not know the true model of the economy? If policymakers specify ex ante preferences for agents, then Pareto improvements from a distorted status quo are usually possible, and with more commodities than states, one can implement almost every Pareto optimum. Unlike the standard second welfare theorem, planners cannot dictate allocations: agents must trade. Unfortunately ex ante preferences impose interpersonal comparisons. If policymakers merely aim to maximize some social welfare function then optimal policies form an open set; hence small changes in the environment do not necessitate any policy response. Planners with symmetric information about agents can sometimes intervene without making interpersonal comparisons.     

Evaluation of national foresight activities: Assessing rationale, process and impact

The paper addresses the question of what constitutes an appropriate evaluation strategy for national foresight activities in different situations. The variety of rationales for foresight is explored, ranging from a desire to set priorities through to participation-oriented goals and building new networks around common visions and strategies. A generational model of foresight is used to show the evolution of key evaluation issues. The generic motivations for evaluation of accountability, justification and learning are discussed in the context of foresight. Evaluation grounded in the concept of behavioural additionality and the systems failure rationale is shown to be more suited as a rationale for foresight as public policy.Assessing the effects of foresight requires an understanding that it is only one of several influences on public policy. To be effective it needs to be tuned into the strategic behaviour and cycles of policy and economic actors. Cases are presented of evaluation of foresight programmes in the United Kingdom, Germany and Hungary. It is concluded that there is no “one-size-fits-all” evaluation approach and that the method selected is conditioned by motivation, timing and the level of aggregation. Foresight cannot be fully evaluated independently from its context. Foresight is being strengthened by the emergence of rigorous and systematic knowledge to assist learning and improvement.     

Timing of Public Information and Cost Reduction

Received July 31, 2000; revised version received July 18, 2001