Petrol Price Cycles

This article provides an overview of the burgeoning academic literature on price dynamics and price cycles in retail petrol markets. I first present evidence of petrol price cycles and studies that describe what types of petrol markets tend to exhibit price cycles. I further discuss empirical investigations of firms’ pricing strategies in cycling markets. In light of the empirics, I outline theories of competition and consumer demand in petrol markets that help us understand various facets of petrol price cycles.     

HELPING BEHAVIOR IN LARGE SOCIETIES

This article investigates how helping behavior can be sustained in large societies in the presence of agents who never help. I consider a game with many players who are anonymously and randomly matched every period in pairs. Within each match, one player may provide socially optimal but individually costly help to the other player. I introduce and characterize the class of “linear equilibria” in which, unlike equilibria used in the previous literature, there is help even in the presence of behavioral players. Such equilibria are close to a tit‐for‐tat strategy and feature smooth help dynamics when the society is large.     

MARKUPS AND THE REAL EFFECTS OF VOLATILITY SHOCKS

This article studies the role of endogenous markups in the transmission of volatility shocks in real models. I design a variant of a small open economy model with volatility shocks and firm dynamics that gives rise to endogenous markups. I calibrate this model to match the business cycle facts in emerging economies and show that the impact of volatility shocks is substantially amplified if markups are endogenously time varying. Volatility shocks increase savings, due to precautionary motives, and markups, which act as a wedge that endogenously decreases real wages and labor supply with further negative aggregate dynamics that are absent in the models with constant markups.     

Sunspot fluctuations in dynamics with predetermined variables

Summary. In this paper, I study the existence of Sunspot Equilibria in a general framework whose dynamics allow for the presence of predetermined variables in the system. The main motivation for this research comes from the fact that previous studies did not allow for such predetermined variables which, nevertheless, appear quite naturally in economic models. I show, for a non-negligible subset of dynamics with predetermined variables verifying usual assumptions, the existence of Stationary Sunspot Equilibria fluctuating between an arbitrary finite number of states arbitrarily close to a steady state. Received: March 1, 1995; revised version September 18, 1996     

Long run equilibria in an asymmetric oligopoly

Summary. Consider an oligopolistic industry composed of two groups (or populations) of firms, the low cost firms and the high cost firms. The firms produce a homogeneous good. I study the finite population evolutionarily stable strategy defined by Schaffer (1988), and the long run equilibrium in the stochastic evolutionary dynamics based on imitation and experimentation of strategies by firms in each group. I will show the following results. 1) The finite population evolutionarily stable strategy (ESS) output is equal to the competitive (or Walrasian) output in each group of the firms. 2) Under the assumption that the marginal cost is increasing, the ESS state is the long run equilibrium in the stochastic evolutionary dynamics in the limit as the output grid step, which will be defined in the paper, approaches to zero. Received: September 19, 1997; revised: June 18, 1998     

Optimal Allocation of Tradable Pollution Rights and Market Structures

Tradable environmental rights are increasingly pursed as a regulatory instrument, to control for environmental quality. However, in the presence of market power, regulation through an allocation of tradable rights generally yield inefficient outcomes. This article analyzes the effect of the initial distribution of tradable rights on the firms’ strategies and performance in abatement and production, and proposes an efficient criterion for the allocation of tradable rights among firms with market power and competitive fringe firms. The suggested criterion maximizes efficiency of the market based regulation. A simple numerical example illustrates the theoretical discussion.I am very grateful to Richard J. Sexton for useful comments and suggestions. I also wish to thank Giacomo F. Bonanno, the editor, anonymous referees, and participants at the CORE workshop “Industrial Economics and the Environment” (2004) for helpful discussions and comments that improved the paper.     

A characterization of strategic complementarities

I characterize games for which there is an order on strategies such that the game has strategic complementarities. I prove that, with some qualifications, games with a unique equilibrium have complementarities if and only if Cournot best-response dynamics has no cycles; and that all games with multiple equilibria have complementarities. As applications of my results, I show that: (1) generic 2×2 games either have no pure-strategy equilibria, or have complementarities; (2) generic two-player finite ordinal potential games have complementarities.     

