A strategy-proofness characterization of majority rule

Summary. A feasible alternative x is a strong Condorcet winner if for every other feasible alternative y there is some majority coalition that prefers x to y. Let (resp., denote the set of all profiles of linear (resp., merely asymmetric) individual preference relations for which a strong Condorcet winner exists. Majority rule is the only non-dictatorial and strategy-proof social choice rule with domain , and majority rule is the only strategy-proof rule with domain . Received: August 29, 2000; revised version: November 13, 2002 RID="*" ID="*"We are grateful to Wulf Gaertner and our two referees for insightful comments on a previous draft. Correspondence to: D. E. Campbell     

A simple axiomatization and constructive representation proof for choquet expected utility

>P>Summary. We provide a set of simple and intuitive set of axioms that allow for a direct and constructive proof of the Choquet Expected Utility representation for decision making under uncertainty. Received: October 29, 2002; revised version: November 13, 2002 RID="*" ID="*" We thank Matthew Ryan for very useful comments and suggestions on related work and for encouraging us to write this note. Correspondence to: S. Grant     

Candidate stability and nonbinary social choice

Summary. The requirement that a voting procedure be immune to the strategic withdrawal of a candidate for election can be formalized in different ways. Dutta, Jackson, and Le Breton (Econometrica, 2001) have recently shown that two formalizations of this candidate stability property are incompatible with some other desirable properties of voting procedures. This article shows that Grether and Plott's nonbinary generalization of Arrow's Theorem can be used to provide simple proofs of two of their impossibility theorems. Received: August 15, 2001; revised version: March 11, 2002 RID="*" ID="*" Parts of this article were previously circulated in somewhat different form in a working paper with the same title by the second author. We are grateful to Michel Le Breton and an anonymous referee for their comments. Correspondence to:J.A. Weymark     

Stationary measures for some Markov chain models in ecology and economics

Summary. Let continuous, exists in for x in . Let be an i.i.d. sequence from F and X₀ be a nonnegative random variable independent of . Let be the Markov chain generated by the iteration of random maps by . Such Markov chains arise in population ecology and growth models in economics. This paper studies the existence of nondegenerate stationary measures for {X_n}. A set of necessary conditions and two sets of sufficient conditions are provided. There are some convergence results also. The present paper is a generalization of the work on random logistics maps by Athreya and Dai (2000).Received: 20 March 2002, Revised: 4 December 2002, JEL Classification Numbers: C22, D9.The author wishes to thank Professor Mukul Majumdar and the referees for several useful suggestions.     

Pareto efficient insurance contracts when the insurer's cost function is discontinuous

Summary. We consider the problem of efficient insurance contracts when the cost structure includes a fixed cost per claim. We prove existence of efficient insurance contracts and that the indemnity function in such contracts is non-decreasing in the damage. We further show that either there is no insurance, or the indemnity is positive for all losses, or efficient insurance contracts have a unique jump. We study variants of the model and provide a generalization to the case of non expected utilities. Our results are then applied to Townsend's model of deterministic auditing. Received: November 8, 2000; revised version: March 12, 2002 RID="*" ID="*" We are grateful to F. Salanié for pointing out an error in the previous version of the paper and for suggesting Proposition 6 to us. Correspondence to: R.-A. Dana     

Evolutionary foundations of aggregate-taking behavior

Summary. I show that aggregate-taking behavior is often evolutionarily stable for finite population in symmetric games in which payoff depends only on own strategy and an aggregate. I provide economic examples exhibiting this phenomenon. Received: August 27, 2001; revised version: January 29, 2002 RID="*" ID="*" The paper has profited from the comments of Maria Montero, Burkhard Hehenkamp, Wolfgang Leininger, and Dave Furth. Financial support from the DFG via Postgraduate Programme at the University of Dortmund and via SFB 504 at the University of Mannheim is acknowledged. RID="*" ID="*" Present address: University of Mannheim, SFB 504, L 13, 15, 68131 Mannheim, Germany (e-mail: possajen@sfb504.uni-mannheim.de)     

Incentive compatible contractible information

Summary. The paper seeks to characterize what information is always available for contracting, independent of the form of the contract and the probabilities of different states of nature. The paper denotes such information as contractible. It is established that it is possible to speak uniquely of maximal contractible information. Several characterizations are exhibited. In particular, it is shown that if either (a) punishments are bounded everywhere, or (b) deviations from truth-telling are either always or never detected, then maximum contractible information coincides with where is the information partition of agent j. An argument is given for why (b) may be expected to hold. Received: August 7, 2000; revised version: December 21, 2001 RID="*" ID="*" I thank Michael Chwe, Douglas Diamond, Lars Stole, Robert Townsend, Nicholas Yannelis and an anonymous referee for helpful comments.     

