Trade prices and supply in the UK economy

Current account imbalances are a major source of instability in the world monetary and trading system. Measures to correct these imbalances have largely involved adjustments to exchange rates. In the international trade literature, when the current account is in deficit, the Marshall-Lerner condition is sufficient for a successful devaluation. However, this partial equilibrium condition — apart from being based on the assumption that supply elasticities are infinite — abstracts from how the domestic economy responds to the change in relative prices. In this paper we develop a model of price and output determination in an open economy with imperpectly competitive markets, and draw a distinction between goods which are exported and those which are supplied to the domestic market. This means that we have to determine jointly both export prices and the domestic price of house sales. We show that as long as there is no money illusion in the labour market a fall in the nominal exchange rate raises domestic and export prices proportionally and leaves trade volumes unaffected. However, shifts in domestic absorption relative to overseas demand — by changing relative prices — cause shifts in the relative supply of exports and domestically sold goods and affect the trade balance. Thus fiscal and monetary measures directed towards reducing domestic absorption are more likely to be successful in correcting current account imbalances than exchange rate depreciation.     

Prices and Outputs Under Cable TV Reregulation

Cable television reregulation in October 1992 did succeed in constraining subscriber bills about 9% below trend by October 1994. Yet, the growth rate of basic cable television subscribership fell sharply during the period of rate reductions. Only when real rates began rising in the period following October 1994—after an explicit relaxation of controls—did reliable industry output measures return to the pre-regulation growth trend. These data suggest that rate regulation becomes substantially less viable as the complexity of the regulated good increases.     

On the optimal exploitation of interacting resources

The paper demonstrates — partly analytically and partly numerically — that traditional results in resource economics obtained from the study of only one resource do not carry over to ecologically interacting resources. As in the traditional approach, we also employ dynamic optimization. The limiting behavior of the trajectories is first studied analytically by letting the discount rate approach infinity. A numerical study is then undertaken by means of a dynamic programming algorithm in order to explore the fate of the resources for various finite discount rates. The relation of our results to results in optimal growth theory is also discussed.     

Toward improved and practical incentive regulation

The first half of this paper overviews traditional methods of ratemaking—embedded and marginal cost pricing—and four recent alternatives—automatic rate adjustments, profit-sharing, tariff menus, and the Vogelsang-Finsinger convergence mechanism—that have come to challenge them. We develop a list of nine desirable properties that are suitable to gauge any regulatory mechanism. In the second half of the paper, we explore in greater detail two recent incentive plans—the FCC's price caps approach and a mechanism that the three authors proposed in a FERC document. Based on the nine properties, these two mechanisms are compared.     

