On the private provision of public goods

We consider a general model of the non-cooperative provision of a public good. Under very weak assumptions there will always exist a unique Nash equilibrium in our model. A small redistribution of wealth among the contributing consumers will not change the equilibrium amount of the public good. However, larger redistributions of wealth will change the set of contributors and thereby change the equilibrium provision of the public good. We are able to characterize the properties and the comparative statics of the equilibrium in a quite complete way and to analyze the extent to which government provision of a public good ‘crowds out’ private contributions.     

The “similarity” and “heterogeneity” theses in studying innovation: evidence from the end-of-life vehicle case

The paper seeks to understand how eight companies in the European car industry responded to changing business conditions under the threat of regulation on the waste problem of end-of-life vehicles. It was observed that the companies pursued diverging innovation tracks in dealing with the regulatory pressure, although competing in the same markets and subject to similar regulatory pressure. The case is interesting to consider in the light of recent discussions of differences in styles of innovation. The question then is whether any sort of style of innovation may be distinguished in the diverging innovation tracks. The objective of the paper is to add to these discussions by considering the results of this case study in the light of “similarity” and heterogeneity hypotheses that may be advanced around “styles” of innovation.     

Country size and the voluntary provision of international public goods

Standard studies on voluntary contributions to an international public good treat national economies as if they were single agents. This masks the fact that nations are comprised of populations of citizens, whose collective benefits a national government takes account of when deciding on the amount of the contributions. This paper constructs a model which explicitly allows for the effect of population differences and explores their consequences. We can then present the so-called exploitation of the great by the small by Olson and Zeckhauser [Olson, M., Zeckhauser, R., 1966. An economic theory of alliances. Review of Economics and Statistics 48 (1966) 266–279] and explore how residents of larger countries fare relative to those in smaller countries. We also elaborate on the effects of changing populations and show that growing into a large country is not necessarily beneficial for the country's residents.     

Toward an efficiency rationale for the public provision of private goods

Public provision of a private goods is justified on efficiency grounds in a model with no redistributive preferences. A government’s involvement in the provision of a private good generates information about preferences that facilitates more efficient revenue extraction for the provision of public goods. Public provision of the private good improves economic efficiency under a condition that is always fulfilled under independence and satisfied for an open set of joint distributions. The efficiency gains require that consumers cannot arbitrage the publicly provided private good, so our analysis applies to private goods where it is easy to keep track of the ultimate user, such as schooling and health care, but not to easily tradable consumer goods.     

Depreciation and intergenerational altruism in the private provision of public goods

The static model of the private provision of public goods is refuted by empirical and experimental evidence which shows that contributions are above the levels predicted by the theory. The model is reconsidered here in an intertemporal framework that allows the formation of a stock of public good over time and admits intergenerational altruism into preferences. Both of these factors affect the level of private provision. An intertemporal version of the Samuelson rule is derived and it is shown that, for some parameter values, the provision level determined by this is matched by private provision. For other parameter values, it is shown how a system of taxation can achieve the optimum.     

Rewards and the private provision of public goods on dynamic networks

We study an evolutionary model of a public good game with rewards played on a network. Giving rewards to contributors transforms the game but gives rise to a second-order dilemma. By allowing for coevolution of strategies and network structure, the evolutionary dynamics operate on both structure and strategy. Players learn with whom to interact and how to act and can overcome the second-order dilemma. More specifically, the network represents social distance which changes as players interact. Through the change in social distance, players learn with whom to interact, which we model using reinforcement dynamics. We find that, for certain parameter constellations, a social institution, prescribing prosocial behavior and thus solving the second-order dilemma, can emerge from a population of selfish players. Due to the dynamic structure of the network, the institution has an endogenous punishment mechanism ensuring that defectors will be excluded from the benefits of the institution and the public good will be supplied efficiently.     

