Component efficient solutions in line-graph games with applications

Recently, applications of cooperative game theory to economic allocation problems have gained popularity. We investigate a class of cooperative games that generalizes some economic applications with a similar structure. These are the so-called line-graph games being cooperative TU-games in which the players are linearly ordered. Examples of situations that can be modeled like this are sequencing situations and water distribution problems. We define four properties with respect to deleting edges that each selects a unique component efficient solution on the class of line-graph games. We interpret these solutions and properties in terms of dividend distributions, and apply them to economic situations. This research has been done while the third author was visiting Tinbergen Institute at the Free University, Amsterdam. The research is part of the Research Programme “Strategic and Cooperative Decision Making” at the Department of Econometrics. Financial support from the Netherlands Organization for Scientific Research (NWO) in the framework of the Russian-Dutch programme for scientific cooperation, is gratefully acknowledged. The third author also appreciates partial financial support from the Russian Leading Scientific Schools Fund (grant 80.2003.6) and Russian Humanitarian Scientific Fund (grant 02-02-00189a). We thank three anonymous referees for their valuable comments.     

Decomposing Redistributive Effects of Taxes and Transfers in Australia: Annual and Lifetime Measures

This paper decomposes the redistributive effect on annual and lifetime inquality of a range of taxes and transfers in Australia, using a dynamic cohort lifetime simulation model. The redistributive effect is decomposed into vertical, horizontal and reranking effects. Horizontal inequities in the tax and transfer system are found to be negligible. The extent of reranking is greater in the lifetime than in the annual context and is affected by the equivalence scales used to adjust household incomes. If no adjustment is made to household incomes, reranking is about nine per cent of the reduction in lifetime inequality. However, if each child is counted as equivalent to one-third of an adult, reranking is found to be less than one per cent.     

Evolution of harvesting strategies: replicator and resource dynamics

Abstract. Economic theories of managing renewable resources, such as fisheries and forestry, traditionally assume that individual harvesters are perfectly rational and thus able to compute the harvesting strategy that maximizes their discounted profits. The current paper presents an alternative approach based on bounded rationality and evolutionary mechanisms. It is assumed that individual harvesters face a choice between two harvesting strategies. The evolution of the distribution of strategies in the population is modeled through a replicator dynamics equation. The latter captures the idea that strategies yielding above average profits are demanded more than strategies yielding below average profits, so that the first type ends up accounting for a larger part in the population. From a mathematical perspective, the combination of resource and evolutionary processes leads to complex dynamics. The paper presents the existence and stability conditions for each steady-state of the system and analyzes dynamic paths to the equilibrium. In addition, effects of changes in prices are analyzed. A main result of the paper is that under certain conditions both strategies can survive in the long-run. Correspondence to: J. Noailly     

Wage inflation and labour conflicts in the Netherlands : An empirical investigation using the co-integration approach

The ‘wage space’, which is defined as the sum of price inflation and labour productivity growth, has played a major role as an indicator of allowable wage increases in the post-war wage negotiations in the Netherlands. This paper shows that: (a) wages and the wage space are co-integrated; (b) the deviation between wages and the wage space may act as an error correction term in the wage equation when both variables are identified as I(2); and (c) political consensus and the threat of labour conflicts (rather than actual strike activity) may be identified as the ‘mechanism’ behind this error correction in the wage equation.     

The dynamics of inter-firm networks in the course of the industry life cycle: the role of appropriability

This paper examines the dynamics of inter-firm networks and introduces a conceptual framework for explaining why inter-firm networks change over time. The framework is based on the idea that patterns of inter-firm linkages are linked to the life cycle development of an industry. Special emphasis is placed on the role of appropriabiliy, i.e. a firm's ability to capture the profits generated by its innovations. The (trans)formation of inter-firm networks in three industries is examined and used to illustrate the relevance of the framwork. One important inference from our study is that public policy makers and manageers should take into account the phase of industry development before implementing policies to create and/or change inter-firm networks.     

Sector-specific capital, “Bang-bang” investment,and the Filippov solution

Bang-bang investment in a two-sector growth model with immobile capital is rational and leads to a unique and globally stable long-run equilibrium along a sliding trajectory. This steady state coincides with the stationary equilibrium in the traditional model with non-sector-specific capital.This article was written while the authors were visiting scholars at Cornell University. We gratefully acknowledge financial assistance from the Erasmus University Trust Fund and the Netherlands Scientific Organization. We would like to thank, without implicating, two anonymous referees, Martijn Herrmann, Jean-Marie Viaene, Claus Weddepohl, and the participants of seminars at the University of Maryland, the University of Montreal, and Erasmus University Rotterdam for perceptive remarks and useful comments. Jeroen Hinloopen and Rien Wagenvoort provided able graphical assistance. The views expressed in this article are those of the authors and not necessarily those of the World Bank.     

A way out of the credibility crisis of models used in integrated environmental assessment

Integrated Assessment Models (IAMs) have been widely used in environmental policy making because they simulate natural and socio-economic systems by integrating knowledge derived from a wide range of disciplines. The current IAMs have been found to be limited due to their inability to display both the value-laden nature of the assumptions that underlie the model and the uncertainties in their outputs. A Post-Normal Science approach is required for dealing with these issues, involving participation of ‘extended peer communities’ providing their ‘extended facts’.