Ein Vierteljahrhundert der Bedarfstheorie der Versicherung

Ohne ZusammenfassungBenutzte Literatur: Manes, Alfred: Versicherungswesen, System der Versicherungswirtschaft, I. Bd. Allg. Versicherungslehre, 5. Aufl. Leipzig-Berlin: Teubner. 1930. — Art. Versicherung i. Vers.-Lexikon, II. Aufl. 1924. — Der Beruf des Versicherers i. Ass. Jahrb., Bd. 47. Wien. — Moldenhauer, Paul: Versicherungswesen i. Grundriß f. Sozialökonomie, Abt. VII, Tübingen. 1922 — Versicherungswesen, 2 Bde. Sammlung Göschen, 1925. — Wörner, Gerh.: Allg. Versicherungslehre, 3. Aufl. — Gobbi, Ulysses: Die Theorie der Versicherung, begründet auf dem Begriff des eventuellen Bedürfnisses i. Baumgartners Zeitschr. f. Versicherungs-R. u. -Wissenschaft 1896 u. 1897. — Berichte, Denkschriften und Verhandlungen des fünften Intern. Kongresses f. Vers.-Wissenschaft 1906, 3 Bde. — Herrmann, Em.: Die Theorie der Versicherung vom wirtschaftlichen Standpunkt, 1. Aufl. Graz 1869, 3. Aufl. Wien. 1897. — Wagner, Adolph: Der Staat und das Versicherungswesen 1881. — Das Versicherungswesen i. Schönbergs Volkswirtschaftslehre, 4. Aufl., Bd. 2. 1898. — v. Boenigk, O.: Wesen, Begriff und Einteilung der Versicherung vom ökonomischen Standpunkt i. Zeitschr. f. d. ges. Staatsw., Bd. 51,1. 1895. — Elster, L.: Die Lebensversicherung i. Deutschland, ihre volkswirtschaftliche Bedeutung und Notwendigkeit ihrer gesetzlichen Regelung, Jena. 1880. — Gebauer, M.: Die sogenannte Lebensversicherung vom wirtschaftlichen Standpunkt, Jena. 1895. — Krosta, B.: Über den Begriff Versicherung, Berlin. 1911. — Berliner, W.: Kriegsund Nachkriegserfahrungen im Versicherungswesen i. Federns: 10 Jahre Nachfolgestaaten, Österr. Volksw. Wien. 1928. — Braun, Martha St.: Konjunktur und Versicherungswesen im Assekuranz-Jahrbuch, Bd. 49, S. 79ff. Wien. 1930. — Blanck, W.: Das rechtliche und wirtschaftliche Problem der Neuwertversicherung i. Zeitschr. f. d. g. Vers. Wiss., Bd. 27. Berlin. 1927. — Der Versicherungswert in der Schadensversicherung i. Zeitschr. f. d. g. Vers. Wiss., Bd. 28. — Interesse; versichertes Interesse; Motiv i. Zeitschr. f. d. g. Vers. Wiss., Bd. 29. — Die Stelle der Neuwertversicherung in System des VVG i. Jur. Rundschau f. d. Priv. Vers., Bd. 6, Nr. 5. — Eggers, W.: Die Lösung des Problems der Neuwertdeckung in der Feuerversicherung i. Zeitschr. f. d. g. Vers. Wiss., Bd. 29. — Ehrenzweig, Albert: Kann der Feuerversicherer im Versicherungsfalle bei der Bewertung der versicherten Sache auf die Berücksichtigung des Unterschiedes zwischen alt und neu verzichten? i. Mitteilungen f. d. öff. Feuervers. Anstalten, Nr. 3, S. 54ff. u. Nr. 10, S. 116ff. Berlin. 1925. — Ehrenberg, Kurt: Sachlebensergänzungsversicherung (Neuwertversicherung) i. Ass.-Jahrb., Bd. 47. Wien. 1928. — Ehrenberg, Vict.: Privatversicherungsrecht. 1923. — Furlan, S.: Monopol und Konkurrenz in der Lebensversicherung i. Ass.-Jahrb., Bd. 33. Wien. 1912. — Über die technischen Grundlagen des italienischen Versicherungsmonopols i. Ass.-Jahrb., Bd. 34. Wien. 1913. — Hoppe, E.: Versicherung zur Deckung des im Brandschadenfalle aufzubringenden Erwartungsbetrages i. Zeitschr. f. d. g. Vers. Wiss., Bd. 22. — Hupka, Jos.: Der Begriff des Versicherungsvertrages i. Goldschmidts Zeitschr. f. d. g. Handelsrecht u. Konkursrecht, Bd. 66, S. 576ff. Stuttgart. 1910. — Hülsse, Fr.: Die Versicherung als Deckung eines ungewissen Bedarfes i. Zeitschr. f. d. g. Vers. Wiss., Bd. 3, S. 539ff. Berlin. 1903. — Leuckfeld, G.: Die Theorie der Versicherung in der deutschen Wissenschaft i. Zeitschr. f. d. g. Vers. Wiss., Bd. 1, S. 197ff. — Meltzing: Der gesetzliche Zwang zur Anlage der Vermögen in Staatspapieren und die Versicherungsgesellschaften i. Ass.-Jahrb., Bd. 34, S. 113ff. Wien. 1913. — Riebesell, P.: Neuwertdeckung in der Feuerversicherung i. Ass.-Jahrb., Bd. 47, S. 36ff. Wien. 1928. — Rohrbeck, W.: Versicherungswesen und Soziologie i. Ass.-Jahrb., Bd. 31, 2. Teil. Wien. 1910. — Einiges zur Theorie der Versicherung i. Wirtschaft u. Recht d. Vers., Jahrg. 45, S. 228ff. — Vergesellschaftung im Versicherungswesen i. Ass.-Jahrb., Bd. 37, 2. Teil. Wien. 1916. — Schlesinger, Georg: Einbruch-, Veruntreuungs-, Manko-, Tout-Risque-Versicherung i. Öst. Zeitschr. f. öff. u. priv. Vers., H. 1 bis 3, S. 130 bis 152. Wien. 1916. — Zur Frage des Kredits und der Kreditversicherung. Eine wirtschaftstheoretische und wirtschaftspolitische Untersuchung. Berlin. 1929. — Tönnies, Ferd.: Das Versicherungswesen in soziologischer Betrachtung i. Zeitschr. f. d. g. Vers. Wiss., Bd. 17, S. 612ff. Berlin. 1917.     