Debt financing of public investment: On a popular misinterpretation of “the golden rule of public sector borrowing”

In this paper I challenge the proposition that the golden rule of public sector borrowing is consistent with the principle of intertemporal allocative efficiency, in the sense that growth-enhancing public investment justifies a structural public deficit. I demonstrate that in the long run the social opportunity cost of debt-financed public investment exceeds the social opportunity cost of tax financed public investments. This result holds if the social rate of time preference is lower than the interest rate on government borrowing. Thus a benevolent government would use taxes to finance public investment. In the short run, debt financing is justified if public investment has a considerable growth effect on private consumption. This requires a corresponding initial undersupply of public capital.     

The case for a “productivity norm”: Comment on Dowd

Instead of aiming for zero inflation, a “productivity norm” would allow permanent changes in the price level reflecting opposite changes in productivity or unit costs of production. Dowd (1995) disputes my claim that a productivity norm would be more conducive to macroeconomic stability than a stable price level. But Dowd's arguments succeed in undermining the case for a productivity norm only to the extent that they also undermine his own case for zero inflation.     

Challenging the human crisis: “The trilemma”

The great increase in world population in the coming century will result in a human crisis of worldwide proportions. A new concept for describing and proposing solutions to this crisis, called the Trilemma, is described by the authors. To feed large and growing populations, humankind is now being forced to make the difficult choice between producing sufficient food for the world population and preserving the environment, or generating economic growth, requiring the consumption of energy and natural resources. These difficult choices present the Trilemma, a new concept that is composed of three dimensions: economic growth, resources such as energy and food, and the environment. None of these three dimensions can be optimized individually as they are mutually interdependent.This paper describes a possible world energy condition in the 21st century. Three scenarios of this energy consumption are presented and compared with the possible energy supply at that time. This supply is estimated from the extrapolation of the renewable energy development of the past and the possible fossil fuel supply. The comparison of the energy supply and the energy consumption indicates that the annual rate of economic growth in the developed region would be only 1% if the gross national product (GNP) per capita of the developing region increases gradually from 1/26 of the GNP of the developed regions in 1990, to 1/10 in 2020, and finally to 1/3 in 2100.Another possibility is that if the GNP per capita of the developing region remains 1/26 of the GNP of the developed regions between 1990 and 2100, the economic growth rate in the developed region could be as large as 3%. In the latter case, an energy shortage would develop in the middle of the 21st century, even if the fast breeder reactor were fully operational by the year 2030. Energy technological developments in Japan are also described as a part of the possible countermeasures against the Trilemma.     

“Constitutionalizing” the corporation

To become effective instruments in the attainment of a sustainable society, corporations should have their constitutional status settled. Thus far, mainly by Supreme Court decisions, corporations have an uncertain status. They are “persons” under the Constitution and have certain rights; but unlike natural persons, they do not have concomitant constitutional duties. Corporations should be viewed as “private” governments exercising substantial power in society. They are, however, considered to be associations of individuals rather than divisions of society. The need is to legitimate their governing power by “constitutionalizing” them. That can be done by corporations accepting, or having imposed upon them, two principal constitutional duties. First, means should be developed whereby corporate officers routinely take the general good into account. That duty could be implemented by making “social impact statements,” analogous to but broader than the familiar environmental impact statements, before making important corporate decisions. Secondly, as “sociological communities,” corporate officers wield considerable power over members of those communities. A bill of rights similar to the Constitution's Bill of Rights is recommended so as to make corporate power that is necessary for achievement of societal goals as tolerable and decent as possible. Acceptance of those duties would make corporations parts of, not separate from, the greater corporation called society. They would be private, profit-making entities with a definite public function. Preferably, the duties should be voluntarily accepted. Congress, however, has undoubted constitutional power to impose both, should it so desire.     

