Risk premia in general equilibrium

This paper shows that non-linearities from a neoclassical production function alone can generate time-varying, asymmetric risk premia and predictability over the business cycle. These empirical key features become relevant when we allow for non-normalities in the form of rare disasters. We employ analytical solutions of dynamic stochastic general equilibrium models, including a novel solution with endogenous labor supply, to obtain closed-form expressions for the risk premium in production economies. In contrast to an endowment economy with constant investment opportunities, the curvature of the consumption function affects the risk premium in production economies through controlling the individual's effective risk aversion.     

Inequity-averse preferences in general equilibrium

We study the stability with respect to the introduction of opportunity-based inequity aversion à la Dufwenberg et al. (2011) of three welfare properties satisfied by competitive equilibria in self-regarding economies: (i) Pareto efficiency may not be a stable property; (ii) undomination with respect to income redistribution is a stable property whenever the marginal indirect utility of income has no extreme variations; and (iii) generically (endowment-wise) market-constrained efficiency is a stable property.     

Testing for a unique equilibrium in applied general equilibrium models

This paper introduces a new and computationally inexpensive method to test for uniqueness of equilibrium in exchange economies.     

Banking in computable general equilibrium economies

In this paper we develop a computable general equilibrium economy that models the banking sector explicitly. Banks intermediate between households and between the household sector and the government sector. Households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement. Banks pool households' savings and they purchase interest-bearing government debt and non-interest-bearing reserves. We use this structure to answer two sets of questions: one normative in nature that evaluates the welfare costs of alternative monetary and tax policies, and one positive in nature that studies the real effects of following a procyclical interest-rate policy rule.     

Perturbed utility and general equilibrium analysis

We study general equilibrium theory of complete markets in an otherwise standard economy with each household having an additive perturbed utility function. Since this function represents a type of stochastic choice theory, the equilibrium of the corresponding economy is defined to be a price vector that makes its mean expected demand equal its mean endowment. We begin with a study of the economic meaning of this notion, by showing that at any given price vector, there always exists an economy with deterministic utilities whose mean demand is just the mean expected demand of our economy with additive perturbed utilities. We then show the existence of equilibrium, its Pareto inefficiency, and the upper hemi-continuity of the equilibrium set correspondence. Specializing to the case of regular economies, we finally demonstrate that almost every economy is regular and the equilibrium set correspondence in this regular case is continuous and locally constant.     

Industrial subsidies and technology adoption in general equilibrium

Industrial subsidies to failing establishments are common across developed economies. The paper constructs a dynamic general equilibrium model with a view to study the effects of this policy. Interestingly, subsidies to failing plants may increase productivity and accelerate the diffusion of new technologies. In spite of this, labor productivity, employment and income decrease, as resources are devoted to maintaining and updating establishments that would otherwise have closed.     

Endogenous restricted participation in general financial equilibrium

We consider an incomplete market model with numeraire assets. Each household faces an individual constraint on its participation in the asset market. In related literature, the constraint is described by a function whose sole argument is the asset portfolio. On the contrary, in our analysis the constraint depends not only on the asset portfolio, but also on asset and good prices—hence the reference to endogenous (in contrast to exogenous) in the title.     

Amenities in an urban general equilibrium model

This paper has presented a general equilibrium Tiebout-median voter model. The model was solved numerically for prices and distributions of consumers which correspond to equilibria, and the results of the numerical solution of the model were used to evaluate the HES and Yinger Propositions. That complete capitalization always occurs means that the HES Proposition is false; Yinger's Proposition is misdirected since complete capitalization occurs regardless of the presence or absence of amenities (although amenities affect the equilibrium solutions). We have argued that capitalization is never appropriately measured by price differentials in a general equilibrium model.     

News shocks and asset price volatility in general equilibrium

We study equity price volatility in general equilibrium with news shocks about future productivity and monetary policy. As West (1988) shows, in a partial equilibrium present discounted value model, news about the future cash flow reduces asset price volatility. We show that introducing news shocks in a canonical dynamic stochastic general equilibrium model may not reduce asset price volatility under plausible parameter assumptions. This is because, in general equilibrium, the asset cash flow itself may be affected by the introduction of news shocks. In addition, we show that neglecting to account for policy news shocks (e.g., policy announcements) can potentially bias empirical estimates of the impact of monetary policy shocks on asset prices.     

