AVAILABILITY OF HIGHER EDUCATION AND LONG‐TERM ECONOMIC GROWTH*

In the present paper, we examine the economic growth effects of a limited availability of higher education in a simple endogenous growth model with overlapping generations. It is shown that this limited availability might promote economic growth by increasing aggregate savings. If the supply of human capital is restricted, its price remains high and a large share of aggregate output is distributed to young households, which need to save for their old age. When this growth‐enhancing effect is strong enough, an excessive increase in availability leads to a shortage of investable funds, which substantially reduces economic growth.     

THE RISK‐FREE RATE IN A FINITE HORIZON MODEL WITH BEQUESTS

This paper studies the risk‐free rate in an overlapping generations economy with bequests. It is shown that the risk‐free rate depends on risk aversion, the elasticity of intertemporal substitution, the share of wealth invested in human wealth, life expectancy, and the preference for bequests. In a standard life‐cycle context, mortality increases the subjective time rate of discount, and thus increases the compensation required to postpone consumption. This latter effect is offset in a bequest‐driven model of the type considered here, leading to much more powerful income effects. In this sense, the model provides a bequest‐motive explanation for the risk‐free rate puzzle put forward by Weil in 1989.     

A THREE‐STEP PROCEDURE FOR ESTIMATING AND TESTING COINTEGRATED ARMAX MODELS*

To deal with a variety of inferential problems on non‐stationary cointegrated time series, this paper proposes a computationally feasible method based on the Whittle likelihood and examines its performance. For the empirical application of our method, the paper investigates three sets of Japanese and US monetary and financial time‐series data. To evaluate the p‐value of the likelihood ratio statistic, we propose an approximation procedure based on the gamma distribution and the accompanying Laguerre expansion for reducing the computational burden. We also provide a numerical procedure for the asymptotic covariance matrix of the Whittle estimator.     

PRODUCT MARKET AND THE SIZE–WAGE DIFFERENTIAL*

Using directed search to model the product market and the labor market, I show that large plants can pay higher wages to homogeneous workers and earn higher expected profit per worker than small plants, although plants are identical except size. A large plant charges a higher price for its product and compensates buyers with a higher service probability. To capture this size‐ related benefit, large plants try to become larger by recruiting at high wages. This size–wage differential survives labor market competition because a high wage is harder to get than a low wage. Moreover, the size–wage differential increases with the product demand when demand is initially low and falls when demand is already high.     

SECTOR‐SPECIFIC EXTERNALITIES AND STATUS PREFERENCES IN THE UZAWA‐LUCAS MODEL*

This paper shows that introducing preferences for social status based on human capital holdings modifies the finding of Gómez (2004 ) that sector‐specific externalities associated with human capital in the goods sector do not violate the optimality of the competitive economy in the Uzawa–Lucas model. The effect of an increase in the degree of sector‐specific externalities is qualitatively the same as that of an increase in the strength of the desire for status. Hence, paradoxically, a greater degree of sector‐specific externalities makes human capital accumulation more excessive from the social point of view.     

SEQUENTIAL TWO‐PLAYER GAMES WITH AMBIGUITY*

If players' beliefs are strictly nonadditive, the Dempster–Shafer updating rule can be used to define beliefs off the equilibrium path. We define an equilibrium concept in sequential two‐person games where players update their beliefs with the Dempster–Shafer updating rule. We show that in the limit as uncertainty tends to zero, our equilibrium approximates Bayesian Nash equilibrium. We argue that our equilibrium can be used to define a refinement of Bayesian Nash equilibrium by imposing context‐dependent constraints on beliefs under uncertainty.     

STRATEGIC CANDIDACY AND SINGLE‐PEAKEDNESS*

In elections, the voting outcomes are affected by strategic entries of candidates. We study a class of voting rules immune to strategic candidacy. Dutta et al. (2001 ) show that such rules satisfying unanimity are dictatorial if all orderings of candidates are admissible for voters’ preferences. When voters’ preferences are single‐peaked over a political spectrum, there exist non‐dictatorial rules immune to strategic candidacy. An example is the rule selecting the m‐th peak from the left among the peaks of voters’ preferences, where m is any natural number no more than the number of voters. We show that immunity from strategic candidacy with basic axioms fully characterizes the family of the m‐th leftmost peak rules.     

THE EXPECTED NUMBER OF COOPERATORS IN THE N‐PERSON PRISONERS’ DILEMMA WITH RANDOM ORDER MOVES*

The present paper examines the possibility of cooperation occurring in the N‐person prisoners’ dilemma, played with randomly ordered moves and imperfect information. To take into account imperfect cooperation, the degree of cooperation is evaluated in terms of the expected number of cooperators. It is shown that: (i) the expected number of cooperators is maximized at an equilibrium, a combination of strategies each of which is a type of trigger strategy; (ii) the maximum expected number of cooperators is attained in a state of imperfect cooperation for a range of payoff functions; and (iii) the maximum expected number of cooperators is non‐decreasing when the size of players’ group increases.     

