ENVY, INSTITUTIONS AND GROWTH

The use of interdependent preferences provides an intuitive link between institutions and growth. Envious agents that care about relative wealth choose to use an available destruction technology to inflict harm on the wealth of other agents when institutions fail to make property rights secure, while they use a production technology to increase their wealth when institutions make it easy and hassle-free to engage in production. The use of interdependent preferences is justified by an extensive literature and can provide a motive for agents to take actions that block growth in the absence of theft or other concrete gains.     

Implementation with partial provability

We extend implementation theory by allowing the social choice function to depend on more than just the preferences of the agents and allowing agents to support their statements with hard evidence. We show that a simple condition on evidence is necessary for the implementation of a social choice function f when the preferences of the agents are state independent and sufficient for implementation for any preferences (including state dependent) with at least three agents if the social planner can perform small monetary transfers beyond those called for by f. If transfers can be large, f can be implemented in a game with perfect information when there are at least two players under a boundedness assumption. For both results, transfers only occur out of equilibrium. The use of evidence enables implementation which is robust in the sense that the planner needs little information about agents? preferences or beliefs and agents need little information about each others? preferences. Our results are robust to evidence forgery at any strictly positive cost.     

Livestock emissions regulation with unknown damages and strategic technology adoption

Livestock emissions have been identified as a contributor to greenhouse gas build-up yet have remained unregulated in the US. A game-theoretic model in the style of Tarui and Polasky (2005) was analysed where the dairy industry strategically chooses to abate air emissions with technology adoption and herd size decisions while a regulator chooses a tax rate on emissions to satisfy the desires of competing interest groups. This model allows the effects of potential air emission regulation on the dairy industry to be evaluated. Results demonstrate that dairy farms react to the increased cost of air regulation by decreasing herd size rather than investing in air emission abatement technology in the short run. This suggests that incentives may need to be put in place to induce adoption in emissions abatement technology at the livestock level in the long run.     

Interim efficient allocations under uncertainty

This paper considers an exchange economy under uncertainty with asymmetric information. Uncertainty is represented by multiple priors and posteriors of agents who have either Bewley's incomplete preferences or Gilboa-Schmeidler's maximin expected utility preferences. The main results characterize interim efficient allocations under uncertainty; that is, they provide conditions on the sets of posteriors, thus implicitly on the way how agents update the sets of priors, for non-existence of a trade which makes all agents better off at any realization of private information. For agents with the incomplete preferences, the condition is necessary and sufficient, but for agents with the maximin expected utility preferences, the condition is sufficient only. A couple of necessary conditions for the latter case are provided.     

Sushi or Fish Fingers? Seafood Diversity,Collapsing Fish Stocks,and Multispecies Fishery Management*

We present a model of a multispecies fishery, and we show the following. (i) Consumer preferences for seafood diversity can trigger a sequential collapse of fish stocks under open‐access fishery. (ii) The stronger the preferences are for diversity, the higher is the need for coordinated multispecies regulation. (iii) Second‐best optimal management of only one (or a few) species is less strict than socially optimal management of the same species. (iv) Myopic regulation of one species, ignoring spillovers to other species, can cause depletion of other stocks that would not be depleted under open access.     

Endogenous technological change with leisure-dependent utility

Summary. This paper investigates the effect of introducing leisure-dependent utility into two models of endogenous technological change. Due to the flexibility in the labour supply the dynamics of the models change significantly. It is shown that if agents attach enough value to leisure in comparison to consumption two balanced growth paths may exist. This implies that economies with the same preferences and the same technology may experience different long-run growth rates. Received: October 17, 1997; revised version: January 6, 1999     

TAXATION IN MATCHING MARKETS

We analyze the effects of taxation in two-sided matching markets where agents have heterogeneous preferences over potential partners. Our model provides a continuous link between models of matching with and without transfers. Taxes generate inefficiency on the allocative margin, by changing who matches with whom. This allocative inefficiency can be nonmonotonic, but is weakly increasing in the tax rate under linear taxation if each worker has negative nonpecuniary utility of working. We adapt existing econometric methods for markets without taxes to our setting, and estimate preferences in the college-coach football market. We show through simulations that standard methods inaccurately measure deadweight loss.     

