A theory of formal conceptual definitions: developing theory-building measurement instruments

This study develops the need for formal conceptual definitions (sometimes called nominal definitions) and how to develop better measurement instruments for theory-building. It develops the underlying theory for ‘good’ formal conceptual definitions by defining terms, demonstrating that formal conceptual definitions are needed for all theory-building empirical research, explains how and why ‘good’ formal conceptual definitions are used to develop properties and their measures, and last, it logically explains that good formal conceptual definitions are necessary conditions for construct validity (content validity, criterion validity, convergent validity, and discriminant validity) while statistical tests are sufficient conditions for validity. This theory development explains why formal conceptual definitions are necessary before any traditional statistical empirical validity tests are performed. This study suggests that any statistical validity tests are not meaningful if the concept is not formally defined.In short, the theory of formal conceptual definitions provides a structure to develop ‘good’ measures of the formal theory that leads to ‘good’ empirical theory-building.     

Pareto optimality in continuous-time OLG economies

The aim of this paper is the achievement of a complete characterization of the Pareto optimality of competitive equilibria for deterministic, pure exchange, continuous-time economies with a countable number of overlapping generations, where each consumer’s life-span consists in a bounded interval of time. For such an environment, we obtain separate sufficient and necessary conditions for Pareto optimality in the form of the Cass’ criterion, that is, in terms of the equilibrium prices. However, these conditions are not equivalent in general. Therefore, in order to get that equivalence we are compelled to impose certain restrictions, either on consumers’ lifetimes, assuming that all of them have the same longevity, or on the dynamic behaviour of relative intertemporal equilibrium prices. In both cases, we are able to derive a single condition that is sufficient and necessary for efficiency, thus achieving full characterizations.     

Restricted houseswapping games

Restricted houseswapping games (RHGs) are a generalization of ‘one-sided matching games’, in which we specify a class II* of ‘allowable’ simple trading cycles. The cores of such games may be empty. Given II*, all possible closed RHGs have non-empty cores of II* is ‘strongly balanced’. Examples include the one-sided matching markets (^{Shapley and Scarf. Journal of Mathematical Economics 1974. 1. 23–37}. ^{Tijs et al., OR Spektrum 1984, 6, 119–123}; ^{Quinzii, International Journal of Game Theory 1984, 13, 41–60}) and the two-sided matching markets (^{Gale and Shapley. American Mathematical Monthly 1962. 69, 9–16}; ^{Shapley and Shubik, International Journal of Game Theory 1972, 1, 111–130}: and ^{Demange and Gale Econometrica 1985, 53, 873–888}).We then consider the subclass of RHGs in which there is no transferable resource. In this case, a weaker condition on II*, called ‘weak balancedness’, is sufficient to guarantee core non-emptiness. In addition, if II* is not weakly balanced, then there exists a preference profile such that the strict core of the resultant game is empty.Several other examples are given of II* that are (a) strongly balanced: (b) weakly balanced but not strongly balanced: and (c) not even weakly balanced.Finally, we discuss the issues of equilibrium definition, existence, and core-equilibrium allocation equivalence in RHGs.     

Self-organized criticality in evolutionary systems with local interaction

This paper studies a stylized model of local interaction where agents choose from an ever increasing set of vertically ranked actions, e.g. technologies. The driving forces of the model are infrequent upward shifts (‘updates’), followed by a rapid process of local imitation (‘diffusion’). Our main focus is on the regularities displayed by the long-run distribution of diffusion waves and their implication on the performance of the system. By integrating analytical techniques and numerical simulations, we come to the following two main conclusions. (1) If non-coordination costs are sufficiently high, the system behaves critically, in the sense customarily used in physics. (2) The performance of the system is optimal at the frontier of the critical region. Heuristically, this may be interpreted as an indication that (performance-sensitive) evolutionary forces induce the system to be placed ‘at the edge of order and chaos’.     

The latin model of welfare: Do ‘insertion contracts’ reduce long-term dependence?