Averting economic collapse and the solipsism bias

We study the behavior of experimental subjects who have to make a sequence of risky investment decisions in the presence of network externalities. Subjects follow a simple heuristic—investing after positive experiences and reducing their propensity to invest after a failure. This result contrasts with the theoretical findings of Jeitschko and Taylor [Jeitschko, T.D., Taylor, C., 2001. Local discouragement and global collapse: A theory of coordination avalanches. Amer. Econ. Rev. 91 (1), 208–224] in which even agents who have only good experiences eventually stop investing because they account for the fact that others with worse experiences will quit. This can trigger sudden economic collapse—a coordination avalanche—even in the most efficient Bayesian equilibrium. In the experiment, subjects follow their own experiences and disregard the possible bad experiences of others—thus exhibiting behavior that we term “solipsism bias.” Solipsism results in sustained investment activity and thus averts complete collapse.     

Worker heterogeneity and labor market volatility in matching models

Shimer demonstrated that aggregate productivity shocks in a standard matching model cause fluctuations in key labor market statistics—such as the job-finding rate, the vacancy/unemployment ratio, and the unemployment rate—that are too small by an order of magnitude [Shimer, R., 2005. The cyclical behavior of equilibrium unemployment and vacancies. American Economic Review 95 (1) 25–49]. This paper shows that when the standard model is extended to allow for worker heterogeneity, it exhibits considerably greater volatility. In the model, marginal workers, whose productivity only slightly exceeds the value of their alternative use of time, constitute a disproportionate share of unemployment on average, and that share rises when aggregate conditions deteriorate. These composition effects cause firms to open fewer vacancies during downturns.     

Conjectural-variation models and supergames with price competition in a differentiated product oligopoly

Conjectural-variation models (CV models) are popular in empirical research as they infer the degree of market power from real data. Theorists of industrial organization, however, disapprove of them for lack of theoretical foundation arguing that dynamic reactions are forced into a static model with the strategy space and time horizon only loosely defined. The presented model follows an idea put forward by Cabral (1995) and demonstrates that the CV model can be interpreted as the joint-profit-maximizing steady-state reduced form of a price-setting supergame in a differentiated product market under optimal punishment strategies. For the symmetric two-firm case the CV parameter is shown to cover the full range of possible outcomes — from Bertrand competition to joint unconstrained monopoly — depending on the degree of product differentiation, market growth, bankruptcy risk, and the discount rate. For the asymmetric-cost case numerical calculations are provided.     

Market power of firms and exchange-rate fluctuations

This paper explores the potential of firms to restrict industry outputs (market power) in oligopolistically organized markets where domestic firms compete with foreign ones. Within a stochastic price-setting supergame framework, market power is shown to be lower in general with flexible exchange rates for the following reasons. (i) The conditions that the fully collusive outcome—oligopolists maximizing joint profits — is sustainable in equilibrium become stronger if the exchange rate fluctuates, provided that fluctuations are sufficiently small. (ii) Even if full collusion can be sustained, industry outputs will be higher on the average with flexible than with fixed exchange rates.     

