Additive and Multiplicative Uncertainty Revisited: What Explains the Contrasting Biases?

above the certainty level while for additive uncertainty the price should be lower than the certainty level. This note gives an intuitive explanation for the result after first presenting a parsimonious review of the two models. We also discuss which, if either, of the two models is more realistic. Received December 14, 2001; revised version received July 16, 2002 Published online: April 30, 2003 We thank referees for helpful comments. Ciaran Driver would like to acknowledge the research facilities from ANU, Canberra for their help in writing this paper.     

Product Variety and Real Exchange Rates: The Balassa-Samuelson Model Reconsidered

This paper introduces product variety into the Balassa-Samuelson model in order to extend the model of real exchange rate determination. With product differentiation, real exchange rates depend not only on the relative price of nontradables to tradables but also on relative prices among tradables. This paper identifies a new factor that determines the extent of variety, termed Infrastructural Technology, and that affects real exchange rates not through the relative price of nontradables but through relative prices among tradables. This paper also conducts empirical tests, and the results of these tests support the model. Received May 31, 2001; revised version received March 20, 2002 Published online: April 30, 2003     

Tacit Collusion in a Spatial Model with Delivered Pricing

Received August 5, 1999; revised version received July 20, 2001     

Formation of Cartels in Glove Markets and the Modiclus

Received March 23, 2001; revised version received September 21, 2001     

Choice of Product Variety for the Durable-goods Monopolist

Received January 10, 2001; revised version received June 25, 2001     

Prudence, Intertemporal Substitution, and Savings under Uncertainty

This paper derives the relations between the coefficient of absolute prudence, the equivalent precautionary premium, risk aversion to concentration, and the normality and shift of current consumption under uncertainty, without the time-separable utility assumption. Examples show that Kimball's coefficient of absolute prudence does not fully characterize precautionary saving or saving behavior under uncertainty. It is proved that, whereas a higher rate of intertemporal substitution and a larger coefficient of absolute prudence imply more savings when current consumption is normal, a larger coefficient of intertemporal substitution and a smaller coefficient of absolute prudence imply more savings when current consumption is inferior. Received July 17, 2001; revised version received November 20, 2001     

Market Instability in a Stackelberg Duopoly

m -period duopoly model with inventory costs, where each firm chooses when to produce. We find that, in contrast to most existing works concerning endogenous roles of the firms, no pure strategy equilibrium exists when m is strictly larger than two. This result indicates that no stable pattern of allocation of roles exists except for a two-period model; thus the leader-follower relationship inevitably becomes instable. Received August 1, 2000; revised version received July 20, 2001     

Demand fluctuations and capacity utilization under duopoly

Summary.  This paper studies the impact of uncertain demand on firms’ capacity decisions when they operate in an oligopolistic environment. We define a two-stage game where firms choose capacity in the first stage without knowing which state of Nature is going to realize, and output levels in the second, knowing which state is realized. We prove the existence of a symmetric subgame perfect equilibrium at which firms are in excess capacity compared with the capacity they would choose in the Cournot certainty equivalent game. Received: May 17, 1996; revised version July 31, 1996     

The “Adjustable-curtain” Strategy: Overbooking of Multiclass Service

The “adjustable-curtain” strategy, now commonly practiced by many airline companies, refers to a strategy where the airline adjusts the size of the business-class section of the aircraft shortly before boarding takes place. This strategy enables the carrier to deny boarding of economy-class passengers in an event of a high show-up of business-class (high-paying) passengers by simply enlarging the business-class section at the expense of the economy-class section (and of course, the other way around, in a case of a low show-up of business passengers). This paper develops a simple method of computing a profit-maximizing reservation policy which determines the number of business- and economy-class bookings taking into account that the adjustable-curtain strategy will be utilized prior to boarding. Received July 27, 2001; revised version received October 5, 2001     