This paper aims to present an assessment of the welfare policies implemented in most South European countries. Welfare programs in these countries try to combine a basic level of economic protection and measures favoring life and labor skills (‘insertion benefits’) of low-income households. We focus on a specific program set up with the twofold strategy of cash and ‘insertion benefits’ (Madrid's IMI) and, more precisely, on the so-called ‘insertion projects’, consisting in a gradual mix of job search assistance, training and subsidized jobs. We evaluate the effects of these ‘insertion projects’ on welfare recidivism and the duration of off-welfare spells using propensity score-matching methods. Our results suggest that propensity score estimators appear to reduce selectivity due to non-random participation. Both recidivism rates as well as the duration of off-welfare spells suggest potentially successful interventions.     

The Diversity and Causality of Welfare State Reforms Explored with Fuzzy-Sets

The introduction of fuzzy-sets into social science has potentially improved our ability to study diversity by means of the so-called partial memberships. As a consequence, social phenomena can be studied empirically as a matter of degree and not longer as fixed types. A fuzzy-set is a set with elements whose membership grades can have any real value between 0 and 1. In order to illustrate the capacities of the fuzzy set logic and also to make the discussion less abstract, it will be applied to the study of welfare state reforms. The ‘grading capacity’ of fuzzy-sets makes it possible to study welfare states as partial members of different welfare state regimes at the same time. This approach reveals the diversity of welfare reforms better than traditional ways which are often inclined to picture a case as representative of one particular type which is a too crude classification. Fuzzy-sets are designed to capture the diversity in a way that leaves more room to map individual cases without falling into the trap of idiosyncrasy. An equally important ability of fuzzy-sets is to analyse causal relationships in a small-n design. The fuzzy-set logic can be used to determine necessary and sufficient conditions for an outcome. This takes the form of expressions which reveal multiple-conjunctural causation patterns. In this paper the conditions for welfare cutbacks and the effects on socio-economic performance will be examined.     

Existence of competitive equilibrium under financial constraints and increasing returns

This paper studies a ‘factor cost in advance’ model with increasing returns in production. In the model both partial equilibrium and general equilibrium may exist since working capital of firms limit their input demand. We provide a sufficient condition for the existence of partial equilibrium of a firm operating on a non-convex choice set. Furthermore we establish the existence and uniqueness of competitive equilibrium in the special case of logarithmic utility.     

Modeling monetary policy as an unobserved variable

This paper presents a model of the U.S. Monetary Authority. It is assumed that monetary policy is a single dimensioned unobserved variable that links changes in a set of ‘causal’ variables representing economic goals and changes in money market ‘indicator’ variables. Several issues are examined pertaining to the weights attached to the causal variables including: the lag structure, changes over time, and asymmetric effects of positive and negative changes. As a by product of the model, the paper presents an estimated index of monetary policy for the years 1955–1975.     

Inside the queue:: hypercongestion and road pricing in a continuous time–continuous place model of traffic congestion

This paper develops a continuous-time–continuous-place dynamic economic model of traffic congestion, based on car-following theory. The model integrates two archetype congestion technologies used in the economics literature: ‘static flow congestion’ and ‘dynamic bottleneck congestion.’ With endogenous departure times and a bottleneck along the route, ‘hypercongestion’ arises as a dynamic equilibrium phenomenon on the upstream road segment. Congestion tolls based on an intuitive dynamic and space-varying generalization of the standard Pigouvian tax rule can hardly be improved upon. A naïve application of a toll schedule based on Vickrey's bottleneck model performs much worse and reduces welfare in the numerical model.     

Networked creativity: a structured management framework for stimulating innovation

The effect of today's turbulent environment means that organisations need to improve their competitive advantage and swiftly respond to changing technology and markets. An organisation's ability to continuously innovate its products and business systems is essential to its future success. However, this ability to stimulate innovation is highly dependent upon the stock of potential ideas and problem solutions, which is available to feed the innovation process. These ‘seedlings of innovation’ are the product of the creative processes of an organisation. Whilst continuous, sustainable innovation is an essential competitive capability for future organisational success, to date the creative process has been allowed to operate in an ‘ad hoc’ and serendipitous fashion. Continuous innovation means that organisations need to be able to effectively manage their creative processes to ensure their innovation process has a plentiful supply of good ideas and solutions. To this end, a framework for enhancing networked creativity is presented as a means towards the effective management of the creative process within organisations.     

