R&D Efficiency Gains Due to Cooperation

A theoretical and widely-quoted finding is that levels of cooperative R&D exceed noncooperative R&D levels when technological spillovers are relatively large, while the opposite holds for relatively small technological spillovers. We qualify this result by showing that for relatively small technological spillovers the comparison is not driven by the extent of technological spillover, but by the increase in technological spillover due to cooperation in R&D. In particular, an agreement to cooperate in R&D always raises R&D efforts if the post-cooperative technological spillover rate is high enough.     

Do they come back again? Job search,labour market segmentation and state dependence as explanations of repeat unemployment

This study investigates the causes of recurrent unemployment. Using data from the Austrian unemployment register we test the explanatory power of three different approaches which appear in the literature: job search theory, labour market segmentation and state dependence. Whereas job search theory does not seem to be able to explain anything, labour market segmentation does. However, the most powerful determinant of the risk of unemployment repetition is past unemployment history. This micro finding is not inconsistent with theories explaining the persistent high level of unemployment rates.This research was supported by the Austrian Fonds zur Förderung der Wissenschaftlichen Forschung under the project Dynamik der Arbeitslosigkeit und Beschäftigung. Special thanks for valuable comments go to M. Riese, V. Steiner, J. Stern and two anonymous referees.     

Stationary solution to the overlapping generations model of fiat money: Experimental evidence

Overlapping generations model of fiat money yields an infinity of competitive equilibrium solutions, only one of which is stationary. Economies reported in this paper involved a sequence of overlapping generations of three or four individuals; each individual lived for two periods. In their young age individuals were endowed with chips that could be traded for fiat money wish the individuals of the old generation. In their old age, individuals could exchange their units o flat money for the consumption good. Results of the experiments exhibit some support for the stationary solution. The results are robust to two designs of exchange institutions (double oral auctior and supply schedule auction) and to two different endogenous ways of converting money into chips at the end of the game (average price prevailing during the last period the game is actually played and the average price forecast made during the last period the game is actually played).A preliminary version of this paper was presented at the meeting of the Economic Science Association and at the Federal Reserve Bank of Minneapolis. The authors are grateful for comments received from various participants at both presentations. Financial support was provided by the McKnight Foundation, the Honeywell Foundation, National Science Foundation (SES 89-12552), and Richard. M. and Margaret Cyert Family Funds.     

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.     

Some economics of content protection

We are grateful to a perceptive referee for many constructive comments on an earlier version of this paper entitled The Economics of Content Protection: A Dual Approach. The usual disclaimer applies.     

Incremental R&D subsidies

An Incremental Incentive Scheme (IIS) encourages some activity by rewarding an agent for overachieving a base level determined by past performance but not penalizing underachievement. We examine an IIS R&D subsidy in a dynamic model due to Grossman and Shapiro (1986). We show that the firm's optimal R&D path either cycles around the no-subsidy path or follows a ratchet pattern of small increases in R&D relative to the no-subsidy path. A simple condition determines which type of behavior occurs. Furthermore, we show that an IIS may be an inefficient method of encouraging R&D compared to a flat-rate subsidy.We wish to thank Gene Grossman and two referees for helpful comments. All remaining errors are our own.     

Vertical and Horizontal Trust Networks in Bureaucracies: Evidence from the Third Reich

In a seminal contribution to the literature on bureaucracy, Breton and Wintrobe (The Logic of Bureaucratic Conduct: An Economic Analysis of Competition, Exchange, and Efficiency in Private and Public Organization. New York, NY: Cambridge University Press, 1982) develop a model wherein subordinates and superiors in a bureaucratic structure trade with each other to advance the objectives of the superiors. The success of such an organizational arrangement (for superiors) is based upon the development of vertical trust networks in a way that facilitates the promise of informal payments by superiors in return for informal services provided by their subordinates. Breton and Wintrobe [Journal of Political Economy 94 (1986) 905] also provide a theoretical application of their model by describing the Nazi bureaucracy as a conglomeration of competing agencies that zealously carried out the Final Solution to the Jewish question. As an extension, this note develops two compelling empirical examples of vertical and horizontal trust networks within the Nazi regime: Einsatzgruppen As (Special Action Detachments) attempt to liquidate all Lithuanian Jews after the German invasion of the U.S.S.R. in 1941 and the 20 July 1944 attempt to assassinate Adolf Hitler.JEL Classification: D23, D73.     

Perturbations of Matrices: A theorem on the perron vector and its applications to input-output models

This is a much revised version of my paper The Effects of Errors in Matrices on the Perron Vector: An Application to Input-Output Models, which was presented at the 1987 European Meeting of the Econometric Society, held in Copenhagen. I would like to thank Gerard Sierksma and Albert E. Steenge for valuable discussions and two anonymous referees for their helpful comments.     

Buying and selling behavior in stochastic environments with backstop markets

The author acknowledges a research grant from the research program Private Forestry and helpful comments from two anonymous referees, Mats Bergman, and Runar Brännlund, Department of Economics, University of Umeå.     