Zur Problematik der Zinstheorie

Ohne ZusammenfassungEs ist die Aufgabe der folgenden Untersuchungen, gewisse im Problembilde der Zimstheorie anzutreffende Schwierigkeiten in einer — gegenüber der kapitaltheoretischen Problematick im engeren Sinne — präliminaren Diskussion klarzustellen. Sie bilden eine — wie sich bei der Arbeit am Kapitalprobem herausstellen mußte: notwendige — Voruntersuchung zu einem in Vorbereitung befindichen Beitrag zur Kapitaltheorie, den wir in Kürze vorzulegen hoffen. — Wir möchten bereits an dieser Stelle der Rockefeller-Stiftung, New York, für die Gewährung eines Forschungsstipendiums unseren aufrichtigen Dank aussprechen.     

Afterword on the Five-Year Outlook: Problems and promises

The editors offer a synthesis that reflects the motivations and concerns that underlie this volume and present “some reasonably tempered hopes and future prospects”. Among the former, they discuss “political/ institutional issues” impinging on the Outlook—its purpose, production, users, and feedback—as well as “technical/intellectual” ones. Among the latter, they note that for Outlook reports beyond the second, current signals are that the science policy community will be involved more substantially, and that contributions in general will be decentralized. They foresee the Outlook evolving into a forum for discussion and advocacy of future science-technology priorities.     

Theorie der Spiele und ökonomische Entscheidungsprozesse

Ohne ZusammenfassungBesprechungsaufsatz übera) E. Burger: Einführung in die Theorie der Spiele. — Mit Anwendungsbeispielen, insbesondere aus Wirtschaftslehre und Soziologie. 169 S. Berlin: Walter de Gruyter & Co. 1959. DM 28,—.b) R. D. Luce und H. Raiffa: Games and Decisions. Introduction and Critical Survey. 509 S. New York: John Wiley & Sons, Inc. — London: Chapman & Hall Ltd. 1957. $ 8,75.c) M. Shubik: Strategy and Market Structure. Competition, Oligopoly and the Theory of Games. X, 387 S. New York: John Wiley & Sons, Inc. — London: Chapman & Hall Ltd. 1959. $ 8,—.d) S. Karlin: Mathematical Methods and Theory in Games, Programming, and Economics. Vol. I: Matrix Games, Programming, and Mathematical Economics. X, 427 S. Vol. II: The Theory of Infinite Games. XI, 386 S. Reading, Mass. — London: Addison-Wesley Publishing Company, Inc. 1959. — Je Band $ 10,75. Diesererste Teil behandelt zunächst das Lehrbuch von Burger.     

Is error learning behaviour stabilizing?

It is very commonly admitted that error-learning behaviour in general improves the stability of dynamical economic evolutions. We show here, in the context of Temporary General Equilibrium Theory, that such an intuition is not true, in the sense that “most often,” for a large class of models, learning does not assuredly leads to more stable dynamics. The presentation of the problem then allows for a discussion of the type of hypothesis—very high levels of information or very careful behaviours—which can invalidate such a conclusion.     

Models of water market mechanisms and an illustrative application to the Middle East

The growing demand by countries in the eastern Mediterranean over the waters of the Jordan and Yarmuk Rivers, and the highly depleted coastal and mountain groundwater reservoirs, raise the need to explore ways and means to ameliorate existing and expected water scarcity. Economists have for some time proposed ways towards more efficient exploitation of existing water supplies, specifically by employing market incentive mechanisms in order to encourage voluntary water sharing among countries and regions. Such trading schemes may involve two or more countries. It can be shown that such schemes — given any initial assignment of property claims to water resources — can often lead to increases in the welfare of the countries concerned.The paper proposes two specific mechanisms for international markets in water claims in the eastern Mediterranean region, in which parties voluntarily engage in such trades, as they would expect to gain real benefits from these transactions. Simulation exercises with real data show that — as is true for any opening of markets to international trade — that all parties in the region might benefit to a greater or lesser degree from auctions of water.     

On the relation between voting intention and the perception of the general economic situation : An empirical analysis for the Federal Republic of Germany, 1972–1986

The main question of this paper is whether consistent government voters have — ceteris paribus — a more positive perception of the general economic situation than do opposition voters. First, some empirical evidence is presented which is usually thought to support this hypothesis. Next, a theoretical model is presented which shows that this evidence is not conclusive and how this hypothesis can be tested correctly. Empirical evidence for the Federal Republic of Germany, 1972–1982, shows that government voters generally had a more positive perception during this period than did traditional opposition voters, but this evidence is far from being overwhelming.     