Time-inconsistent preferences in a general equilibrium model

This paper introduces time-inconsistent preferences in a multicommodity general equilibrium framework with incomplete markets. The standard concept of competitive equilibrium is extended in order to allow for changes in intertemporal preferences. Depending on whether or not agents recognize that their intertemporal preferences change, agents are called sophisticated or naïve. This paper presents competitive equilibrium notions for economies with naïve agents and economies with sophisticated agents and provides assumptions under which both types of equilibria exist. Surprisingly, the set of naïve equilibria in societies populated by time-consistent households is not allocationally equivalent to the set of competitive equilibria. For sophisticated equilibria, the equivalence holds. Time-inconsistency also raises conceptual issues about the appropriate concept of efficiency. Choices have to be made concerning the incorporation of future preferences and the appropriate instruments to create Pareto improvements. For both naïve and sophisticated societies, we present four possible efficiency concepts. Suitable conditions are specified for which both naïve and sophisticated equilibria satisfy appropriate efficiency concepts.     

Global equilibrium dynamics with stationary recursive preferences

We study the global dynamics of capital accumulation for a general two-sector model which is not necessarily convex and where preferences of an infinitely-lived agent are stationary but not additively separable. We obtain monotonicity and convergence results for capital under ‘normality’ assumptions on preferences and factor intensity assumptions on technology. We then derive results on oscillatory dynamics under alternative factor-intensity conditions or under the assumption of inferiority of ‘future utilities’. Finally, in an exchange model with two agents we show that utilities will be monotonic or oscillatory depending on the normality or inferiority of the preferences.     

Strategy-proofness versus efficiency for small domains of preferences over public goods

Summary. It has long been known that when agents have von Neumann-Morgenstern preferences over lotteries, there is an incompatibility between strategy-proofness and efficiency (Gibbard, [9]; Hylland, [12]) – a solution satisfying those properties must be dictatorial. We strengthen this result by showing that it follows from the same incompatibility on a series of much smaller domains of preferences. Specifically, we first show the incompatibility to hold on our smallest domain, in which two agents are restricted to have linear preferences over one private good and one public good produced from the private good (Kolm triangle economies). This result then implies the same incompatibility on increasingly larger domains of preferences, ending finally with the class of von Neumann-Morgenstern preferences over lotteries. Received: February 6, 1997; revised version: January 29, 1998     

Sociological versus strategic factors in bargaining

Most game-theoretic models of strategic interaction, indeed most economic models of any sort, specify potential outcomes entirely in terms of the preferences of the agents, as captured in their (possibly cardinal) utility functions. The underlying assumption is that the outcome of such interactions is determined entirely by these preferences, together with the strategic possibilities available to the agents. The purpose of this paper is to challenge the adequacy of this assumption in general, by investigating it in the specific context of two-person bargaining. In particular, we consider whether certain experimental results reported earlier can be accounted for strictly in terms of players' preferences and strategic possibilities, and we report a new experimental study designed to answer this question. The results strongly support the conclusion that sociological factors, unrelated to what we normally consider to be the ‘economic’ parameters of a game, can decisively influence the outcome of bargaining, in a systematic manner.     

Generous actors,selfish actions: markets with other-regarding preferences

This paper points out that classical competitive outcomes arise in two different market environments even if agents have non-classical preferences. Consumers with separable, other-regarding preferences behave as if they have classical preferences in competitive equilibrium. These outcomes need not be efficient, but under plausible conditions will be efficient following a redistribution of income. In simple double-auction environments competitive outcomes arise under a wide range of assumptions on preferences even without assuming separability. I discuss the importance of the domain of definition of preferences and how the preferences present in the economy influence the performance of the trading institution.

Incomplete preferences and rational intransitivity of choice

Do violations of classical rationality theory imply that agents are acting against their self-interest? To answer this question, we investigate whether completeness and transitivity necessarily hold when agents choose outcome rationally—that is, their choice sequences do not lead to dominated outcomes. We show that, because of the danger of money pumps and other manipulations, outcome rationality implies that agents must have transitive psychological preferences. Revealed preferences, on the other hand, must be complete since agents can be forced to choose from any set of options. But these justifications of transitivity and completeness cannot be combined. We show that if psychological preferences are incomplete then revealed preferences can be intransitive without exposing agents to manipulations or violating outcome rationality. We also show that a specific case of nonstandard behavior, status quo maintenance, is outcome-rational in the simple environments considered in the experimental literature, but not in more complex settings.     