A common trends model of UK core inflation

In this paper the long-run trend in RPI inflation (core inflation) for the UK over the 1961–1997 period is estimated within the framework of a multivariate common trends model which extends the bivariate VAR approach of Quah and Vahey (1995). In this context core inflation is directly linked to money and wage growth and interpreted as the long-run forecast of inflation from a small-scale, cointegrated macroeconomic system. First version received: September 1999/Final version received: October 2001 RID="*" ID="*"  We thank two anonymous referees for many helpful comments and suggestions. Work on this paper was partially conducted when C. Morana was at Heriot-Watt University.     

Dictatorial domains

Summary. In this paper, we introduce the notion of a linked domain and prove that a non-manipulable social choice function defined on such a domain must be dictatorial. This result not only generalizes the Gibbard-Satterthwaite Theorem but also demonstrates that the equivalence between dictatorship and non-manipulability is far more robust than suggested by that theorem. We provide an application of this result in a particular model of voting. We also provide a necessary condition for a domain to be dictatorial and use it to characterize dictatorial domains in the cases where the number of alternatives is three. Received: July 12, 2000; revised version: March 21, 2002 RID="*" ID="*" The authors would like to thank two anonymous referees for their detailed comments. Correspondence to: A. Sen     

Nash and Walras equilibrium via Brouwer

Summary. The existence of Nash and Walras equilibrium is proved via Brouwer's Fixed Point Theorem, without recourse to Kakutani's Fixed Point Theorem for correspondences. The domain of the Walras fixed point map is confined to the price simplex, even when there is production and weakly quasi-convex preferences. The key idea is to replace optimization with “satisficing improvement,” i.e., to replace the Maximum Principle with the “Satisficing Principle.” Received: July 9, 2001; revised version: February 25, 2002 RID="*" ID="*" I wish to thank Ken Arrow, Don Brown, and Andreu Mas-Colell for helpful comments. I first thought about using Brouwer's theorem without Kakutani's extension when I heard Herb Scarf's lectures on mathematical economics as an undergraduate in 1974, and then again when I read Tim Kehoe's 1980 Ph.D dissertation under Herb Scarf, but I did not resolve my confusion until I had to discuss Kehoe's presentation at the celebration for Herb Scarf's 65th birthday in September, 1995. RID="*" ID="*"Correspondence to: C. D. Aliprantis     

A two-sector overlapping generations model with heterogeneous capital

Summary. This paper characterizes the existence and stability properties of steady state solutions as well as the nature of transition paths of a two-sector growth model with heterogeneous capital. It compares the properties of a Cobb-Douglas–Leontief economy with heterogeneous capital with the properties of the same economy with homogeneous capital. The model with heterogeneous capital reveals a set of characteristics different to those of the model with homogeneous capital. These include the saddle-path stability of the non-trivial steady state as well as the possibility of overshooting and in contrast to the homogeneous capital case, the possibility of damped oscillations along the transition path for realistic parameter values. Received: September 21, 2001; revised version: November 21, 2002 RID="*" ID="*" We thank Costas Azariadis, and Laurie Conway for helpful comments on a previous draft. The paper has substantially benefited from the feedback of an anonymous referee. Correspondence to: R. Wendner     

Indeterminacy in a small open economy with endogenous labor supply

Summary. We establish conditions under which indeterminacy can occur in a small open economy business cycle model with endogenous labor supply. Indeterminacy requires small externalities in technologies with social constant returns to scale, independently of the intertemporal elasticities in both consumption and labor. Received: December 12, 2001; revised version: May 17, 2002 RID="*" ID="*"The paper has benefited from discussions with Jess Benhabib and Mark Weder, as well as from the comments of an anonymous referee. Correspondence to: Q. Meng     

Cournot-Nash and Lindahl equilibria in pure public “bad” economies

Summary. Using a general equilibrium framework, this paper analyzes the equilibrium provision of a pure public bad commodity (for example pollution). Considering a finite economy with one desired private good and one pure public “bad” we explicitly introduce the concept of Lindahl equilibrium and the Lindahl prices into a pure public bad economy. Then, the Lindahl provision is analyzed and compared with the Cournot-Nash provision. The main results for economies with heterogeneous agents state that the asymptotic Lindahl allocation of the pure public bad is the null allocation. In contrast, the asymptotic Cournot-Nash provision of the public bad might approach infinity. Other results were obtained in concert with the broad analysis of the large finite economies with pure public bad commodities. Received: July 26, 2001; revised version: March 12, 2002 RID="*" ID="*" We are indebt to Nicholas Yannelis and anonymous referee for their valuable comments and suggestions. Correspondence to: B. Shitovitz     

The sale of small firms: a multidimensional analysis

Summary. This paper endogeneizes the security voting structure in an auction mechanism used to sell a small firm. The design of security voting structure allows the seller to choose between two objectives which are not mutually consistent. If the seller wants to maximize his revenue, he should retain some shares to benefit from the future dividends generated by the acquirer. At the opposite, if he wants to sell his firm to the most efficient candidate, he should sell all the shares. Received: July 4, 2001; revised version: October 31, 2002 RID="*" ID="*" The paper has benefited from a number of comments from the anonymous referees. Correspondence to: C. At     

