A reconciliation of recent results in optimal taxation theory

The recent papers by Guesnerie and Diewert on tax reforms are interpreted as contributions to the characterization of second-best optima. This paper demonstrates that when it is possible to achieve any feasible direction of change in supplies by a differential change in producer prices, there are unique producer support prices. Under these circumstances, the apparent differences between Guesnerie and Diewert are reconciled. Optimality conditions with nonunique support prices are also considered.     

Supporting weakly Pareto optimal allocations in infinite dimensional nonconvex economies

In this paper, we prove a new version of the Second Welfare Theorem for economies with a finite number of agents and an infinite number of commodities, when the preference correspondences are not convex-valued and/or when the total production set is not convex. For this kind of nonconvex economies, a recent result, obtained by one of the authors, introduces conditions which, when applied to the convex case, give for Banach commodity spaces the well-known result of decentralization by continuous prices of Pareto-optimal allocations under an interiority condition. In this paper, in order to prove a different version of the Second Welfare Theorem, we reinforce the conditions on the commodity space, assumed here to be a Banach lattice, and introduce a nonconvex version of the properness assumptions on preferences and the total production set. Applied to the convex case, our result becomes the usual Second Welfare Theorem when properness assumptions replace the interiority condition. The proof uses a Hahn-Banach Theorem generalization by Borwein and Jofré (in Joper Res Appl Math 48:169–180, 1997) which allows to separate nonconvex sets in general Banach spacesThis work was partially supported by Nucleo Complex Engineering System. The successive versions of the paper were partly prepared during visits of Alejandro Jofré to CERMSEM and of Monique Florenzano and Pascal Gourdel to the Centro de Modelamiento Matematico. The hospitality of both institutions and the support of the french Coopération régionale Cone Sud are gratefully aknowledged. The authors thank Ali Khan for stimulating exchange of ideas and literature, Roko Aliprantis, Jean-Marc Bonnisseau, Alain Chateauneuf, Roger Guesnerie, Filipe Martins Da Rocha, Moncef Meddeb, B. Mordukovich, Lionel Thibault and Rabee Tourky for valuable discussions     

A note on the marginal tax rate in a finite economy

The marginal tax rate is shown to be non-negative in Guesnerie and Seade's model of nonlinear pricing in a finite economy under assumptions that are as mild as those customarily adopted in nonlinear tax models with a one-dimensional continuum population.     

Proportional taxation: Nonexistence of stable structures in an economy with a public good

Guesnerie and Oddou [J. Econom. Theory25 (1981), 67–91] raised the open question whether an economy, in which the production of a public good is financed via proportional taxation, has a stable structure. By means of the first example a negative answer to this question is provided. The second example shows that a stable structure may fail to exist even if all the individuals have the same initial endowments in private good.     

Semi-unionized bargaining with endogenous membership and management opposition

This paper develops a model of open shop unions and efficient bargain, in which there is a social custom to unionize and the firms can pay wage premiums to dissuade union membership. If firms actively oppose unions, the union density turns out to be affected by changes of the product price and the reservation wage, and it is not always positively correlated with the workers' income share. Moreover, the model provides a rationale for higher union density in centralized as opposed to decentralized bargaining systems.I would like to thank Robert Boyer, Hans Peter Grüner, Roger Guesnerie, and two referees for helpful comments and suggestions. All remaining errors are mine. Financial support from the Commission of the European Communities (SPES-915028) is gratefully acknowledged.     

Are Rational Expectations Equilibria with Private Information Eductively Stable?