Experts against adverse selection: A note on the existence of equilibrium with costly appropriable information

The existence of competitive equilibrium in Laffont's (J. Econ. Theory10 (1975)) model of adverse selection with costly information is studied. The existence of an equilibrium with finite prices is demonstrated without unusual restrictions on preferences or the technology of information production. This is made possible by changing the way in which the behaviour of information producing agents is modelled, and allowing for some public information.     

Risk perceptions,voluntary contributions and environmental policy

This article studies the effect of uncertainty on agents’ voluntary contributions to environmental quality. There is uncertainty in future environmental quality and we consider a heterogeneity in individuals’ risk perception. In this context, the social optimum can be decentralized by means of tax-financed government subsidies to private provision. We distinguish the case of a government that represents perfectly agents’ preferences from the case of a government with its own risk preferences. In the two cases, we show that neutrality still holds.     

Preference shocks from aggregation: time series data evidence

Abstract.  We investigate the impact of preference shocks on the aggregate dynamics of the U.S. economy in the context of a neoclassical growth model derived from aggregation. The aggregation result we use is as follows: if markets are complete and if agents have identical preferences of the addilog type, then the heterogeneous‐agent economy where agents are subject to idiosyncratic productivity shocks behaves as if there was a representative consumer who faces shocks to preferences and technology. We estimate the parameters in the aggregation‐based model from the aggregate time‐series data and compute the numerical solution. We find that the preference shocks play an important role in the aggregate labour‐market fluctuations. JEL classification: C73, D90, E21     

Population Monotonicity and Egalitarianism for Binary Social Choice Problems

We consider the class of binary social choice problems. A society must choose one of two public projects, money being available to perform side payments and each agent having quasi-linear preferences. Moulin (1987, Quarterly Journal of Economics 102 , 769–783) formulates the problem and characterizes the egalitarian solution on the basis of agreement . This axiom requires that changes in the preferences of some members of the society should affect the agents whose preferences have not changed in the same direction; all gain or all lose. In this paper, we present an alternative characterization of the egalitarian solution on the basis of population monotonicity. This axiom requires that upon the arrival of new agents, all of the original agents should be affected in the same direction; all gain or all lose.     

The dynamics of risk-sensitive allocations

This paper describes Pareto optimal allocations when agents have risk-sensitive preferences as formulated by Hansen and Sargent (IEEE Trans. Automat. Control 40(5) (1995) 968-971). Necessary and sufficient conditions are given for the existence and stability of steady states at which Pareto weights are time-invariant. When all agents are risk-sensitive with the same power reward function there is a unique interior steady state which is stable when the power is positive and unstable when the power is negative. When there is at least one agent with time-additive preferences eventually all risk-sensitive agents have zero Pareto weights.     

Policy mix to foster innovation in the Dominican Republic: attempts from an empirical perspective

ABSTRACT

This paper aims to understand firms’ preferences for incentives to foster innovation in Dominican firms. A key research question arises: What are the most preferred science, technology, and innovation (STI) policy options to support innovation in Dominican firms? This research relies on the concept of policy mix and the conjoint analysis to support the empirical approach. Over 300 firms were surveyed across the country, and we discovered that Dominican firms prefer more complex STI policy options, including at the same time research grants, guarantee funds, and tax incentives to support several kinds of innovative activities. But also, firms need to understand the potential of available options such as tax credit and other monetary instruments, including guarantee funds. It is concluded that in the medium and long term, the STI policy mix approach could support as part of the Dominican policy agenda, an economic transition toward a more resilient and competitive economy.     

Altruism and Determinacy of Equilibria in Overlapping Generations Models with Externalities

This paper deals with an OLG model with production and a single commodity, in which agents are assumed altruistic and the aggregate production function contains external effects. I prove that, if the technology satisfies a minor assumption, which encompasses positive and negative externalities, some curvature conditions on the utility function ensure local determinacy of stationary and period 2 equilibria. I prove that non-separable, strictly concave preferences are a fundamental ingredient for the occurrence of indeterminate equilibria. Finally, considering the case of unbounded growth, I establish that for any utility and production functions a unique balanced growth path is globally determinate.
JEL Classification Numbers: C62, E32