On durable goods markets with entry and adverse selection

Abstract. We investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time. The model is a dynamic version of Akerlof (1970) . Identical cohorts of durable goods, whose quality is known only to potential sellers, enter the market over time. We show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry. Market failure is reflected in the length of waiting time before trade. The model also provides an explanation of market fluctuations. JEL classification: D82 A propos des marchés de biens durables quand il y a entrée de nouveaux commerçants et sélection adverse. Les auteurs analysent la nature du commerce et du triage engendrés par le mécanisme dynamique des prix dans un marché concurrentiel de biens durables quand il y a sélection adverse et entrée exogène de nouveaux commerçants dans le temps. Ce modèle est une version dynamique du modèle d’ Akerlof (1970) . Des cohortes identiques de biens durables, dont la qualité est connue seulement des vendeurs potentiels, arrivent sur le marché dans le temps. Il semble qu’il y ait plus de commerce actif que ce qui est prévu par un modèle statique. En particulier, on montre qu’il existe un équilibre cyclique où tous les biens sont transigés à l’intérieur d’un nombre fini de périodes après leur arrivage et que, à chaque phase du cycle, l’éventail de qualité des biens transigés s’accroît. Les commerçants qui transigent des produits de plus haute qualité attendent plus longtemps et l’imperfection du marché se traduit par la longueur de temps d’attente avant la transaction. Le modèle fournit aussi une explication des fluctuations du marché.     

Entrepreneurship and Unemployment in the UK

The influence of industrial structure, more specifically of entrepreneurship, is investigated on the level of unemployment in the UK. The question is to what extent entrepreneurship, i.e., business ownership can reduce the level of unemployment. The alleged differences between the managed and the entrepreneurial economy will be discussed as well as the links between entrepreneurship and unemployment. It will be concluded that the UK is a relative outlier when using a simple model of the relationship between unemployment and the rate of business ownership. The model is calibrated using recent data of some 23 OECD countries. It underestimates the decrease in unemployment in the UK in the period 1982–1990. Some arguments are brought forward why this might be the case.     

Reporting Discretion and Private Information Communication through Earnings

We model a two-period pure exchange economy where a risk averse manager, who has private information regarding future earnings, is required to issue an earnings report to investors at the end of each period. While the manager is prohibited from directly disclosing her private information, she is allowed to bias reported earnings in the first period, subject to GAAP rules that require that a specified proportion of the bias be reversed subsequently. We show there is a minimum threshold of reversal, such that, when the proportion of required reversal is above this threshold, the manager smooths income and communicates her private information through reported earnings. Consequently, the market attaches greater weight to reported earnings than under a regime that allows no discretion. When the required reversal is below the minimum threshold, the manager increases reported earnings without limit and the equilibrium degenerates. When the manager is not endowed with any private information, the market unravels the "true" earnings and price is unaffected by earnings management. Our results underscore the importance of both allowing and restricting reporting discretion through formal mechanisms.     

Rational expectations in microeconomic models: An overview

This paper is an expository introduction to several topics of current research in the general equilibrium theory of rational expectations. More specifically, we discuss the existence of exact and approximate rational expectations equilibria, the implementation of equilibria, the behavior of learning and smoothing processes by which traders construct expectations from repeated observations of the market, and the lagged use of the information revealed by prices in an intertemporal sequence of markets. The purpose of this discussion is to introduce papers on these topics appearing in the Journal of Economic Theory Symposium on Rational Expectations in Microeconomic Models.     

Limit-pricing as Bertrand equilibrium

Summary. We consider a Bertrand duopoly model with increasing returns to scale where one of the firms have a cost advantage and prices vary over a grid. We find that typically more than one equilibria exist. However, there are only two perfect equilibria. Moreover, as the size of the grid becomes small, both these equilibria converge to the limit-pricing outcome. Received: February 25, 2000; revised version: January 9, 2001     

Building more business with industrial direct mail advertising

One of the most effective tools of promotion in industrial markets, though often misused and little understood, is the proper use of direct mail. This article focuses upon the major considerations, with numerous examples, for planning and executing different direct mail programs.     

宝洁公司在RFID技术应用中的实践

宝洁公司对RFID技术的应用方式非常了解。早在第二次世界大战之后它就开始了RFID技术的研究,并且意识到此项技术的研发能够提供所需的信息和管理办法。当前的供应链系统被看成是到处充满各种暗示的猜谜游戏,因此RFID技术的研究是非常必要的。随着研究工作的不断深入,越来越多的公司加入其中。     

The Evidence on Product-Market Diversifying Acquisitions and Joint Ventures by U.S. Banks

We examine the acquisition and joint venture strategies of U.S. banks from 1980 to 1998 to diversify into non-banking sectors. We find that the market responds favorably to both types of expansions, with the gains being shared between acquiring banks and their targets and venture banks and their non-bank partners, respectively. Acquisitions expose acquiring banks to significant increases in nonsystematic, market, and total risk, while joint ventures result in significant decreases in the nonsystematic and total risk measures for participating banks. Our results suggest that product-market expansions, in general, provide U.S. banks with value-enhancing opportunities, and that joint ventures may improve both the return and risk characteristics of the partner banks.     

Fiscal Consolidation and Decentralisation: A Tale of Two Tiers*

This paper contributes to the established literature on fiscal consolidations by investigating the distinct behaviour of central and sub‐central tiers of government during general government consolidation attempts. In the light of different degrees of decentralisation across OECD countries, and the different responsibilities devolved to sub‐central tiers, we believe that this approach offers an illuminating insight into the analysis of fiscal consolidations and their success. We show that the involvement of the sub‐central tiers of government is crucial to achieving cuts in expenditure, particularly in relation to the overall size of the government wage bill. In addition, central governments appear to exert a strong influence on the expenditure of sub‐central tiers through their grant allocations, and control of these allocations appears to have a considerable impact upon the overall success of consolidation attempts. Finally, we demonstrate that there is a skewness in cuts towards sub‐central capital expenditure both when central governments cut grant allocations and when sub‐central governments engage in lone consolidation attempts.