Delegation in Oligopoly: Managerial Schemes and Loan Commitments

This paper examines an industry in which firms must arrange financing for the production levels they plan to undertake in equilibrium. Financing can rely on the spot, or it can be obtained from options in the form of loan commitments. In that context, we analyze whether the owners of the firms centralize financing and output decisions or delegate these decisions to managers. We show a multiplicity of equilibria from a number of organizational modes under delegation. An organizational form where the owner decides on short-term financing but delegates production with a long-term managerial scheme is not an equilibrium organizational form. Received November 26, 2001; revised version received June 10, 2002 Published online: February 17, 2003 We thank María-Paz Espinosa and two referees for their helpful comments. We also acknowledge financial support from the Spanish Ministry of Education under projects SEC99-0820 (CICYT) and SEC2002-00266. The usual disclaimer applies.     

Two Models of Intertemporal Price Discrimination

Received December 22, 2000; revised version received August 31, 2001     

Taxation and Labor Markets

We exploit the common features of models such as union, search and efficiency wage models to develop a framework that can be used to analyze the effects of any revenue-neutral tax reform on employment. In particular, we show that taxes paid by workers are not equivalent to taxes paid by firms when taxes are non linear. Moreover, we show that the positive impact of tax progressivity on employment is attributable only to a limited set of hypotheses. Received May 2, 2001; revised version received November 27, 2001 Published online: December 5, 2002     

Jobs,Production Linkages,and the Environment

Received April 29, 2002; revised version received July 12, 2002 Published online: April 30, 2003 We are indebted to two anonymous referees for useful comments. The work described in this paper was supported by a grant from the Research Council of the Hong Kong Special Administrative Region, China (Project No. CUHK 4032/98H) and the Research Center for International Economics of the City University of Hong Kong. The usual disclaimer applies.     

Uncertainty and the size distribution of rewards from innovation

 Previous research has shown that the distribution of profit outcomes from technological innovations is highly skew. This paper builds upon those detailed findings to ask: what stochastic processes can plausibly be inferred to have generated the observed distributions? After reviewing the evidence, this paper reports on several stochastic model simulations, including a pure Gibrat random walk with monthly changes approximating those observed for high-technology startup company stocks and a more richly specified model blending internal and external market uncertainties. The most highly specified simulations suggest that the set of profit potentials tapped by innovators is itself skew-distributed and that the number of entrants into innovation races is more likely to be independent of market size than stochastically dependent upon it.     

Timing of Entry under Externalities

Received August 23, 2000; revised version received May 14, 2001     

The Long-run Trade Pattern in a Growing Economy

We analyze the determinants of the trade pattern in a two-country growing economy. The long-run trade pattern depends on the structure of the absolute advantage as well as the comparative advantage, because the absolute advantage determines the terms of trade and the value of the marginal product of capital which affect the growth rate in our model. Moreover, we find that opening trade reduces or removes the difference in the growth rates of the two countries when the country lagging in the growth rate has a comparative advantage in a consumption commodity. Received June 18, 2001; revised version received July 16, 2002 Published online: April 30, 2003     

Vertical Integration and Market Foreclosure with Convex Downstream Costs

Received December 14, 2000; revised version received July 16, 2001     

Structural Change and Generalized Balanced Growth

This paper addresses the criticism that balanced growth models are inconsistent with the dynamics of structural change characterizing the process of economic development. Using a sectoral disaggregated version of a research-driven growth model, we develop the concept of a generalized balanced growth path (GBGP). Along a GBGP, macroeconomic variables grow at constant rates while disaggregated variables grow at non-constant rates. As a result, balanced growth in macroeconomic aggregates and structural change can occur simultaneously. Received April 3, 2001; revised version received February 20, 2002 Published online: November 11, 2002     

The Timing of Technology Adoption by a Cost-minimizing Firm

Received December 7, 1999; revised version received July 26, 2001     

On Forecasting Heterogeneity, Irrational Exuberance, and the Multiplicity of Rational Expectations Equilibria

Received February 20, 2001; revised version received July 23, 2001