Mutually Destructive Bidding: The FCC Auction Design Problem

In general, synergies across license valuations complicate the auction design process. Theory suggests that a simple (i.e., non-combinatorial) auction will have difficulty in assigning licenses efficiently in such an environment. This difficulty increases with increases in fitting complexity. In some environments, bidding may become mutually destructive. Experiments indicate that a properly designed combinatorial auction is superior to a simple auction in terms of economic efficiency and revenue generation in bidding environments with a low amount of fitting complexity. Concerns that a combinatorial auction will cause a threshold problem are not borne out when bidders for small packages can communicate.     

An essay on the “New” Kaldorian macrodynamics

Conclusion Considering that employment and output are positively related, and that productivity growth and inflation are inversely related, we see that Kaldor, through the hypothesis of embodied technical progress and induced investment, has presented us with the elements of a general theory of stagflation. As such, this Kaldorian theory constitutes the only serious opposition to the various monetarist explanations (most notably Milton Friedman's 1977 Nobel Lecture) of a positively sloped Phillips curve, based on the inflationary expectations mechanism and the notion of a changing natural rate of unemployment. Not so long ago, people were talking about the so-called locomotive theory of export-led growth, with such surplus countries as Germany and Japan, or large economies as the U. S., playing the role of the engine, given that the equally surplus oil-producing countries will also maintain a strong import-demand for industrial output. Fears (perhaps legitimate ones) about inherent inflationary tendencies have caused the abandonment of this approach to pull the world economy from its vicious stagflationary circle. Contrary to the monetarists' view that a recession is needed in order to combat inflation, Kaldor's own theory can serve as a guide to those who, more optimistically, believe or simply hope that investment and output growth is the only longterm weapon against both inflation and unemployment.The importance of the writings of Professor Kaldor, influential as they have proved to be well beyond his immediate Cambridge milieu, cannot be overestimated. He is a truly great economist, one of the few who make economic theory rather than simply repeat established dogmas. All economists will be educated by reading and re-reading his collected essays.     

Real exchange rates and target interest rates in a simple VAR model

This paper proposes a simple vector autoregressions (VAR) model with (real) output and exchange rate shocks on interest rates. Rather than assuming non-recursive identification schemes, we test the identifying assumption of the error term decompositions. Applying the model to quarterly data on major currencies against the U.S. dollar (USD) from 1974 to 1997, interest rate shocks explain - after 3 years - 16% of Canadian dollar/USD (CAD) real exchange rate variations and less than 2% for the mark/USD and yen/USD. Positive innovations of interest rates bring about (transitory) CAD real appreciations in differences and (permanent) appreciations in levels. Canadian real output is more explained by domestic interest rate shocks (19%) than Germanys (5%) or Japans (0.2%). Canada is smaller than the other economies and CAD has been shown to suffer from fear of floating. Our findings support the proposition that domestic shocks dominate output variance under fixed exchange rates. They are also consistent with structural interpretations of the VAR.     

Public-Choice Analysis of a New International Organization: The International Sea-Bed Authority

The usefulness of the public-choice approach for a better understanding of international organizations can be demonstrated by applying it to the analysis of the structure and functions of a new international organization, the International Sea-Bed Authority, established in 1994, after two decades of negotiations under the auspices of the United Nations, with the aim to control the oceans' mineral resources beyond the limits of national jurisdictions (which have been proclaimed by the U.N. Assembly common heritage of mankind). First, the reasons for establishing this organization, whose basis is the common heritage of mankind nature of ocean resources, are examined under two aspects: 1) definition and protection of property rights; 2) environmental control of sea-bed mining activities. Secondly, the organization's decisionmaking system is presented, including such features as the assembly, council with chamber voting, finance committee with decision by consensus, features that balance the voting power of members and protect those countries that bear the financial responsibility for the budget. Finally, some comments are offered about more general aspects of the theory of international organizations: the bureaucracy (and diplomacy) of these organizations as well as the interdependence among international organizations, which opens the way to forms of international logrolling and makes it advisable for countries not to exit from these organizations, even when they have no primary interest in them.     

The optimal intertemporal decision on industrial production and harvesting a renewable natural resource

This paper grew out of a research project financially supported by the Deutsche Forschungsgemeinschaft (DFG) in its program Economics of Natural Resources. This support is gratefully acknowledged. I also thank H. Wacker for helpful discussions. I also thank two anonymous referees for valuable comments on an earlier draft.     

Strategy-proof and individually rational social choice functions for public good economies

Summary We consider the problem of choosing an allocation in an economy in which there are one private good and one public good. Our purpose is to identify the class of procedures of choosing an allocation which satisfy strategy-proofness, individual rationality, no exploitation and non-bossiness. Any such procedure is a scheme of semi-convex cost sharing determined by the minimum demand principle.I wish to thank Professors Salvador Barbera, Matthew Jackson, Herve Moulin and William Thomson for their helpful suggestions and two anonymous referees for their detailed comments. Conversations with Professors Hideo Konishi, Shinji Oseto Ken-ichi Shimomura and Stephen Ching were helpful. This work is supported by the Japan Economic Research Foundation and Research Grants PB89-0294 and PB89-0075 from the Direcion General de Investigacion Cientifica y Tecnica, Spanish Ministry of Education.     