The paper derives conditions for eductive stability of rational expectations equilibria in simple linear economic models with private information. Following Guesnerie (1992; 2002), the concept of eductive stability is used. It is shown that even in a private information setting, rational expectations equilibria might be justified as a result of mental process of reasoning of the agents. The paper considers an equilibrium concept, where the agents are unable to condition their forecasts on the actual market price. It is shown that eductive stability in this case requires that a condition is satisfied that is also relevant in the symmetric information case. This condition is compared to the respective stability condition that must hold if agents are able to use the current market price as an additional source of information. It turns out that the conditions for eductive stability that emerge under both equilibrium concepts differ.revised version received September 11, 2003     

Are the antiglobalists right? Gains-from-trade without a Walrasian auctioneer

We show that the “fear” of globalisation can be rationalised by economic theory in the standard AD/AS equilibrium model, if we substitute the coordinational role of the Auctioneer by an implementation device based on learning (Guesnerie in Am Econ Rev 82, 1254–1278, 1992). When endowing producers with a learning ability to forecast market prices, individual profit-maximizing production decisions become interdependent in a strategic sense (strategic substitutes). Performing basic comparative statics exercises, we show that “competitiveness” matters in a precise sense: as foreign producers gain access to the home market, home producers’ ability to forecast market prices is undermined, so being their ability to forecast the profit consequences of their production decisions. A standard open economy exercise shows that the efficiency gains triggered by increased competition have to be traded-off against higher uncertainty (a lower likelihood to coordinate upon the welfare enhancing free-trade equilibrium). We interpret it as a new rationale for the existence of barriers to trade targeting coordination, rather than protecting mere inefficient sectors or industries (political economy driven). Finally, we show that classical measures evaluating ex-ante the desirability of economic integration (net welfare gains) do not always advice free trade. I wish to specially thank Roger Guesnerie, Thierry Verdier and an anonymous referee for their helpful suggestions. Comments by Facundo Albornoz, Pol Antràs, Gregory Corcos, Maurice Kugler, Robin Mason, Victor Norman, Emmanuel Ornelas and Susanna Thede are sincerely acknowledged. Audiences at the U. of Alicante, U. Autonoma de Barcelona, ETSG 2005 (Dublin), FGV-EPGE (RJ, Brazil), LACEA 2005 (Paris), the Miwest Trade Meeting at Minneapolis 2007, the Norwegian School of Economics (NHH), SBE 2005 (Natal, Brazil), U. of Southampton and T2M 2005 are acknowledged. The contents constitute chapter 4 of my PSE-EHESS PhD thesis, extended while I visited the NYU Economics department, sponsored by A. Bisin. Financial support from the Bank of Spain and CNRS is sincerely acknowledged.     

Electoral competition under imperfect information

Summary. This paper considers electoral competition between two office-motivated parties and one voter, in the presence of two alternative policies and under imperfect information. The theory of refinements of Nash equilibrium predicts the outcome of this three-player game: both parties faithfully use their information and try to find the best policy for the voter. We discuss the meaning of this model for Politics and prove that the same result holds for any number of voters, provided that parties are expected plurality maximizers and that voters satisfy a version of the sincere voting assumption adapted to this strategic setting.Received: 12 December 2001, Revised: 16 June 2003JEL Classification Numbers: C72, D72, D82.Correspondence to: Jean-François LaslierThanks to Gabrielle Demange, Françoise Forges, Roger Guesnerie, Jean-Fran çois Mertens, Thomas Palfrey, Sylvain Sorin and other participants in workshops and conferences in Caen, Paris, Caltech and Yale. Thanks also to two anonymous referees and to Paul Heidues and Johan Lagerlöf for their comments. This work was originated when K. Van der Straeten was at THEMA (Université de Cergy-Pontoise) and DELTA.     

External Scale Economies in Turkish Manufacturing Industries

In this study, the relationship between external scale economies (agglomeration economies) and productivity is measured by using Turkish data. The productivity increase can be due to economies from locating closer to other firms in either the same industry (localisation economies) or different industries (urbanisation economies). Localisation economies are proxied by own industry size and urbanisation economies by city population. Productivity (output per worker) is regressed on industry size, city population, and other related variables. A measure of concentration of state enterprises is included in the regressions to control for the possible inefficiencies in public sector firms. The functional form of the estimating equations is derived from the translog production function. As a check, a constant elasticity of substitution (CES) form is also experimented with. Data are cross-section data and come from industrial and production surveys conducted by the State Institute of Statistics of Turkey in 1985. The study finds that agglomeration economies that are robust across different specifications of the agglomeration economy function and production function exist in food products, textiles, and wood products. Urbanisation economies are detected in food products and textiles. In wood products there are localisation economies.     

