The Copeland rule and Condorcet’s principle

Summary. The purpose of this note is to shed some light on the relationship between the Copeland rule and the Condorcet principle in those cases where there does not exist a Condorcet winner. It will be shown that the Copeland rule ranks alternatives according to their distances to being a Condorcet winner.Received: 30 July 2003, Revised: 31 December 2003, JEL Classification Numbers: D70, D71.Christian Klamler: I am very grateful to Daniel Eckert and Nick Baigent for their helpful comments.     

From “tax state” to “debt state”

The paper is motivated by Joseph A. Schumpeter's The Crisis of the Tax State. It inquires whether the buildup of government debt in peacetimeprosperity is a threat to the stability, existence or creation of viable tax states. The paper begins by setting out Schumpeter's conception of the tax state and the nature of recent political-economic events which have reinvigorated the concept. Next the paper sets out some simple debt dynamics and sketches a debt-induced business cycle arising from heavy reliance on debt finance in peacetimeprosperity. Finally, the paper assesses threats to the tax state in light of recent work on path dependence and positive feedback. An attempt is made to throw some light on whether the plethora of new, and often small, states spawned by the demise of communism can be viable tax states.Essay on Government, the Tax State and Economic Dynamics submitted to the Third Schumpeter Prize Competition.     

On economic disequilibrium and free lunch

There is a sharp disagreement between mainstream economists and advocates of energy efficiency as regards the potential for free lunches or no regrets policies to cut greenhouse gas emissions. From an economics perspective, the critical question is whether the economic system is — or is not — close to a Pareto-optimum equilibrium state. If so, it follows that most technological systems now in place are optimum, or nearly so, from an economic perspective. If not, there may be many sub-optimal technologies in place, with corresponding opportunities for very high returns on appropriate investments. This paper presents some of the evidence supporting the latter thesis.     

Bankruptcy games and the Ibn Ezra’s proposal

Summary. This paper explores an old solution for bankruptcy problems, described by Ibn Ezra in the XII century. Particularly, we introduce a new way of extending the Ibn Ezras proposal, the Generalized Ibn Ezra solution, by imposing that the general distribution principle from which it is inspired remains fixed. In this context, we follow the interpretation of bankruptcy problems in terms of TU games given in ONeill (1982), and propose the analysis of the Transition Game associated to bankruptcy problems to provide a characterization for the Generalized Ibn Ezra solution.Received: 14 October 2003, Revised: 26 May 2004, JEL Classification Numbers: C71, D63, D71. Correspondence to: José Alcalde: alasur@merlin.fae.ua.esWe are grateful to Carmen Herrero, Juan de Dios Moreno, William Thomson and an anonymous referee for helpful comments. Authors work is partially supported by the Institut Valenciá dInvestigacions Económiques. Alcalde and Silva acknowledge support by FEDER and the Spanish Ministerio de Educación y Cultura under project BEC 2001-0535. Marco acknowledges support by the Fundación Séneca, and the Spanish Ministerio de Educación y Cultura under projects SEC2000-0838 and BEC 2001-0781.     

“Buy Domestic” Campaigns and Optimal Tariffs

This paper attempts to analyze the strategic use of optimal tariffs and to examine the effects of national bias on the optimal trade policy and social welfare in a two-country, two-good, price competition model derived from Neven et al. (1991). The major findings are as follows. (1) If all consumers prefer the domestic good, then buy domestic campaigns will decrease the prohibitive tariff rate and increase local welfare. (2) If at least some consumers prefer the foreign good, but not to a great extent, then buy domestic campaigns will not change the optimal tariff rate, but may improve local welfare. (3) When all consumers greatly prefer the foreign good, then promotion of buy domestic decreases the optimal tariff rate, but it cannot improve social welfare. With this framework, we also prove that buy domestic campaigns serve as a substitute for tariffs with respect to a strategic trade policy.     

Climate Policy without Tears CGE-Based Ancillary Benefits Estimates for Chile

This study examines a hithertoneglected set of benefits from climate policy,viz., the reduction in emissions of localair pollutants and the associated healthbenefits, in this case for residents ofSantiago de Chile. By using an economy-widemodel, we are able to compare these monetisedbenefits to the direct costs of carbonabatement, thereby determining the scope for no regrets CO₂ reductions. Sensitivityanalysis is performed in recognition of theuncertainty surrounding certain key parameterand exogenous variable values – notably,households' willingness to pay (WTP) forreduced mortality and morbidity risk, and thesubstitution elasticities among energy sourcesand between energy and other inputs. Ourresults suggest that, even with the mostconservative assumptions (low WTP, lowelasticities), Chile could reduce CO₂emissions by almost 20% from the 2010 baselinewith no net welfare loss, though a 10%reduction is closer to optimal. If insteadChile were to target a 20% reduction inparticulate concentrations, a particulate taxwould incur slightly lower costs than anequivalent carbon tax to achieve the samehealth benefits. While the latter is asecond-best method of addressing localpollution, the welfare loss of choosing thisinstrument could be fully compensated by carboncredit sales at a world market price of$20/tC.     