THE PROPAGATION OF UNCERTAINTY SHOCKS: ROTEMBERG VERSUS CALVO

This article studies the effects of uncertainty shocks on economic activity, focusing on inflation. Using a vector autoregression, I show that increased uncertainty has negative demand effects, reducing GDP and prices. I then consider standard New Keynesian models with Rotemberg-type and Calvo-type price rigidities. Despite the belief that the two schemes are equivalent, I show that they generate different dynamics in response to uncertainty shocks. In the Rotemberg model, uncertainty shocks decrease output and inflation, in line with the empirical results. By contrast, in the Calvo model, uncertainty shocks decrease output but raise inflation because of firms' precautionary pricing motive.     

The labor injunction and peonage—how changes in labor laws increased inequality during the Gilded Age

In this article, I seek to fill a gap in the literature by analyzing how central changes in labor laws shaped intrafirm power dynamics and thus income inequality during the Gilded Age and Progressive and New Eras. For the North, I look at the increasing activism of courts, to the detriment of many state and local legislatures, in creating and expanding the use of the labor injunction. For the South, I look at how the states, supported by the courts, created a system of peonage that directly affected large portions of southern labor and lasted well into the 20th century.     

Using Fast and Slow Processes to Manage Resources with Thresholds

Economists have relied on convexity assumptions for a long time but many natural resources that stem from ecosystems have non-convexities in their dynamics. This article illustrates the consequences of relaxing convexity assumptions for management and the role of fast and slow variables. The paper presents a general framework to handle systems with fast and slow variables, and illustrates the method using a model of coral reefs subject to fishing pressure. The insights obtained are used to discuss alternative management strategies.

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Electronic Supplementary Material Supplementary material is available in the online version of this article at .      

Unstable and stable steady-states in the Kiyotaki-Wright model

Summary. I provide new results concerning dynamics for a version of the Kiyotaki-Wright model (1989) in which strategies (either mixed or pure) are restricted so that agents play the same strategy for each opportunity set. My results demonstrate the importance of examining stability in such models, because they show that many steady states focused on in the literature are not stable. Furthermore, I exhibit examples of two-period-convergent equilibria in which agents are indifferent among media of exchange. Consequently, their endogenous transaction pattern is analog to the coexistence of assets whose acceptability or “liquidity” varies inversely with their rates of return. Received: June 21, 1996; revised version: December 2, 1996     

Dynamically stable sets in infinite strategy spaces

Evolutionary game theory has largely focused on finite games. Dynamic stability is harder to attain in infinite strategy spaces; Bomze [Bomze, I., 1990. Dynamical aspects of evolutionary stability. Monatsh. Math. 110, 189–206] and Oechssler and Riedel [Oechssler, J., Riedel, F., 2001. Evolutionary dynamics on infinite strategy spaces. Econ. Theory 17, 141–162] provide conditions for the stability of rest points under the replicator dynamics. Here, conditions are given for the stability of sets of strategies under this process.     

SOCIAL INTERACTIONS IN LARGE NETWORKS: A GAME THEORETIC APPROACH

This article studies estimation of social interactions in a large network game, where all observations come from one single equilibrium of a network game with asymmetric information. Simple assumptions about the structure are made to establish the existence and uniqueness of the equilibrium. I show that the equilibrium strategies satisfy a network decaying dependence condition requiring that dependence between two players' decisions decay with their network distance, which serves as the basis for my statistical inference. Moreover, I establish identification and propose a computationally feasible and efficient estimation method, which is illustrated by an empirical application of college attendance.     

Marx and Kalecki on aggregate instability and class struggle

Abstract

Michal Kalecki developed his original model of the business cycle in the early 1930s. Several versions referred as versions I, II and III have been developed until the late 1960s from which Kalecki draw three central propositions on instability and class struggle: (1) the capitalist system “cannot break the impasse of fluctuations around a static position” unless it is shocked by “semi-exogenous factors”, (2) the dynamics of the profit rate and investment – as in version I and II – may be disconnected from “class struggle” and (3) when class struggle impacts the dynamics of the economy – as in version III – this is happening in a context in which expected profitability of new investment projects is negatively related to the profit share. In this article, we want to show that each of these three proposals represents key differences with Marx.     