Two-period cycles in a three-period overlapping generations model

We study the properties of two-period monetary cycles in simple pure exchange overlapping generations economies in which the households live for three periods. We demonstrate that these economies can support cycles under a much broader—and, arguably, more plausible—range of assumptions than the analogous two-period economies. We show that economies that fail the well-known Grandmont (Econometrica 53 (1985) 995) condition can have cycles, and that economies that satisfy the condition can fail to have cycles. In addition, we show that economies can have monetary cycles when they do not have conventional monetary steady states, and when aggregate demand for assets is not decreasing in the real return rate at a gross real rate of unity.     

Core-equivalence for the Nash bargaining solution

Summary. Core equivalence and shrinking of the core results are well known for economies. The present paper establishes counterparts for bargaining economies, a specific class of production economies (finite and infinite) representing standard two-person bargaining games and their continuum counterparts as coalition production economies. Thereby we get core equivalence of the Nash solution. The results reconfirm the Walrasian approach to Nash bargaining of Trockel (1996). Moreover we establish the same speed of convergence as is known from Debreu (1975) and Grodal (1975) for replicated pure exchange economies and for regular purely competitive sequences of economies, respectively.Received: 13 June 2003, Revised: 13 January 2004, JEL Classification Numbers: C71, C78, D51.This article is dedicated to Birgit Grodal, a friend since 30 years.Financial support of the DFG under grant #444 USA 111/2/03 is gratefully acknowledged.     

ECONOMIES OF SCOPE FOR MICROFINANCE: DIFFERENCES ACROSS OUTPUT MEASURES

In banking, scope economies of mobilizing deposits and lending are often estimated, while consideration of the same measures for microfinance institutions (MFI) is still in its infancy. An open issue remains regarding what characterizes an output of an MFI. Moreover, depending on the output used, do estimated scope economies differ? We use a novel data set for over 800 MFI across more than 70 countries to estimate economies of scope. Our findings suggest that statistical differences arise between estimates of scope economies. However, our qualitative findings indicate that both of these measures provide similar overviews of the landscape of scope economies for MFI.     

Economies of scale and scope in Flemish secondary schools

This study estimates a multiproduct translog cost function for the entire population of 1011 Flemish secondary schools in order to determine the degree of ray and product specific (dis)economies of scale as well as the degree of (dis)economies of scope. Three types of schools and seven major study fields can be distinguished. Student loads in these study fields are used as outputs produced by the schools. Evidence is found for ray economies of scale for the three types of schools, even at output levels of 300% of the actual means. Although the cost elasticities of six out of seven outputs are close to zero, most of the values indicating the degree of product specific economies of scale are negative (suggesting diseconomies of scale). However, this can be explained by the considerable scope effects which are incorporated in the definition of the product specific economies of scale.     

The information content of implied volatility in developed versus developing FX markets

This article predicts the daily movement of monthly foreign exchange (FX) rate volatility using a linear combination of a time-series model and implied volatilities from options. The focus is on analysing the FX volatilities in three developing economies (the Brazilian real (BRL), the Indian rupee (INR) and the Russian ruble (RUB)) against the US dollar (USD). The empirical exercise utilizes two time-series models, mixed data sampling (MIDAS) and GARCH. The analysis indicates that for both developed and developing economies the predictive power of MIDAS and that of GARCH is comparable. Further on in this article, we will ascertain whether the relationship between realized and implied volatility is fundamentally different in the case of developing economies from that among developed economies. Thus, we compare the pairs USD/BRL, USD/INR and USD/RUB against EURO/USD and USD/Japanese yen to determine the information content and predictive power of implied volatilities. Plots of the MIDAS coefficients show that the volatility is more persistent in developing economies than in developed economies.     