On the evolutionary edge of altruism: a game-theoretic proof of Hamilton’s rule for a simple case of siblings

We offer a game-theoretic proof of Hamiltons rule for the spread of altruism. For a simple case of siblings, we show that the rule can be derived as the outcome of a one-shot prisoners dilemma game between siblings.JEL Classification: A13, C70, D64Correspondence to: Oded Stark, ZEF, University of Bonn, Walter-Flex-Strasse 3, 53113 Bonn, GermanyWe are indebted to an anonymous referee and to Uwe Cantner for helpful comments and suggestions. Partial financial support from the National Institute on Aging (grant RO1-AG13037) and from the Humboldt Foundation is gratefully acknowledged.     

Efficient markets and Bayes’ rule

Summary. A series of financial anomalies motivated the development of new theories that modify the rational expectations ideal. Two possibilities have been systematically explored. The literature on behavioral finance relaxes the assumption that agents form beliefs according to the laws of probability and assume, instead, that simpler heuristic rules are used. Another stream of the literature assumes that agents process information according to Bayes rule, but do not posses sufficient information to know the true data generating process. In this paper, Bayesian and Behavioral agents coexist and trade in a standard dynamic asset pricing model. A long-standing conjecture is demonstrated. It is shown that, under suitable assumptions, Bayesian agents drive Behavioral, non-Bayesian agents out of the market. Hence, asset prices are eventually determined under the Bayesian paradigm.Received: 3 June 2004, Revised: 17 September 2004, JEL Classification Numbers: D83.Preliminary versions have circulated under the titles Markets Favor Bayesian Models and Market Selection of Empirical Models under Limited Information. I thank Larry Blume, David Easley, Larry Epstein, Armando Gomes, Bruce Hansen, Lars Hansen, Richard Kihlstrom, Grace Koo, George Mailath, Werner Ploberger, Andrew Postlewaite and Shakeeb Khan for useful comments. I also thank participants at the NBER GE meetings, Evolutionary Finance conference in Zurich, Latin American Meetings of the Econometric Society, Stanford Institute for Theoretical Economics, the Instituto de Matematica Pura e Aplicada, the theory seminar at Brown, Chicago, Harvard-MIT, Minnesota, Penn and Wisconsin. I gratefully acknowledge the financial support from the National Science Foundation Grant SES 0109650.     

Two new proofs of Afriat’s theorem

Summary. We provide two new, simple proofs of Afriats celebrated theorem stating that a finite set of price-quantity observations is consistent with utility maximization if, and only if, the observations satisfy a variation of the Strong Axiom of Revealed Preference known as the Generalized Axiom of Revealed PreferenceReceived: 12 June 2003, Revised: 9 October 2003, JEL Classification Numbers: D11, C60.Correspondence to: A. Fostel     

Productivity and Employment in the Information Economy: What Kaldor’s and Verdoorn’s Growth Laws Can Teach the US

During the last decade of the 20th century the US economy experienced the longest economic boom since World War II. Information and communication technologies (ICT) are seen as one of the main reasons for this development and it is still an open question how ICT will affect growth and employment in the future. To evaluate this process Kaldors growth laws, especially Verdoorns law are reconsidered. It will be discussed which changes in the Verdoorn-Coefficient (VC) and the employment threshold (ET) can be expected due to ICT. Induced technical progress and increasing returns to scale could make future economic growth to be less labor-intensive. A simple OLS estimation using data for the US non-farm sector indicates that the VC increased in the second half of the 1990s. Thus, more output growth is required to keep employment constant.The author gratefully acknowledges the most valuable comments from two anonymous referees and the participants of the Annual Meeting of the Austrian Economic Association (NOeG) at the Vienna University of Economics (WU), May 21–22, 2004. Any remaining errors are my own.     

Satisficing behavior, Brouwer’s Fixed Point Theorem and Nash Equilibrium

Summary. We show that Nash Equilibrium points can be obtained by using response maps or reply functions that simply use better responses rather than best responses. We demonstrate the existence of a Nash Equilibrium as the fixed point of a better response map and since the better response map is continuous the fixed point can be established by simply using Brouwers fixed point theorem. The proof applies to games with a finite number of strategies as well as to games with a continuum of strategies. In case the games have a continuum of strategies the payoff functions have to be continuous on the action sets and quasi concave on the players action set.Received: 22 September 2003, Revised: 31 March 2004, JEL Classification Numbers: C72, D00, D40. Correspondence to: Robert A. BeckerWe have benefited from comments on an earlier draft made by participants at Indiana Universitys Microeconomics workshop (October 2002) and the Midwest Economic Theory Conference held at the University of Pittsburgh (May 2003). We also thank Roy Gardner for comments on earlier versions. We thank the Associate Editor, Mark Machina, for his detailed comments and suggestions. This project began when Subir Chakrabarti was a visitor in the Department of Economics, Indiana University, Bloomington in the Spring of 2002. He thanks that department for its support.     