The “Dorfman Steiner” rule

Conclusion When this research was started, it was guessed that the Dorfman-Steiner rule would lose its relevance in an intertemporal setting. This belief has turned out to be false: along the optimal paths ofp (t) ands (t), and must be equal. The only difference with the Dorfman-Steiner result is that they will be different from unity.The author is chargé de cours at the Faculté Universitaire Catholique de Mons (Belgium). He has greatyl benefited from comments by M. Beuthe and J. J. Lambin.     

Artificial worlds and economics,part II

This paper continues the discussion of artificial worlds (AWs) begun in Lane (1993b). Here, the focus is on two kinds of AWs. The first, classifier systems, can be used to represent agents that are capable of generating complex behaviors in response to intermittent rewards from an environment of which they are a part. A collection of such agents, engaging in economic interactions with one another, produces another kind of AW, in which such interesting aggregate behaviors as the formation of bubbles and crashes and technical trading in an artificial stock market, may arise. The second kind of AW considered in this paper is artificial economies. These AWs can provide a dynamic, nonequilibrium, microfounded account of such aggregate-level or macroeconomic phenomena as stable growth paths, business cycles, and Pareto firm-size distributions.     

Anonymous sequential games: Existence and characterization of equilibria

Summary In this paper we consider Anonymous Sequential Games with Aggregate Uncertainty. We prove existence of equilibrium when there is a general state space representing aggregate uncertainty. When the economy is stationary and the underlying process governing aggregate uncertainty Markov, we provide Markov representations of the equilibria.Table of notation Agents' characteristics space ( ) - A Action space of each agent (aA) - Y Y = x A - Aggregate distribution on agents' characteristics - (X) Space of probability measures onX - C(X) Space of continuous functions onX - _X Family of Borel sets ofX - State space of aggregate uncertainty ( ) - x _t=1 aggregate uncertainty for the infinite game - = (₁,₂,...,_t,...) - ^{t t} (₁, ₂,..., _t) - L₁(^t,C ×A),v _t Normed space of measurable functions from ^t toC( x A) - 8o(^t,( x A)) Space of measurable functions from ^tto( x A) - X^t X^t= x _s=1 ^t X - _X ^t Borel field onX ^t - v Distribution on - v_t Marginal distribution of v on ^t - v(^t)((¦^t)) Conditional distribution on given ^t - v^t(^s)(v_t(¦^s)) Conditional distribution on ^t given ^s (wheres) - _t Periodt distributional strategy - Distributional strategy for all periods =(₁,₂,...,_t,...) - _t Transition process for agents' types - ( _t,^t,y)(P _t+1(, _t , ^t ,y)) Transition function associated with _t - u _t Utility function - V _t (, a, , ^t) Value function for each collection (, a, , ^t ) - W _t (, , ^t ) Value function given optimal action a - C() Consistency correspondence. Distributions consistent with and characteristics transition functions - B() Best response correspondence (which also satisfy consistency) - E Set of equilibrium distributional strategies - x _t=1 ( ^t , (x A)) - S Expanded state space for Markov construction - (, a, ) Value function for Markov construction - P( _t ^* , _t y)(P(, _t ^* , _t , _y )) Invariant characteristics transition function for Markov game We wish to acknowledge very helpful conversations with C. d'Aspremont, B. Lipman, A. McLennan and J-F. Mertens. The financial support of the SSHRCC and the ARC at Queen's University is gratefully acknowledged. This paper was begun while the first author visited CORE. The financial support of CORE and the excellent research environment is gratefully acknowledged. The usual disclaimer applies.     

Alternative Modelle und Hypothesen der Konsum- und Sparentscheidung(1)

Summary For the analysis of the allocation of personal disposable income to the different consumption goods and savings, an indirect-addilog-expenditure-system (IAES) has been constructed. Compared to the linear-expenditure-system (LES) the IAES to far more flexible and is not based upon the idea of minimum-consumption- or minimum-saving-quotas. On the other hand, marginal income shares are not fixed parameters. The IAES allows the derivation of a systematic savings- and consumption-function and supplies consistent income elasticities. But it will be shown that consistent demand systems are only restrictively able to consider all major determinants of the decision-problem consumption or saving. The derived system does not only neglect the effects of wealth on consumption and savings but also the results of real income fluctuations due to the business cycle. Also phenomena like unemployment and uncertainties regarding estimates of the future or inflation are neglected. With the help of an adjustment-procedure a part of these disadvantages has been eliminated. The adjustment with regard to the entire private consumption and savings supplied income elasticities which lead to an almost constant consumption- and savings-share in the period under investigation.