MODEL UNCERTAINTY AND EXCHANGE RATE VOLATILITY*

This article proposes an explanation for shifts in the volatility of exchange‐rate returns. Agents are uncertain about the true data generating model and deal with this uncertainty by making inference on the models and their parameters' approach, I call model learning. Model learning may lead agents to focus excessively on a subset of fundamental variables. Consequently, exchange‐rate volatility is determined by the dynamics of these fundamentals and changes as agents alter models. I investigate the empirical relevance of model learning and find that the change in volatility of GBP/USD in 1993 was triggered by a shift between models.     

Services liberalization and global value chain participation: New evidence for heterogeneous effects by income level and provisions

Participation in global value chains (GVCs) is a key element in the industrialization strategies of many developing nations. This paper investigates the role of services liberalization in promoting participation in GVCs. Using the gravity framework, I examine the impact of services trade agreements on gross trade and GVC trade (backward and forward participation) in goods. I find that services trade agreements promote both, but especially GVC trade, although the effects are heterogeneous: the impact is bigger for developing nation exporters. Moreover, services agreements that allow the export of services without local presence (nonestablishment rights) are particularly important in fostering GVC participation.     

Government payments,market profits and structural change in agriculture

I analyze the interaction of two institutions, markets and public policies, and their effect on structural change in agriculture. More specifically, I consider how subsidies affect functioning of input and output markets, and the selection of business strategies within them. The main hypothesis is that subsidies affect these markets differently, and that allows rent-seeking that hinders the overall productivity of the sector. I apply a replicator dynamics model for the task. I test my hypothesis with the EU’s 2003 CAP reform. The data is comprehensive microdata of Finnish grain and oilseed farms for years the 2004–2013. In order to examine distributional level shifts, I use quantile regression techniques. I find that the policy incentives have directed sectoral change more strongly than market incentives and have thus significantly affected production decisions. The subsidies have also attenuated the market signals and therefore increased sectoral inefficiency. The reform that aimed to improve market orientation has had little effect. The reform has affected structural change in input and output markets differently. While land use adjustment has become more rigid for all the farms, especially the more market oriented ones have been able to exploit increased output market flexibility. However, the negative effects are more prominent in total and the net effect of the reform was negative.     

Brown–von Neumann–Nash dynamics: The continuous strategy case

Brown and von Neumann introduced a dynamical system that converges to saddle points of zero sum games with finitely many strategies. Nash used the mapping underlying these dynamics to prove existence of equilibria in general games. The resulting Brown–von Neumann–Nash dynamics are a benchmark example for myopic adjustment dynamics that, in contrast to replicator dynamics, allow for innovation, but require less rationality than the best response dynamics. This paper studies the BNN dynamics for games with infinitely many strategies. We establish Nash stationarity for continuous payoff functions. For negative semidefinite games (that include zero sum games), we generalize the results of Brown and von Neumann. In addition, we show that evolutionarily robust Nash equilibria are asymptotically stable. A complete stability analysis for doubly symmetric games is also obtained.     

A STUDY OF PARTICIPATION IN DYNAMIC AUCTIONS

This article studies repeated entry and bidding decisions in construction procurement auctions. I find evidence in the data that suggests the presence of significant cost savings from entering contracts of the same type. I estimate a dynamic auction model to measure the gains to experience for bidders. I allow for endogenous entry, synergies in entry, and unobserved auction heterogeneity. I find that a bidder can halve entry costs by focusing on specific contract types. An auctioneer can increase competition by awarding contracts of the same type in sequence. As a result, procurement costs for each contract can be lowered by 7%, a saving of $110,000.     

Strategy-Specific Barriers to Learning and Nonmonotonic Selection Dynamics

The replicator dynamics are generalized to allow for strategy-specific barriers to learning. The resulting dynamics satisfy neither payoff monotonicity nor payoff positivity, but do satisfy weak payoff positivity. It is shown that initial states from which trajectories converge to a rest point under the replicator dynamics may yield trajectories which approach a stable limit cycle under the generalized replicator dynamics. Furthermore, strategies which are strictly dominated by other pure strategies may survive indefinitely along such nonconvergent paths.Journal of Economic LiteratureClassification Numbers: C73.