Monetary general equilibrium with transaction costs

Commodity money arises endogenously in a general equilibrium model with separate budget constraints for each transaction. Transaction costs imply differing bid and ask (selling and buying) prices. The most liquid good—with the smallest proportionate bid/ask spread—becomes commodity money. General equilibrium may not be Pareto efficient. If zero-transaction-cost money is available then the equilibrium allocation is Pareto efficient. Fiat money is an intrinsically worthless instrument. Its positive price comes from acceptability in paying taxes, and its use as a medium of exchange is based on low transaction cost.     

Urban general equilibrium models and simplicial search algorithms

This paper describes how simplicial search algorithms work, and discusses how they may be used to solve static theoretical urban models. If such algorithms are to be used, land must be treated as consisting of a number of discrete sections. It is argued that this is not a serious disadvantage, and that for many purposes such discrete models have significant advantages over models in which land is treated as continuous. In particular, it is possible to deal with several groups of people having different tastes and incomes. Several related models are described, and some interesting qualitative results are presented.     

Spatial econometric analysis of spatial general equilibrium

A structural spatial econometric model for nine regions of Israel is estimated using non-stationary spatial panel data during 1987–2015. The model focuses on the relation between regional markets in labour, housing and capital when there is imperfect internal migration between regions, when capital is imperfectly mobile between regions, and when building contractors operate across regions. Since the regional panel data are non-stationary, the econometric methodology is based on spatial panel cointegration. The estimated model is used to simulate the temporal and spatial propagation of regional shocks induced, for example, by regional policy (land for housing, regional investment grants). Impulse responses are temporally and spatially state dependent. They are also highly persistent because of longevity in housing and capital.     

A general equilibrium analysis of strategic arbitrage

We analyze a general equilibrium framework with Cournot arbitrageurs and with price-taking investors who are subjected to restricted participation constraints. Restricted participation may leave some arbitrage opportunities unexploited by investors.We show existence of Cournot–Walras equilibria with an endogenous number of arbitrageurs. The number of arbitrageurs is endogenous since they have to sink entry costs in order to arbitrage across the relevant markets. We characterize equilibria and analyze the effects on equilibrium prices and quantities of increased competition among arbitrageurs due to lower entry costs.     

The general equilibrium effects of congestion externalities

This is the second in a series of three articles on the topic of congestion externalities. We use an urban general-equilibrium model to compute two types of cities: the market-equilibrium city, in which congestion externalities occur, and the optimum city. The optimum city has a more dispersed distribution of employment, and a more concentrated distribution of residence. If the population of the city is fixed, the optimum pricing of transportation generates a per capita welfare gain of $3.78 per week. If the population of the city is endogenous, the internalization of congestion externalities causes the city to grow.     

The current non-status of general equilibrium theory

This paper argues that the abandonment of general equilibrium theory by microeconomists was a mistake. It provides counter arguments to two of the reasons for that abandonment—lack of both generality and consistency with methodological individualism in uniqueness and stability analysis of equilibria—and urges microeconomists to refocus some of their attention on it.     

A computational general equilibrium model with vintage capital

This paper presents a vintage capital model assuming putty–clay investment and perfect foresight. The model is written in discrete time and is simulated by using a second order relaxation algorithm. By computing the eigenvalues of the dynamic system, we have checked the conditions of existence and uniqueness of a solution (Blanchard and Kahn's conditions) and identified the echo effect that characterizes vintage capital models and the related dynamics of creation and destruction. By calibrating the model on French data, it has been proved useful to explain the medium-term movements in the distribution of income in France during the last three decades.     

A general equilibrium model with external scale economies in production

A general-equilibrium model of an urban economy is described. The standard residential land use model is extended to include a well-defined production/employment sector. External scale economies occur in the production of the city's export good. The model is designed for the numerical computation of equilibria and optima.     

Complementary pensions in the European Union

In some countries of the European Union (EU) complementary pension schemes represent a major part of pension provision, whereas in others they play a relatively marginal role. An important factor is whether the social security scheme provides earnings-related benefits and whether the ceiling on eligible earnings for social security purposes leaves room for there to be a demand for supplementary pensions arrangements, in particular for the higher paid. Pressures on the financing of social security, especially with the expected ageing of the population in the first 30 years of the next century, are encouraging many countries to develop complementary provision, and a number of new pension laws have been passed in recent years. However, important though the growth of complementary provision is, it should not be forgotten that investment markets are also likely to be affected by the ageing of the population. There are increasing pressures for greater investment freedom for complementary pension schemes, but little progress has been made by the EU in harmonisation of the regulatory regimes for complementary pensions. If mobility of labour between the countries of the EU is to become a reality, progress needs to be made soon on these pensions issues.