INTEREST RATE RULES AND WELFARE IN OPEN ECONOMIES

This paper analyses the welfare performance of a set of five alternative interest rate rules in an open economy stochastic dynamic general equilibrium model with nominal rigidities. A rule with a lagged interest rate term, high feedback on inflation and low feedback on output is found to yield the highest welfare for a small open economy. This result is robust across different degrees of openness, different sources of home and foreign shocks, alternative foreign monetary rules and different specifications for price-setting behaviour. The same rule emerges as both the Nash and cooperative equilibria in a two-country version of the model.     

INTEREST GROUPS,ELECTORAL COMPETITION,AND PROBABILISTIC VOTING FOR TRADE POLICIES*

Current models of trade policy formation in representative democracies lack the micro foundations from which the political actions of voters, interest groups, and policy makers can be deduced. This paper provides microfoundations for the most influential of representative democracy models, the Magee-Brock-Young (MBY) model. Probabilistic voting is formally introduced, the conditions for active lobbying are examined, uniqueness of lobbying equilibrium is established, and the responses of different groups' lobbying to exogenous changes are discussed. Finally, the existence of tariff equilibria is studied when, different from MBY, both parties share a common strategy space.     

DEPRIVATION,INEQUALITY AND WELFARE*

Welfare ranking of income distributions involves a trade‐off between equity and efficiency. A person's feeling of deprivation about higher incomes may be of a relative or absolute type. We consider an intermediate notion of deprivation, a convex mix of relative and absolute deprivations. We then look at the problem of welfare ranking of income distributions when welfare increases under a globally equitable redistribution and under an income increase that keeps intermediate deprivation fixed. All deprivation indices can be regarded as inequality indices but the converse is not true. We also provide a numerical illustration of our results.     

TOURISM, TRADE AND DOMESTIC WELFARE

Abstract.  Tourism has been regarded as a major source of economic growth and a source of foreign exchange. It has also been viewed as an activity that imposes costs on the host country. Such costs include increased pollution, congestion and despoliation of fragile environments, and intra-generational inequity aggravation. One aspect that has been ignored is the general equilibrium effects of tourism on other sectors in the economy. This paper presents a model that captures the interdependence between tourism and the rest of the economy, in particular agriculture and manufacturing. An important result obtained is that the tourist boom may 'immiserize' the residents.     

MIGRATION,MEDICAL AID AND WELFARE*

This paper constructs a simple rural‐urban migration model that explicitly incorporates the interactions between the individual's migration decision, the risk of incurring an infectious disease and unemployment. We show that providing a subsidy for health investment in urban regions in the form of medical aid does not improve individual welfare. This is because it induces further urban migration, increases the risk of infection and unemployment, and offsets completely the positive cost‐reduction effect.     

SPATIAL DISCRIMINATION,PRODUCT SUBSTITUTABILITY AND WELFARE

The paper examines a quantity–location duopoly game in a spatial discrimination model in which the delivered goods are assumed to be imperfect substitutes or complements. By extending the range of the unit transportation cost analysed in the existing literature, it is shown that a dispersed equilibrium arises in which the choice of the optimal locations is affected by the degree of product substitutability. The interaction between the latter and the size of the transportation cost is also discussed in order to verify its welfare implications. In particular, it is shown that in this spatial framework imperfect substitutability may increase welfare.     

PROTECTION,INVOLUNTARY SELF‐EMPLOYMENT AND WELFARE

A small open economy operates with a unionized import‐competing sector and an informal “self‐employed” sector. Productivity varies across people in the informal sector. The full‐employment structure accommodates “underemployment or involuntary self‐employment” in the flexible‐wage informal sector. Protection increases the cost of capital and may increase the set of people who are involuntarily employed in the informal sector. Even if one ignores the consumption distortion effect of a tariff, the tariff may fail to be second‐best because it may raise underemployment. Our results on tariff‐reform are consistent with some recent empirical evidence.     

PUBLIC EDUCATION, FERTILITY INCENTIVES, NEOCLASSICAL ECONOMIC GROWTH AND WELFARE

Using a simple overlapping generations model of neoclassical growth, we analyse the effects of both child allowances and the system of public education on the rate of fertility, the per capita income and the individual lifetime welfare. The essential message of the present paper is that developed countries plagued by below-replacement fertility and income stagnation may raise per capita income and the rate of fertility at the same time by increasing the public education expenditure rather than by resorting to child allowances. The latter, in fact, are found to be harmful for long-run neoclassical economic growth and, in contrast with the common belief, for the rate of population growth as well. Moreover, welfare analysis has shown the existence of a Pareto-efficient welfare-maximizing educational contribution rate.     