Elasticity of Substitution and the Persistence of the Deviation of the Real Exchange Rates

Empirical evidence suggests (i) that the real exchange rates of developing economies show less persistence than do those of more advanced economies, and (ii) that the elasticity of substitution between capital and labor tends to increase from below unity for less developed economies to above one for more advanced economies. This paper shows how the introduction of sectoral adjustment costs in a two‐sector model of a small open economy, together with CES production functions, provides a very natural explanation of this empirical regularity. Other aspects of the relationship between the technologies and the speed of convergence of the real exchange rate are also discussed.     

The impact of Chinese monetary policy shocks on East and South‐East Asia1

We study the effects of Chinese monetary policy shocks on China's major trading partners in East and South‐East Asia by estimating structural vector autoregressive (SVAR) models for six economies in the region. We find that a monetary expansion in Mainland China leads to an increase in real GDP (temporary) and the price level (permanent) in a number of economies in our sample, most notably in Hong Kong and the Philippines. The impact could result from intertemporal substitution present in a general equilibrium framework, which allows for positive domestic impacts of foreign monetary expansions. Our results emphasize the growing importance of China for its neighbouring economies and the significance of Chinese shocks for the design of monetary policy in Asian economies.     

ECONOMIES OF SCALE IN HOUSEHOLD CONSUMPTION: WITH APPLICATION TO AUSTRALIA*

This paper presents a general framework for defining the economies of scale in household consumption. It allows commodity specific economies of scale (taking into account the substitution effects). The chief contribution of the paper is to show how one can estimate economies of scale from cross section budget data without price information. The problem of identification that is inherent in these models is overcome by making use of some assumptions about the nature of goods and services employed in the estimation. The methodology developed in the paper is applied to Australian Household Expenditure Survey for 1984 to calculate item wise and overall economies of scale.     

Trade Sophistication Indicators: Balancing Diversity and Specialization

Motivated by the important role of trade in driving and reflecting economic transformation, we focus on the export structure of two small export-oriented economies, Ireland and Finland 2000–2009, from the perspective of the sophistication of both economies’ exports, i.e., the extent to which high-value products characterise each country’s export profile. The Product Space method is used as the basis of our comparison of the economies in terms of their sectors, activities, and structural transformation of the economies. The method focuses attention on the estimated density of the product space as evident in patterns of revealed comparative advantage (RCA) in goods exports. The Information and Communication Technology (ICT) sector, as a significant export sector for both economies, is examined specifically to investigate its further export potential.     

A few observations on financial liberalization and financial instability

Recent studies have conjectured that there may be a link between financial liberalization (FL) and financial instability in emerging economies. Most of these studies, however, do not investigate whether emerging economies are, in fact, becoming structurally more vulnerable to currency and banking crises. In this paper, I argue that emerging economies are becoming more susceptible to both currency and banking crises after FL. Using data for 27 emerging economies—excluding transition economies—from 1973 to the present, a univariate analysis indicates that the likelihood of currency crises may increase with stronger reactions to financial variables than to real or external trade variables. Similarly, for banking crises, interest rate, exchange rate, maturity, and default may increase, while simultaneously the support structure of the government seems to decline.     

Economies of scale for broadband in rural United States

Empirical cost models for wireline broadband circuits are used to test whether economies of scale exist in rural areas and whether new Ethernet technology lowers the unit cost of broadband transportation. Previous studies have shown small or nonexistent economies of scale for wireless technology. Results from earlier studies also demonstrated economies of scale for voice-only wireline networks which diminished with network size and were fully exploited for large networks. To our knowledge presence of economies of scale for wireline broadband networks has not been tested, certainly not in rural United States. We use data supplied by more than 500 rural local exchange carriers and find economies of scale for small rural wireline broadband providers. Market size limitations appear to prevent rural telephone companies from fully exploiting unit cost savings. The data also show increasing capacity over existing broadband connections is subject to substantial economies of scale, but such economies diminish quickly as bandwidth capacity increases. The data do not support the hypothesis that Ethernet technology reduces broadband transmission cost.