Forecasting international telecommunications traffic by the data translation method

In forecasting the future international telecommunications traffic for individual countries, a global international view may provide a better long-range view of future trends rather than one based on observing individual countries separately. We propose a data translation method to achieve this. The method properly translates the traffic data per person for a group of countries along the time axis and ‘joins’ them together to form a single logistic or exponential forecasting curve. A necessary and sufficient mathematical condition for the method to be applied is given. Estimation of these curves is then considered. Forecasts are briefly shown for the telephone and telex examples, which demonstrate the improved accuracy that can be achieved relative to simple models based on individual country's trends.     

Social dumping and relocation: is there a case for imposing a social clause?

Public opinion in Europe seems worried about the relocation of production plants toward low wage countries often accused of practicing ‘social dumping’. To reduce the incentives for relocation trade unions proposed the adoption of ‘social clauses’ protecting domestic markets from commodities produced in countries where minimal labor condition are not met. We analyze the effects of the adoption of a social clause in a vertically differentiated Bertrand duopoly. We assess how such a policy affects firms’ relocation decisions in order to be able to assess its welfare implications. We also characterize the optimal social clause policy, both under domestic welfare maximization, and from an efficiency point of view. While we show that a social clause policy cannot be dismissed on domestic (or world) welfare grounds, its case is weaker the higher is the domestic wage and the lower is the foreign wage.     

Evaluation of supplier capability and performance: A method for supply base reduction

Development of partnership with suppliers is widely recognised today as a potent tool for supply chain improvement. To develop an effective partnership, it is necessary to have a small supply base and an effort to reduce the supply base to a manageable level. Despite its overwhelming importance, models of supply base reduction are rare. Supplier sorting methods, used for pre-selection of suppliers and sometimes seen as methods for supply base reduction, have limitations ranging from (1) requirement of an exhaustive database of historical information (case-based reasoning), (2) inability to predefine the number of elements in a cluster (cluster analysis) and (3) inability to identify suppliers who are both highly capable as well as high performers (data envelopment analysis). In the present work, we develop a systematic framework for carrying out the supply base reduction process. The study assumes two important dimensions of suppliers—performance and capability. Performance of a supplier represents short-term effects on the achievement of supply chain objectives while supplier capability indicates long-term effects. Many of the performance and capability factors are imprecise in nature. In order to account for the imprecision involved in numerous subjective characteristics of suppliers, we use fuzzy set approach to measure the imprecision of these factors and rank a potential list of suppliers against their performance and capability. We then display their ranks in a ‘capability–performance matrix’ that helps a decision maker arrange the suppliers in decreasing order of preference. The desired numbers of suppliers are finally selected on the basis of this ordered list. The suggested framework will be of immense help to the practising managers in reducing the supply base—a prerequisite for building a strong supplier partnership and developing an effective supply chain.     

Towards a common understanding of the differences between purchasing, procurement and commissioning in the UK public sector

This paper recognises that commissioning has now become an important term in the lexicon of UK public policy but the term ‘commissioning’ is taking on a different meaning than that traditionally used within the purchasing and supply management community. The frequent inter-changeability of the terms ‘commissioning’, ‘procurement’ and ‘purchasing’ is now causing confusion and means different things to different people. Therefore the academic community needs to help practitioners understand the differences and implications. A document analysis of various UK Central Government departments’ commissioning frameworks was used to establish the key themes and compare commissioning, procurement and purchasing. This paper discusses the similarities and differences, and argues that commissioning is different from procurement, but that commissioning offers major opportunities for Procurement practitioners to make a strategic contribution.     