Designing tax policy in federalist economies: An overview

The emerging economic federations of the European Union, Russia, and South Africa, along with the established federations in Australia, Canada, and the United States, confront the task of designing the institutions for federal fiscal policy. This paper reviews the literature on the design of tax policy in federalist economies. We conclude that taxation by lower level governments can lead to significant economic inefficiencies and inequities. The usual ‘assignment’ view of federalis recommends central government policies — for example, resident-based taxation or grants-in-aid — to correct these failures. These recommendations assume that the central government will act as a benevolent social planner. The ‘political economy’ view of federalism suggests that this assumption is in error and that additional federalist institutions must be considered. Alternative legislative structures and constitutional rules are considered.     

A prospective on macrocybernetic process management systems

In an editorial in the February 1996 issue of Technological Forecasting and Social Change Professor Linstone noted that “the rapid pace of technology has not been matched by the pace of human change.” Were we to drop our perspective a bit lower, a similarly troublesome imbalance within technology itself becomes apparent: the rapid rate of increase in the complexity of process-related technologies relative to the much slower rate of increase in the sophistication of process control systems. The conclusion at which most technological forecasts seem to arrive is that there will be a continuation—perhaps even an acceleration—of the trend toward more intricate and sweepingly extensive processes (production-related and otherwise). If so, there is the specter of a steadily increasing shortfall between requirements and capabilities, and hence the likelihood of even grander technological embarrassments. This article considers two ways in which this shortfall might be kept in check. Increases in the intricacy of processes can be met, and to a considerable extent are already being met, by exchanging conventional process control facilities for enhanced alternatives. Less certain is how expansions of project scope might best be accommodated. One possibility is to consider exchanging process control systems for broader-purview process management systems. Hence the focus in this article is on prospects for the development of macrocybernetic constructs.     

Tax competition,tax coordination and tax harmonization: The effects of EMU

There is little doubt that the step towards a monetary union in Europe will increase both the distorionary effects of existing differences in national tax systems and the intensity of tax competition for internationally mobile commodity and factor tax bases. This paper discusses selected issues of commodity and capital tax coordination that are likely to be affected by monetary unification. Starting from the distortive present scheme of value-added taxation in Europe we first analyze the effects of a switch to a general origin-based VAT as a way to maintain national tax rate autonomy over this important tax base. While an origin-based VAT would neither distort trade flows — both within the EU and with third countries — nor investment decisions in the long-run, its short-run effects are likely to be severe in the absence of exchange rate flexibility. In the field of capital taxation the focus switches to the feasibility of regional harmonization measures when there is no cooperation with the rest of the world. We argue that in a monetary union the mobility costs of capital will be significantly lower within the EU as compared to outside investments. This provides an efficiency argument for minimum source taxes on both interest income and corporate profits even if cooperation with third countries is infeasible.     

Unfolding Social Hierarchies

Consider a large population of finitely-lived agents organized into n different hierarchical levels. Every period, all those placed at each level are randomly matched to play a given symmetric game. Based on the resulting outcome, a ρ-fraction of agents who (within their own level) attain the highest payoffs are promoted upwards. On the other hand, newcomers replacing those who die every period enter at the lowest level and choose irreversibly the strategy to be played for the rest of their life. This choice is made, with some noise, by imitating one of the strategies adopted at the highest level.  In this setup, the unique long-run behavior of the system is fully characterized for the whole class of 2×2 coordination games and two alternative variations of the model. The results crucially depend on the key “institutional” parameters ρ and n. In particular, it is shown that inefficient behavior prevails in the long run (even when risk-dominated) if promotion is only mildly selective—high ρ—and the social system is quite hierarchical—large n. In a stylized manner, these parameter conditions may be viewed as reflecting a sort of institutional deficiency that impairs economic performance. Journal of Economic Literature Classification Numbers: C70, C72, C73, D72.