Voting in assemblies of shareholders and incomplete markets

Summary. An economy with two dates is considered, one state at the first date and a finite number of states at the last date. Shareholders determine production plans by voting - one share, one vote - and at -majority stable stock market equilibria, alternative production plans are supported by at most percent of the shareholders. It is shown that a -majority stable stock market equilibrium exists if where S is the number of states at the last date and J is the number of firms. Moreover, an example shows that -majority stable stock market equilibria need not exist for smaller s.Received: 23 December 2002, Revised: 14 June 2004, JEL Classification Numbers: D21, D52, D71, G39. Correspondence to: Hervé CrésThe authors are grateful to an anonymous referee for helpful comments and suggestions. Financial support from the Danish Research Councils and hospitality of HEC is gratefully acknowledged by Mich Tvede and support from Fondation HEC is gratefully acknowledged by Hervé Crés.     

The multivariate Edgeworth-Sargan density

The Edgeworth-Sargan density has been shown capable of capturing empirical regularities of financial data (thick tails and asymmetries). When compared to other densities used in applied finance, it has the advantage of its analytical simplicity, and the ability to improve data fits by adding more parameters in a natural way. This paper develops an explicit form for the multivariate Edgeworth-Sargan density and compare its performance to the multivariate Students t. The comparison is carried out with daily financial observations, spanning 25 years of data for several financial variables that include stock markets indices and interest and exchange rates for several countries.JEL Classification: C12, G1The author acknowledges Prof. Ignacio Mauleón, PhD supervisor of the dissertation this article is based on, and also to Esther del Brío, Helen Jones and two anonymous referees for their helpful and constructive comments. This paper is financed by the C.I.C.Y.T. under project SEC98-1112 and the J.C.Y.L. under project SA29/99. Responsibility for the contents, as well as possible deficiencies, remains solely with the author.     

Investment in Swedish manufacturing: Analysis and forecasts

This paper uses a neoclassical investment model extended with installation costs for capital, agency costs for investment financing, and the possibility of the firm being output constrained as a framework for an empirical analysis of investment behaviour in the Swedish manufacturing industry. The theory is implemented within a multivariate error-correction approach on data covering the time period 1951 to 1995, and we gain the following main results: (1) Tobins average Q is not the sole determinant of investment, neither in the short nor in the long run, and other variables like real output and capital gearing also affect investment activity; (2) the out-of-sample forecasts of the model track the evolution of actual investment growth quite impressively, especially at short- and medium-term horizons (1–2 years); (3) a relative equity-price variable is shown to constitute a good approximation of average Q, both for empirical modelling in general and forecasting in particular.Jel classification: C32, E22, E27We would like to thank Bob Chirinko, Stefan Palmqvist, Anders Vredin, seminar participants at Sveriges Riksbank, and two anonymous referees for helpful comments. Thanks also to Jan Södersten, Uppsala University, who provided us with most of the data for this analysis. All correspondence to Per Jansson.First version received: July 2000/Final version received: November 2002     

An econometric analysis of veterans’ health care utilization using two-part models

Based on the 1992 US National Survey of Veterans, we analyzed veterans inpatient and outpatient health care utilization patterns by estimating count data two-part hurdle models. We also identified factors that affect veterans choice of health care between VA and non-VA facilities using count data selection models. Not surprisingly, we found that health condition measures are the most important factors in determining veterans health care utilization. Gender, disability, and employment status are also significant. Veterans with lower socio-economic status, without other health insurance coverages, or living near VA health care facilities are more likely to use VA health care system for outpatient visits and inpatient admissions. Our study underscores the role of alternative sources of health care and insurance in discerning the true effects of the explanatory variables on an individuals total demand for health care and its allocation between alternative providers.Jel classification: C35, I12, H51This research was done under a contract with the VA Health Care Network, Upstate New York (VISN 2). We are grateful to A. Colin Cameron, Diane Dewer, Joe Engelhardt, Terrance Kinal, Hamp Lankford, Frank Windmeijer, and two anonymous referees for helpful suggestions and comments. We alone are responsible for the views expressed, and deficiencies remaining, in the paper.First version received: September 2001/Final version received: February 2003