Welfare Analysis of a Fiscal Reconstruction Policy in an Overlapping Generations Economy with Public Investment

Constructing an endogenously growing overlapping generations model with public investment, we examine the welfare effects of a fiscal reconstruction policy. In this paper we define a fiscal reconstruction policy as a policy where the government reduces its spending level without changing the tax revenue and allocates the surplus of the revenue to redeem public debt. We show that if government spending is not productive it is possible that a fiscal reconstruction policy improves the utilities of both the current and future generations, while if government spending is productive it can harm the utilities of both generations. Received February 26, 2002; revised version received July 8, 2002 Published online: February 17, 2003     

Capital Maintenance and Investment: Complements or Substitutes?

This paper studies the properties of demand for capital maintenance services and its interaction with investment under variable capital utilization rate and adjustment costs. The depreciation rate varies with the maintenance effort and the utilization rate of capital. We show that the properties of the demand functions for maintenance services and capital goods depend closely on the sign of the cross derivative of the depreciation function, i.e., on whether the marginal efficiency of maintenance decreases or increases when the rate of capital utilization rises. In our model, it is impossible to reconcile some unquestionable empirical facts and some minimal regularity conditions on the demand function for maintenance services if this cross derivative is positive. In all cases, investment and maintenance are gross complements. Received September 9, 2001; revised version received April 22, 2002 Published online: December 5, 2002 ? Springer-Verlag 2002     

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     

Expected Future Budget Deficits,the Real Exchange Rate and Current Account Dynamics in a Finite Horizon Model

This paper uses an optimizing open economy general-equilibrium model to investigate the macroeconomic effects of current and expected future budget deficits. It is shown that current and expected future budget deficits are positively correlated with the current account deficit, the capital stock and the real exchange rate, but negatively correlated with the domestic real interest rate and consumption, along the stable path approaching the steady state. The paper also demonstrates that the world real interest rate is positively correlated with consumption, foreign assets and the domestic real interest rate, but negatively correlated with the capital stock and the real exchange rate. Received April 11, 2001; revised version received October 25, 2001     

Human Capital,Technology, and Specialization: A Comparison of Developed and Developing Countries

GDP GDP function framework, and apply it to panel data. We find that factor supplies and openness to trade are important factors influencing the structure of production, but we also uncover interesting differences in results across output sectors and groups of countries. In addition, we find evidence that Hicks-neutral technological differences do not affect specialization. Finally, our results on the effect of openness highlight the sources of conflicts between developed and developing countries in multilateral trade negotiations. Received April 18, 2000; revised version received January 8, 2001     

Self-Reporting and Ex Post Asymmetric Information

We consider a model of optimal law enforcement where sanctions are reduced for self-reporting individuals. Violators get private signals about their individual probabilities of apprehension after they committed a crime. Since violators will self-report if and only if the signal is above a specific threshold, the possibility of self-reporting has an option value that leads to a higher crime rate if the authority's effort remains unchanged. We demonstrate that self-reporting nevertheless increases social welfare even under the restriction that the crime rate must not be higher than without self-reporting. Received June 15, 2001; revised version received December 19, 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     

Semicollusion vs. Full Collusion: The Role of Demand Uncertainty and Product Substitutability

We examine the profitability of two different cartel organizational forms: full collusion, under which firms collude on both price and quality, and semicollusion, under which firms collude on price only. We show that, in the presence of demand uncertainty that cannot be contracted upon in the cartel agreement, firms may be better off limiting their collusive agreement to price only. However, a positive relationship between demand uncertainty and the relative profitability of semicollusion exists only for low levels of demand substitutability. The converse is true for high levels of demand substitutability. Therefore, if demand substitutability is sufficiently high, no level of demand uncertainty will make semicollusion the optimal organizational form. In contrast, semicollusion is guaranteed to be optimal for a sufficiently low level of demand substitutability. The market structure described is motivated by and closely parallels that of shipping cartels. Received September 29, 2000; revised version received December 10, 2001 Published online: November 11, 2002     

The (Price) Core of a Bertrand–Edgeworth Economy

In this paper, a solution concept from cooperative game theory is applied to a special kind of oligopolistic markets. Traditionally, oligopoly theory uses non-cooperative game theory. The cooperative solution concept, the Price Core, has been specially developed for this paper. In contrast to the Core, in the Price Core, different consumers may pay different prices for the same commodity. An example shows that the set of competitive allocations may be a proper subset of the Core and that the Core may be a proper subset of the Price Core. Received July 24, 2001; revised version received February 25, 2002 Published online: December 5, 2002