Optimal policy in a model of endogenous fluctuations and assets

Assets are coupled to endogenous aggregate output fluctuations in a model of heterogeneous agents. Those agents wish to avoid reacting inadvertently to an unobservable noise process, but to do so must elicit reactions to that noise from each other. An abstract institution is modeled that optimizes this elicitation by strategically transmitting information about aggregates; I designate this feedback. Feedback is used by agents and so influences the characteristics of aggregate fluctuations. The optimal feedback policy minimizes asset rates of return, maximizes the persistence of aggregate output fluctuations, and causes the distribution of wealth to widen continually and without limit.     

Labor and investment frictions in a real business cycle model

This paper develops a prototype real business cycle model in which labor and investment frictions may compete directly with technology shocks in accounting for fluctuations in the postwar US economy. Using Ireland's [2004a. A method for taking models to the data. Journal of Economic Dynamics and Control 28, 1205–1226] methodology, we establish that both types of friction are quantitatively important. Technology shocks still explain a substantial fraction of the fluctuations in aggregate output, as the baseline real business cycle model predicts. Formal hypothesis tests suggest that changes in the recurrence of shocks, frictions, and structural parameters all play a role in accounting for the shift in the time series properties of the data between the periods before and after 1980.     

Jealousy and underconsumption in a one-sector model with wealth preference

The present paper examines the effects of consumption externalities on economic performance in a one-sector model with wealth preference. The presence of the wealth preference generates a wealth effect in consumption growth, which plays a crucial role for consumption externalities to have impacts on the economy. Our main findings are: (i) regardless of the assumption of inelastic labor supply, the distortionary effect of consumption externalities stays in the long run; (ii) the income tax as well as the consumption tax can modify the efficiency; and (iii) the numerical simulations supplement theoretical findings.     

Industrialization and environmental externalities in a Solow-type model

In this paper we examine the role played by environmental externalities in shaping the dynamics of an economy with two sectors (a farming sector and an industrial one), free inter-sectoral labor mobility and heterogeneous agents (workers/farmers and industrial entrepreneurs). We find that, in the presence of the environmental pressure of the economic activity of the industrial sector, the stability properties of the equilibria and their features in terms of environmental preservation, welfare outcomes and sectoral allocation of labor are sensitive to the level of carrying capacity. We show that an endogenous process of industrialization associated with a reduction in farmers/workers׳ welfare can emerge.     

Linear production function,externalities and indeterminacy in a capital-resource growth model

This paper investigates the equilibrium growth dynamics of an economy whose production is based on natural resources and which seeks to maximize welfare to the local community. This involves determining the optimal trajectories of consumption in the local area and the use of the environmental resource. Economic dynamics are affected by negative environmental externalities which are explicitly included as unfavourable effects in a linear production function. The analysis shows the existence of local and global indeterminacy.     

On the welfare costs of business-cycle fluctuations and economic-growth variation in the 20th century and beyond

The main objective of this paper is to propose a novel setup that allows estimating separately the welfare costs of the uncertainty stemming from business-cycle fluctuations and from economic-growth variation, when the two types of shocks associated with them (respectively, transitory and permanent shocks) hit consumption simultaneously. Separating these welfare costs requires dealing with degenerate bivariate distributions. Levi's Continuity Theorem and the Disintegration Theorem allow us to adequately define the one-dimensional limiting marginal distributions. Under Normality, we show that the parameters of the original marginal distributions are not affected, providing the means for calculating separately the welfare costs of business-cycle fluctuations and of economic-growth variation.Our empirical results show that, if we consider only transitory shocks, the welfare cost of business cycles is much smaller than previously thought. Indeed, we found it to be negative – −0.03% of per-capita consumption! On the other hand, we found that the welfare cost of economic-growth variation is relatively large. Our estimate for reasonable preference-parameter values shows that it is 0.71% of consumption – US$ 208.98 per person, per year.     

Identification in a model of sorting with social externalities and the causes of urban segregation

This paper discusses nonparametric identification in a model of sorting in which location choices depend on the location choices of other agents as well as prices and exogenous location characteristics. In this model, demand slopes and hence preferences are not identifiable without further restrictions because of the absence of independent variation of endogenous composition and exogenous location characteristics. Several solutions of this problem are presented and applied to data on neighborhoods in US cities. These solutions use exclusion restrictions, based on either subgroup demand shifters, the spatial structure of externalities, or the dynamics of prices and composition in response to an amenity shock. The empirical results consistently suggest the presence of strong social externalities, that is a dependence of location choices on neighborhood composition.     

Residential investment and house prices in a multi-sector monetary business cycle model

This paper develops a three-sector quantitative dynamic stochastic general equilibrium model to account for some of the salient business cycle properties concerning residential investment and house prices. We depart from the traditional Real Business Cycle setup by incorporating monetary frictions and credit market activities into the model economy. The model generates the high volatility of residential investment and hours worked in the house investment goods producing sector, as well as the procyclicality of house prices. The lead-lag pattern of house investment also roughly conforms with the data. We find that monetary policy and nominal interest rates play a special role in the determination of house prices. Money shocks generate remarkably volatile residential investment and house prices.     

Business model innovation in cultural and creative industries: Insights from three leading mobile gaming firms

This paper contains an exploratory analysis of the business model innovations (BMIs) that firms in cultural and creative industries (CCIs) undertake along their life-cycle. Despite the role that creative and cultural and creative firms (CCFs) have in the economic development of industrialised countries, they tend to remain small and often fail due to industry-specific constraints and tensions, such as the lack of managerial capabilities and complexity in nurturing value chain relationships. However, there has been relatively limited scholarly interest into the specific conditions and processes that enabled CCFs to overcome these liabilities, and in particular into the identification of the business models they have adopted along their life-cycle. In this paper, this issue is analysed by using the concept of BMI, which sheds light on how the reconfiguration of the activity system through which a CCF creates, delivers and captures value enables the exploitation of entrepreneurial opportunities over time. This paper builds on an in-depth historical study of three leading firms operating in the mobile gaming industry, namely Rovio, Zynga and King Digital Entertainment. Three main results emerge from this study. First, in the ramp-up phase of their life-cycle, CCFs organize their resource architecture to build a strong and recognized reputation. Second, in the development phase, BMI is used to leverage new distribution paradigms. Finally, in the maturity phase, firms dedicate resources to innovate their product portfolios by providing platforms that support the development and testing of new creative ideas and solutions. Findings and implications are then discussed.     

Unemployment,income distribution and debt-financed investment in a growth cycle model

As recent experience suggests, the most significant economic fluctuations are those that combine real and financial factors. This paper works out a simple model that couples a version of Goodwin׳s (1967) growth cycle model of real fluctuations with insights drawn from a model of financial fluctuations based on Minsky׳s financial instability hypothesis (Vercelli, 2000, Sordi and Vercelli, 2006, Sordi and Vercelli, 2012). The model suggested substantially modifies that of Keen (1995), who combined insights from Goodwin and Minsky within a model of fluctuating growth. In the real part of the model we introduce the possibility of disequilibrium in the goods market and formalize a mechanism of output adjustment based on the conventional dynamic multiplier. The model so obtained may exhibit persistent dynamics and provide insights to enable better understanding of the nature of real-world fluctuations.