THOMAS TOOKE AND THE INFLUENCE OF THE RATE OF INTEREST ON PRICES: IMPLICATIONS FOR DISTRIBUTION THEORY

Thomas Tooke included money interest among the determinantsof normal money production costs, together with money wagesand production techniques. This inclusion permitted him to explainthe existence, in actual fact, of a direct relationship betweenthe rate of interest and the level of prices. He did not developthe implications for distribution theory of his view of theinfluence of the rate of interest on the price level. In thepresent article it is maintained that the rate of interest emergesfrom Tooke's analysis as the regulator of the ratio of pricesto money wages, with the corollary that there is implicit init a causal relationship between money interest and normal profitthat goes from the former to the latter. This may be connectedwith Sraffa's suggestion of a determination of the rate of profitby the money rate of interest and lend it the support of Tooke'sscrupulous analysis of facts.     

逆周期的贸易政策与福利分配

2008年金融危机以来,全球逆周期的贸易政策盛行。为了探究逆周期贸易政策对双方福利分配的影响,本文在巴格维尔和斯泰格解释发达经济体之间逆周期贸易政策最优选择模型的基础上,构建了一个2×2×2模型,假定两国商品的需求价格弹性不同,首次在理论上证明了发达国家(如美国)和发展中国家(如中国)之间的逆周期贸易政策取向和福利分配,并依据经验数据证实了自由贸易政策对中美双方来说都是帕累托改进,但中国的福利增进水平低于美国的福利增进水平;而在逆周期贸易政策下,美国和中国通过贸易获得的福利增进水平之差进一步扩大。     

不完全市场、不确定性和中国利息税

通过建立具有利息税的不完全市场一般均衡模型对中国均衡利率和均衡资本进行分析,我们可以看到,利息税使得储蓄更低而利率更高。但是,流动性约束和预防性储蓄等不完全市场因素的存在使得资本供给曲线显著向右移动,导致储蓄增高。因此,当我们评价利息税对经济的影响的时候,必须考虑流动性约束和预防性储蓄的逆向作用。     

CONSUMER DURABLES AND THE INTEREST RATE

This paper investigates the relationship between consumption of a durable good and the interest rate. According to the standard Permanent Income Hypothesis (PIH), a rise in the interest rate is expected to decrease durables consumption, and the magnitude of the interest rate effect should meet certain restrictions. This implication of the PIH is tested using US data. Empirical results of this paper indicate that, although durables consumption is negatively correlated with the interest rate, the magnitude of the estimated effect is substantially smaller than requested by the standard theory. This suggests that the influence of monetary policy on durables expenditure may not be as large as previous authors claim. In attempts to explain the small effects of the interest rate, frictions such as adjustment costs and liquidity constraints are examined. [E21]     

LIFETIME AND VERTICAL INTERTEMPORAL INEQUALITY, INCOME SMOOTHING, AND REDISTRIBUTION: A SOCIAL WELFARE APPROACH

Between and within-households intertemporal inequality indices are proposed to highlight the vertical and lifetime (i.e. cyclical) components of overall intertemporal inequality. Comparison with the classical static inequality indices is made. Income redistribution and smoothing (i.e. stabilization) are conveniently defined as the public policy impact on welfare, by means of the relative increase in intertemporal vertical and cyclical equity, respectively. The issue is important as many public policies are aimed at both (vertical and cyclical equity) objectives. Our approach provides a more appropriate evaluation of the desirability of public reforms aimed at achieving a greater vertical and cyclical equity, within a social welfare framework.     

PRICE AND WELFARE EFFECTS OF OLIGOPOUSTIC MERGERS

When oligopolists merge, the new firm enjoys a lower cost structure than any of its premerger constituent parts. This is because of rationalization economies which are created as facilities previously operated at disparate marginal cost levels come under common control. The resultant price-decreasing force is countered by the loss of competition due to the merger. The latter can stem not only from reduction in the number of competitors, but also from the possibility that, with a more concentrated market structure, firms'conjectures about each others'reactions will move in the direction of being more cooperative. The paper shows that, under normal conditions, the effects of diminished competition outweigh those of rationalization so that a price increase will result from the merger. In addition, the equivalence of merger to the imposition of taxes is exploited to derive a market-share based test for mergers to cause welfare decreases. This complements a test proposed by Farrell and Shapiro that works only for welfare increases.