On strategic complementarity conditions in Bertrand oligopoly

Summary. For Bertrand duopoly with linear costs, we establish via a single (counter-)example that: (i) A new monotone transformation of the firms' profit functions may lead to the supermodularity of transformed profits when the standard log and identity transformations both fail to do so, and (ii) Topkis's notion of critical sufficient condition for monotonicity of a Bertrand firm's best-reply correspondence cannot be extended to rely only on positive unit costs. Received: January 16, 2001; revised version: March 20, 2002 RID="*" ID="*" This work was completed while the first author was visiting the Institute for Industrial Economics at the University of Copenhagen during Spring 2000. Their financial support and stimulating research environment are gratefully acknowledged. The views expressed here are those of the authors and should not be attributed to the European Commission. Correspondence to: R. Amir     

On the geography of conventions

Summary. We study an evolutionary model in which heterogenous boundedly rational agents interact locally in order to play a coordination game. Agents differ in their mobility with mobile agents being able to relocate within a country. We find that mobile agents enjoy a higher payoff and always benefit from increased mobility, while immobile agents benefit from increased mobility at low levels of mobility only. This wedge in payoffs weakly increases as mobility increases. Some extensions are discussed. Received: January 10, 2001; revised version: December 4, 2002 RID="*" ID="*" We thank, without implicating in any way, George Mailath for helpful discussions. Some of the ideas in this paper were developed during the V Conference of the Society for the Advancement of Economic Theory in Ischia, Italy. The NSF provided financial support. Correspondence to: T. Temzelides     

Evolutionary economics and the counterfactual threat: on the nature and role of counterfactual history as an empirical tool in economics

Counterfactual conditional statements are ubiquitous in any scientific endeavour. This paper contains an analysis of the nature of counterfactual conditionals and the conditions under which they are considered assertable by scientists. The paper then applies this analysis to the use of counterfactuals in evolutionary economics, arguing that because evolutionary economics is inherently concerned with historical processes it cannot avoid the use of counterfactual history as one of its tools of empirical analysis. We discuss the strengths and pitfalls of counterfactual history. We argue that because evolutionary economics starts from the foundation that randomness may be inherent in any economic system, the very aspects of evolutionary economics that make counterfactual history a desirable empirical tool also make that tool difficult to employ. RID="*" ID="*" We thank the participants of the International Seminar on Evolutionary Economics as a Research Programme in Stockholm, May 1997, for many helpful comments. We also thank Lorri Baier for many helpful substantive and textual comments. Correspondence to: R. Cowan     

On bubbling dynamics generated by a stochastic model of herd behavior

This paper suggests a class of stochastic collective learning processes exhibiting very irregular behavior. In particular, there are multimodal long run distributions. Some of these modes may vanish as the population size increases. This may be thought of as “bubbles” persistent for a finite range of population sizes but disappearing in the limit. The limit distribution proves to be a discontinuous function of parameters determining the learning process. This gives rise to another type of “bubbles”: limit outcomes corresponding to small perturbations of parameters are different. Since an agent's decision rule involves imitation of the majority choice in a random sample of other members of the population, the resulting collective dynamics exhibit “herding” or “epidemic” features. RID="*" ID="*" We are grateful to two anonymous referees for the comments and suggestions. Correspondence to: L. Gaio     

Stochastic convexity in dynamic programming

Summary. This paper explores sufficient conditions for a continuous stationary Markov optimal policy and a concave value function in stochastic dynamic programming problems. Also, the paper addresses conditions needed for the differentiability of the value function. The paper uses conditions such as first order stochastic dominance, second order stochastic dominance and concave stochastic dominance that are widely applied in economics. Received: February 23, 2001; revised version: May 19, 2002 RID="*" ID="*" I am deeply indebted to Prajit Dutta for patient assistance and advice. This paper has benefited from discussions with Tsz Cheong Lai, Tackseung Jun, Werner Stanzl and Satyajit Bose as well as feedback from an anonymous referee.     

Persistent unemployment and co-ordination issues: an evolutionary perspective

Abstract. In this paper we look at unemployment as a phenomenon which reflects the co-ordination problems that characterize out-of-equilibrium processes of adjustment. The analysis carried out shifts the focus from structural factors to the economic process. It shows that unemployment cannot be satisfactorily explained – and policy interventions devised – by focusing only on specific characters of the technology or confining the analysis to structural factors concerning the labour market. The co-ordination mechanisms of adjustment processes rather than the fundamentals of the economy appear, in this light, as the main determinants of differences in unemployment trends in different economies; and monetary policy comes back to the center of the stage as an essential element of the working of these mechanisms. RID="*" ID="*" We thank anonymous referees for their very useful comments, and Elena Lega for the helpful support to the simulation analysis carried out. Correspondence to: J.-L. Gaffard