Collective Risk Control and Group Security: The Unexpected Consequences of Differential Risk Aversion

We provide an analysis of odds‐improving self‐protection for when it yields collective benefits to groups, such as alliances of nations, for whom risks of loss are public bads and prevention of loss is a public good. Our analysis of common risk reduction shows how diminishing returns in risk improvement can be folded into income effects. These income effects then imply that whether protection is inferior or normal depends on the risk aversion characteristics of underlying utility functions, and on the interaction between these, the level of risk, and marginal effectiveness of risk abatement. We demonstrate how public good inferiority is highly likely when the good is “group risk reduction.” In fact, we discover a natural or endogenous limit on the size of a group and of the amount of risk controlling outlay it will provide under Nash behavior. We call this limit an “Inferior Goods Barrier” to voluntary risk reduction. For the paradigm case of declining risk aversion, increases in group size(wealth) will cause provision of more safety to change from a normal to an inferior good thereby creating such a barrier.     

STABILIZATION POLICY, LEARNING-BY-DOING, AND ECONOMIC GROWTH

This paper shows that fiscal policy, when used for stabilizationpurposes, can have a positive effect on the economy's growth,on human capital accumulation, and on welfare. We introducestochastic productivity shocks into a model in which productivityis augmented through learning-by-doing If future benefits oflearning-by-doing are not fully internalized by workers, thenrecessions are periods in which opportunities for acquiringexperience are foregone. We identify configurations of disturbancesand other parameters for which a countercyclical policy maximizesgrowth and welfare.     

INVESTMENT IN FIXED CAPITAL AND COMPETITIVE INDUSTRY DYNAMICS

This paper explores the possibilities for complex dynamic behaviourin an industry where a fixed capital good, once acquired andinstalled, is specific to that industry. A central theme isto understand the sorts of factors which can impose bounds onthe behaviour of market price and which can impart stabilityto the system. The analysis highlights the significance notonly of the durability and specificity of physical capital goodsbut also of capacity (under-) utilisation decisions and of thecautiousness of producers when expanding their capacities.     

LABOUR MARKET FLEXIBILITY AND EMPLOYMENT ADJUSTMENT: MICRO EVIDENCE FROM UK ESTABLISHMENTS

In this paper we study how firms react to demand shocks, examininghow different aspects of flexibility shape their responses.Our main findings are: (i) very few firms choose to adjust pricein response to a demand shock; (ii) firms with more flexibilityare more likely to respond to demand shocks by adjusting employmentand hours. Our results provide a microeconomic explanation forrecent macroeconomic evidence that labour input has become moreclosely aligned to the business cycle.     

On Targeting Frameworks And Optimal Monetary Policy

We show that speed limit policy, a monetary policy strategy that focuses on stabilizing inflation and the change in the output gap, consistently outperforms flexible inflation targeting and flexible price level targeting in empirical medium‐scale DSGE models under discretionary policymaking. In contrast to small‐scale New Keynesian models, this welfare ranking of the targeting frameworks is not overturned when inflation dynamics are mostly backward‐looking. Importantly, the performance of the speed limit policy shows less sensitivity to its parameterization than other frameworks that target the inflation rate or the price level.     

The Market for Conflicted Advice

We present a model of the market for advice in which advisers have conflicts of interest and compete for heterogeneous customers through information provision. The competitive equilibrium features information dispersion and partial disclosure. Although conflicted fees lead to distorted information, they are irrelevant for customers' welfare: banning conflicted fees improves only the information quality, not customers' welfare. Instead, financial literacy education for the least informed customers can improve all customers' welfare because of a spillover effect. Furthermore, customers who trade through advisers realize lower average returns, which rationalizes empirical findings.     

Absolute and Relative Restriction and Consumer Behavior: Implications for Understanding Global Consumption

Our premise is that researchers have much to gain from an understanding of the global marketplace experiences of impoverished consumers. We argue that influences of absolute and relative restriction, across peoples and societies, are particularly critical. Therefore, this research makes progress by evaluating consumer data from diverse cultures and nations using hierarchical linear models, revealing ways restriction through poverty and consumption impacts well‐being. We find that understanding both absolute and relative poverty is necessary for a more complete picture. Specifically, interactions show that absolute restriction moderates relationships between relative restriction and consumption and well‐being by muting or exacerbating the effects.