The Torrens–Ricardo Principle of Comparative Advantage: an Extension*

The Torrens–Ricardo Principle of Comparative Advantage rests on the special assumptions that, both in autarky and under free trade, all countries can produce all commodities and that, in autarkic equilibrium, each country consumes all producible commodities, at least incipiently. We reformulate the Principle to accommodate alternative assumptions. In our reformulation the emphasis is on marginal rates of substitution, not on the traditional marginal rates of transformation in production. It is shown in effect that, in existing formulations, the supply side is assigned a role that it can rarely sustain.     

Nonparametric estimation of scalar diffusion models of interest rates using asymmetric kernels

This paper proposes an asymmetric kernel-based method for nonparametric estimation of scalar diffusion models of spot interest rates. We derive the asymptotic theory for the asymmetric kernel estimators of the drift and diffusion functions for general and positive recurrent processes and illustrate the advantages of the Gamma kernel for bias correction and efficiency gains. The finite-sample properties and the practical relevance of the proposed nonparametric estimators for bond and option pricing are evaluated using actual and simulated data for U.S. interest rates.     

Inductive Game Theory: Discrimination and Prejudices

This paper proposes a new theory, which we call inductive game theory . In this theory, the individual player does not have a priori knowledge of the structure of the game that he plays repeatedly. Instead, he accumulates experiences induced by occasional random trials in the repeated play. A stationary state is required to be stable against intentional deviations based on the player's experiences, and then it turns out to be a Nash equilibrium. The main part of the paper is the consideration of possible individual views of the society based on individual experiences. This view is defined to be a model of the society which the player builds from his experiences. Coherency with these experiences and a condition called rationalization are required for a model. As concrete objects of the theory, this paper analyzes the phenomena of discrimination and prejudice. The development of the new theory is undertaken by contrasting its observational and behavioral aspects with mental and judgmental aspects. The relationship between discrimination and prejudice will emerge in this dichotomous consideration.     

Evolution in mechanisms for public projects

Summary This paper considers the explicit, real time dynamic processes in which cooperation emerges in a class ofbinary decision mechanisms, each of which determines funding for a public project. This class includes the Voluntary Contribution and the Majority Voting mechanisms. The population is subject to turnover so that new individuals enter society with possibly different beliefs about the future evolution of societal behavior than their predecessors. Individuals in this society maximize their discounted expected utilities. Due to the frequent turnover, however, these expectations may not be mutually consistent. Nevertheless, we find, for each mechanism, the nonempty set of the parameters for which the behavior pattern starting from states with nonprovision is absorbed into states with full provision with probability one. Moreover, for a sufficiently large population, outcomes with full provision are absorbing states if and only if certain types of voting mechanisms are used.We wish to thank an anonymous referee for valuable comments. We have also benefitted from the helpful comments of Srihari Ghovindan, Peter Linhart, George Mailath, Stephen Morris, Roy Radner, Rafael Rob, Nicholas Yannelis, and numerous seminar participants.     

A Computable General Equilibrium Analysis of Efficiency Improvements at Japanese Ports

In this paper we investigate the system-wide impact of increased efficiency of ports in Japan using a computable general equilibrium model developed for 1995. The Japanese Ministry of Transport has been implementing programs of the Ninth Seven-year Port Development Plan to improve port efficiency. The technological efficiency in the ports reduces the cost of shipping transportation, and the forward and backward linkages of imports and exports introduce some positive gains in the national GDP. Our analysis proves that the spillover effects are substantial on shipping transportation and to a lesser extent on the Japanese economy.     

A THEORY OF MONEY AND MARKETPLACES*

This article considers an infinitely repeated economy with divisible fiat money. The economy has many marketplaces that agents choose to visit. In each marketplace, agents are randomly matched to trade goods. There exist a variety of stationary equilibria. In some equilibrium, each good is traded at a single price, whereas in another, every good is traded at two different prices. There is a continuum of such equilibria, which differ from each other in price and welfare levels. However, it is shown that only the efficient single‐price equilibrium is evolutionarily stable.     

SEARCH,ADVERSE SELECTION,AND MARKET CLEARING

We examine a dynamic decentralized trading model with infinitesimal sellers and buyers to investigate whether or not the market fails to clear in the limit of search friction vanishing. A seller, who has private information about product quality, and a buyer are matched to bargain over price. They form a long‐term relationship if they reach agreement. They return to the matching pool if they fail to agree or the existing relationship is dissolved. The market fails to clear if and only if the ratio of agents' patience over the dissolution rate exceeds a threshold.     

Pricing Options With Curved Boundaries1

This paper provides a general valuation method for the European options whose payoff is restricted by curved boundaries contractually set on the underlying asset price process when it follows the geometric Brownian motion. Our result is based on the generalization of the Levy formula on the Brownian motion by T. W. Anderson in sequential analysis. We give the explicit probability formula that the geometric Brownian motion reaches in an interval at the maturity date without hitting either the lower or the upper curved boundaries. Although the general pricing formulae for options with boundaries are expressed as infinite series in the general case, our numerical study suggests that the convergence of the series is rapid. Our results include the formulae for options with a lower boundary by Merton (1973), for path-dependent options by Goldman, Sossin, and Gatto (1979), and for some corporate securities as special cases.     

The New Roles of Japan in the Global Political Economy

Now that Japan is the world's largest creditor nation, her economic responsibility is the biggest ever. By examining the nature of the three revolutions in Japanese society since the Meiji Restoration, it is apparent that while the speed of economic structural change has been remarkably high, other aspects of the Japanese social framework have remained archaic and premodern.
After discussing the structural changes in the Japanese, Asian, and U.S. economies, this paper makes a case for structural changes in the Japanese political, bureaucratic, and diplomatic world. The new perspective to be suggested is (1) to change the system to utilize more of individuals' initiatives, less of the regulated, restrained, and group-shackled way of management, and (2) for Japan to take positive leadership in a new global political economy based on the principle of independent and equal partnership in the world for world peace and stability.