FIRST‐BEST FISCAL POLICY WITH SOCIAL STATUS*

This paper examines the first‐best fiscal policy in a stochastic, infinite‐horizon representative agent model that exhibits consumption‐enhanced as well as wealth‐enhanced social status in the household utility. We show that the first‐best labour tax rate is a positive constant that is used to correct negative consumption externalities. The first‐best tax rate on capital income is also positive in order to overturn agents' status‐seeking capital over‐accumulation. Moreover, we find that in sharp contrast to a conventional automatic stabilizer, the first‐best capital tax rate moves in the opposite direction with shocks to firms' production technology, thus exacerbating the business cycle.     

SUNK COSTS OF CAPITAL AND THE FORM OF ENTERPRISE: INVESTOR‐OWNED FIRMS AND WORKER‐OWNED FIRMS*

ABSTRACT ** : This paper examines implications of sunk costs of capital for efficient forms of enterprise. It is assumed that firm owners and outside traders are asymmetrically informed of venture risks, and that there are sunk costs associated with investment in physical and human capital. We then make an efficiency comparison between investor‐owned and worker‐owned firms. We find that the firm is efficient when it is owned by the input supplier (the investor or worker) who incurs large sunk costs. This is because such an input supplier can credibly signal to the other input supplier that he in fact has a safe project. An empirical study based on the Japanese manufacturing industry seems to support the theoretical result.     

AUCTIONS,EX POST COMPETITION AND PRICES: THE EFFICIENCY OF PUBLIC‐PRIVATE PARTNERSHIPS*

ABSTRACT ** : Using an original database concerning 1102 French local public authorities in 2001, we explore the relationships between prices charged by private operators in water contracts and ex post competition. We show that prices charged in contracts in which operators are in a monopoly situation throughout the duration of the contract, are not affected by a ‘competition effect’ between private operators. However, a competition effect between private operators and public management appears to be crucial in explaining prices combined with a ‘termination effect’, reflecting the fact that the contract is close to being renewed, and hence re‐auctioned.     

A NONCOOPERATIVE SHIPPING COURNOT DUOPOLY WITH LINEAR‐QUADRATIC TRANSPORT COSTS AND CIRCULAR SPACE*

The mixed strategy equilibria in a location quantity duopoly model with circular markets are investigated. We find that a continuum of equilibria exists when the transport cost function is linear. However, if costs are strictly concave or convex, most strategies fail to qualify as equilibria. For any integer n, there are nondegenerate mixed strategy equilibria in which each firm locates at n possible locations with equal probability. This result explains possible outcomes in which firms’ on‐path locations are not minimally or maximally differentiated.     

ENDOGENOUS TIME PREFERENCE,INTEREST‐RATE RULES,AND INDETERMINACY*

This paper extends the Benhabib et al. flexible‐price, money‐in‐the‐utility‐function model by considering endogenous time preference and re‐examines equilibrium indeterminacy in response to alternative interest‐rate rules. We show that either an active or a passive interest‐rate feedback rule can generate local indeterminacy even if consumption and real money balances are Edgeworth independent. This result is in sharp contrast to that in the related literature. We also find that in the presence of endogenous time preference, local indeterminacy may occur regardless of whether the monetary policy is based on the interest‐rate feedback rule or money growth‐rate targeting.     

CAPITAL–LABOUR SUBSTITUTION AND ENDOGENOUS FLUCTUATIONS: A MONOPOLISTIC COMPETITION APPROACH WITH VARIABLE MARKUP*

This paper analyses an overlapping generations model with endogenous product diversity where strategic interactions between producers are introduced; it examines how they affect the stability properties of the steady state. Because of free entry, strategic interactions between producers imply a new dynamic feature, markup variability, promoting indeterminacy and endogenous cycles. Indeed, in contrast to the model without strategic interaction, endogenous fluctuations can occur when the substitution between the production factors, capital and labour, is not too weak, but in accordance with empirical estimates.     

INEFFICIENT LOCK‐IN AND SUBSIDY COMPETITION*

This article studies a subsidy game among two asymmetric regions in a new trade model. Capital can freely move among regions, but capital rewards are repatriated to the region of residence. The activity of the modern sector is associated with positive spillovers. We study subsidy competition, starting from an equilibrium where the industry core is inefficiently locked in to the smaller region. When regions weigh workers’ and capitalists’ welfare equally, subsidy competition results in a relocation of industry to the larger region, restoring an efficient allocation. When workers’ welfare is weighted more heavily, the smaller (core) region may pay subsidies that are high enough to prevent a relocation of industry.     

LABOUR‐MARKET ATTACHMENT AND TRAINING PARTICIPATION*

This paper examines how expected attachment to the labour market and expected tenure at a specific firm affect training participation. The results, based on cross‐sectional data from Japan, indicate that expected attachment to the labour market affects participation in both employer‐ and worker‐initiated training, while expected tenure at a specific firm mainly explains participation in employer‐initiated training. These two attachment indices explain more than two‐thirds of the sex gap in training participation. Employers in less‐competitive labour markets are more likely to offer employer‐initiated training to their workers.