Limited arbitrage is necessary and sufficient for the existence of an equilibrium

In Chichilnisky (Working Paper No. 586, 1991), Chichilnisky (Working Paper No. 650, 1992) and Chichilnisky (Economic Theory, 1995, 5, 79–108), I introduced the concept of a global cone and used it to define a condition on endowments and preferences, ‘limited arbitrage’, which I showed to be necessary and sufficient for the existence of a competitive equilibrium. In response to a comment (Monteiro et al., Journal of Mathematical Economics, 1997, 26, 000-000), I show here that the authors misunderstood my results by focussing on brief announcements which cover other areas, social choice (Chichilnisky, American Economic Review, 1994, 427–434 and algebraic topology (Chichilnisky, Bulletin of the American Mathematical Society, 1993, 29, 189–207), rather than on the publication which contains may proofs on equilibrium. The comment's example is irrelevant to my results in Chichilnisky (Economic Theory, 1995, 5, 79–108) because it starts from different conditions. Limited arbitrae is always necessary and sufficient for the existence of a competitive equilibrium, with or without short sales, with the global cones as I defined them, and exactly as proved in Chichilnisky (Economic Theory, 1995, 5, 79–108).     

Theoretical tests of the rational expectations hypothesis in economic dynamical models

This paper examines different theoretical stability tests of infinite-horizon rational expectations equilibria. These ‘tests’ have different status: two of them express that the considered equilibrium is ‘isolated’ [neither (non-sunspot) equilibria (test 1) nor (well-behaved) sunspot equilibria exist in a neighbourhood (test 2)] and two of them are learning criteria [either standard ‘evolutive learning’ (test 3) or game-theoretical ‘eductive’ learning (test 4)]. Surprisingly, these four tests select the same steady state equilibria in the class of one-dimensional one-step-forward looking economic models. The extension of this equivalence theorem to n-dimensional and then more complex systems is discussed.     

Dynamic programming for non-additive stochastic objectives

We derive the existence of an optimum and the techniques of dynamic programming for non-additive stochastic objectives. Our key assumption for non-negative objectives is that asymptotic impatience exceeds asymptotic ‘mean’ growth, where ‘mean’ growth is derived not only from intertemporal inelasticity and the random return on investment but also from the curvature of the non-additive stochastic aggregator (i.e. the ‘certainty equivalent’). We provide broad families of new, interesting, and tractable examples. They illustrate that ‘mean’ growth can exist even when the distribution of returns has unbounded support, that power discounting often implies infinite asymptotic impatience, and that non-positive objectives are easily handled with few restrictions on growth.     

Linear-quadratic approximation, external habit and targeting rules

We examine the linear-quadratic approximation of nonlinear dynamic stochastic optimization problems. A discrete-time version of Magill [1977a. A local analysis of N-sector capital accumulation under uncertainty. Journal of Economic Theory 15(2), 211–219] is generalized to models with forward-looking variables paying special attention to second-order conditions. This is the ‘large distortions’ case in the literature. We apply the approach to monetary policy in a DSGE model with external habit in consumption. We then develop a condition for ‘target-implementability’, a concept related to ‘targeting rules’. Finally, we extend the approach to a comparison between cooperative and non-cooperative equilibria in a two-country model and show that the ‘small distortions’ approximation is inappropriate for this exercise.     

Approximation of convex preferences

It is shown geometrically that a monotone concave preference order can be approximated by orders representable by a concave utility function. This is applied to proving that preferences with ‘desirable’ properties (such as inducing smooth excess demand functions, analyticity, strict convexity) are dense.     

Aggregate stock market behavior and investors’ low risk aversion

This paper studies whether investors’ high risk aversion can be avoided in a representative-agent model that is able to explain aggregate stock market behavior in the US financial market. We present a consumption-based asset pricing model with a representative agent who has a ‘catching up with the Joneses’ preference to show that high risk aversion can be avoided in a representative-agent model that can help explain many of the empirically observed properties of the aggregate stock market return, including the equity premium and risk-free rate puzzles, the predictability of long-horizon stock returns, and the ‘leverage effect’ in return volatility.