Undiscounted optimal growth in the two-sector Robinson-Solow-Srinivasan model: a synthesis of the value-loss approach and dynamic programming

We highlight two features of undiscounted optimal growth in the context of a two-sector model due to Robinson, Solow and Srinivasan. First, we use the value-loss approach of Radner-Gale-McKenzie to show a multiplicity of optimal programs in situations when optimality does not coincide with value-loss minimization. Second, we use a theory of undiscounted dynamic programming, not available in the literature, to derive properties of the optimal policy correspondence. In terms of a methodological perspective, we suggest a synthesis of the two methods for the analysis of problems of optimal intertemporal resource allocationThis essay is dedicated to Mukul Majumdar on the occasion of his sixtieth birthday, with affection and admiration. We would like to thank Robert Becker, Minako Fujio and Ron Jones for useful discussions and to a referee of this journal for very insightful comments. We are grateful to the Center for Analytic Economics at Cornell and to the Center for a Livable Future at Johns Hopkins for research support     

On choice of technique in the Robinson–Solow–Srinivasan model

We report results on the optimal "choice of technique" in a model originally formulated by Robinson, Solow and Srinivasan. By viewing this model as a specific instance of the general theory of intertemporal resource allocation associated with Brock, Gale and McKenzie, we resolve long-standing conjectures in the form of theorems on the existence and price-support of optimal paths, and on their long-run behavior. We also examine policies, due to Stiglitz, as a cornerstone for a theory of transition dynamics in this model. We present examples to show that: (i) an optimal program can be periodic; (ii) a Stiglitz' program can be bad; and (iii) a Stiglitz production program can be non-optimal. We then provide sufficient conditions under which the policies proposed by Stiglitz coincide with optimal behavior.     

SLUM DWELLERS' ACCESS TO BASIC AMENITIES: THE ROLE OF POLITICAL CONTACT, ITS DETERMINANTS AND ADVERSE EFFECTS

This paper analyzes slum dwellers' access to basic amenities and the ways in which they gain access. Associations between Indian states' share of slums, proportions of notified slums, and prevailing conditions in terms of basic amenities present political contact as a key factor. Based on the political economy framework, slum survey data (2004–2005) show that political contact helps access facilities such as land tenure and basic amenities. The logit model identifies determinants of political contact by examining social networks and individual endowments. While political accessibility is crucial as a survival strategy, slum dwellers' vulnerability hardly diminishes over time; on the contrary, the political use of slums perpetuates it. However, strong social networks can prevent low income households from declining to a low equilibrium. The role of political contact is less applicable in other Asian countries. Instead, rational policies have greater relevance in improving the conditions of these low income households.     

Stock market prediction using evolutionary support vector machines: an application to the ASE20 index

The main motivation for this paper is to introduce a novel hybrid method for the prediction of the directional movement of financial assets with an application to the ASE20 Greek stock index. Specifically, we use an alternative computational methodology named evolutionary support vector machine (ESVM) stock predictor for modeling and trading the ASE20 Greek stock index extending the universe of the examined inputs to include autoregressive inputs and moving averages of the ASE20 index and other four financial indices. The proposed hybrid method consists of a combination of genetic algorithms with support vector machines modified to uncover effective short-term trading models and overcome the limitations of existing methods. For comparison purposes, the trading performance of the ESVM stock predictor is benchmarked with four traditional strategies (a naïve strategy, a buy and hold strategy, a moving average convergence/divergence and an autoregressive moving average model), and a multilayer perceptron neural network model. As it turns out, the proposed methodology produces a higher trading performance, even during the financial crisis period, in terms of annualized return and information ratio, while providing information about the relationship between the ASE20 index and DAX30, NIKKEI225, FTSE100 and S&P500 indices.     

Simple sequencing problems with interdependent costs

In this paper we analyze simple sequencing problems under incomplete information and interdependent costs. We prove the necessity of concave cost function for implementability of such problems. Implementability means that one can achieve aggregate cost minimization in ex-post equilibrium. We also show that simple sequencing problems are implementable if and only if the mechanism is a ‘generalized VCG mechanism.’ We then consider first best implementability, that is implementability with budget balancing transfer. We prove that for implementable n agent simple sequencing problems, with polynomial cost function of order (n−2) or less, one can achieve first best implementability. Finally, for the class of implementable simple sequencing problems with “sufficiently well behaved” cost function, this is the only first best class.     

Economic (dis)integration in the presence of evolutionary learning

We use a two-factor, two-sector model to study the effects of economic integration and its reversal in the presence of input-generated external economies in one of the sectors. The equilibrium selection problem that arises is solved by applying a simple trial-and-error learning rule. Economic integration can take individual economies ridden with coordination failures to better equilibria, i.e., can solve the coordination problem. We show that integration (and disintegration) may generate cycles in wages, rentals and the sectoral allocation of factors.JEL Classification: F15, F16, F37 Corespondence to: Diego Méndez-Carbajo     

On the existence of optimal processes in non-stationary environments

We consider an aggregative model of intertemporal allocation under uncertainty, in which the utility and production functions are allowed to be time dependent, the random shocks occurring in each period are entirely arbitrary, and the production functions are permitted to be non-concave. In this framework, we provide a theorem on the existence of infinite-horizon optimal processes. In the course of establishing this result, we obtain the existence of optimal policy functions and we show that they are monotone in the stock levels.This paper has benefitted from the comments of two referees of the journal. Research of the first author was supported by a National Science Foundation Grant.     

Supply chain integration and shareholder value: Evidence from consortium based industry exchanges

Recent trade and academic literature point to the importance of supply chain integration among partners as a key determinant of value creation. This paper analyzes the shareholder value effects of setting up industry exchanges, a prominent mechanism used to achieve supply chain integration. Shareholder value effects are estimated by measuring the stock market reaction (abnormal returns) associated with announcements to form or join industry exchanges. We find that abnormal returns from participation in industry exchanges are positive but only marginally significant in the whole sample of 144 firms in 18 exchanges formed during 2000–2001. In the sub-sample of 88 exchange founders who were part of the original announcements to form the exchange, the abnormal market reaction is about 1% and significant. We also find that firms with greater bargaining power and higher process efficiency benefit more from participation in industry exchanges.