TESTING CATCHING‐UP BETWEEN THE DEVELOPING COUNTRIES: “GROWTH RESISTANCE” AND SOMETIMES “GROWTH TRAGEDY”

This paper provides empirical evidence that there is no convergence between the GDP per‐capita of the developing countries since 1950. Relying upon recent econometric methodologies (non‐stationary long‐memory models, wavelet models and time‐varying factor representation models), we show that the transition paths to long‐run growth (the catch‐up dynamics) are very persistent over time and non‐stationary, thereby yielding a variety of potential steady states (conditional convergence). Our findings do not support the idea according to which the developing countries share a common factor (such as technology) that eliminates per‐capita output divergence in the very long run. Instead, we conclude that growth is an idiosyncratic phenomenon that yields different forms of transitional economic performance: growth tragedy (some countries with an initial low level of per‐capita income diverge from the richest ones), growth resistance (with many countries experiencing a low speed of growth convergence), and rapid convergence.     

Income and wealth heterogeneity in the voluntary provision of linear public goods

This paper examines the effect of income and wealth heterogeneity in the voluntary provision of a linear public good. We use models of inequality aversion and altruism to predict behavior in our setting. Our results are not consistent with these models, however; our experimental results suggest that less wealthy subjects give the same absolute amount (and more as a percentage of their income) as the more wealthy.     

The Role of Absolute Continuity in “Merging of Opinions” and “Rational Learning”

D. Blackwell and L. Dubins (1962, Ann. Math. Statist.38, 882–886) showed that opinions merge when priors are absolutely continuous. E. Kalai and E. Lehrer (1993, Econometrica61, 1019–1045) use this result to show that players in a repeated game eventually play like a Nash equilibrium. We provide an alternative proof of merging of opinions that clarifies the role of absolute continuity while casting doubt on the relevance of the result. Persistent disagreement, the opposite of merging, allows the construction of a sequence of mutually favorable “bets.” By a law of large numbers, both agents are certain they will win these bets on average. This certain disagreement violates absolute continuity. Journal of Economic Literature Classification Numbers: C11, C69, C72, D83.     

At the crossroads of “futurism” and “prospective”: Towards a Canadian synthesis?

North American “future studies” and the French concept of “prospective” have been integrated to provide the basis for an attempted “Canadian Synthesis” in the approach developed by the Montreal-based think-tank, the Gamma Institute. In this paper the founding president of Gamma outlines the four stages of the approach in a conceptual framework entitled the “Chronospace” and illustrates its applicability by referring to some of Gamma's projects in the last 12 years.     

“Large” versus “Small” Players: A Closer Look at the Dynamics of Speculative Attacks

What is the role of “large players” (e.g., hedge funds) in speculative attacks? Recent work suggests that large players move early to induce smaller agents to attack. However, many observers argue that large players move late in order to benefit from interest‐rate differentials. We propose a model in which large players can do both. Using data on currency trading by foreign (large) and local (small) players, we find that foreign players moved last in three attacks on the Norwegian krone during the 1990s. During the attack on the Swedish krona after the Russian moratorium in 1998, foreign players moved early. Gains by delaying attack were small, however, because interest rates did not increase.     

“ENVIRONMENT”, “NEEDS” AND REAL INCOME COMPARISONS(1)

Conventional measures of national product make no pretence of including everything that affects welfare. As increasing attention is being paid to environmental pollution, the problem of incorporating certain non-economic variables into the analysis of well-being becomes more relevant. The object of this note is to show how a difference in “needs” for, and hence expenditures on, anti-pollutants, which will show up in conventional national accounts comparisons as differences in “tastes”, should be converted into differences in real income.     

“GATT‐think” with Asymmetric Countries*

We argue that a trade agreement which conforms to GATT’s reciprocity rule benefits the (stronger) less trade‐dependent country at the expense of the (weaker) more trade‐dependent country. Reciprocity is so unfavorable to the weaker country that it may be worse off under reciprocity than under the Nash‐ bargaining solution, a “power‐based” approach to trade negotiations that reflects power asymmetries among trading partners. Our results question Bagwell and Staiger’s (1999 , 2000 ) view of reciprocity as a rule that “serves to mitigate the influence of power asymmetries on negotiated outcomes.”