Aggregation, efficiency and mutual fund separation in incomplete markets

Summary. This paper studies the conditions for aggregation, portfolio separation and effective completeness of competitive allocations in general equilibrium models with incomplete markets where agents have general preference and endowment distributions. We show that these properties are distinct. Demands may aggregate yet may fail to exhibit fund separation and conversely. Fund separation implies effective completeness while aggregation does not. The implications of these properties for the structure of equilibria are discussed, and generalizations of the CAPM, the consumption CAPM and the CAPM with nonmarketed wealth emerge from the analysis. Received: September 12, 1996; revised version: November 7, 1996     

WOULD YOU LIKE TO ENTER FIRST WITH A LOW‐QUALITY GOOD?

Using a two‐period duopoly model with vertical differentiation, we show that there exists a unique subgame perfect equilibrium where the first entrant supplies a lower quality and gains higher profits than the second entrant. We also prove that this entry sequence is socially efficient.     

THE LABOUR MARKET AND TECHNICAL CHANGE IN ENDOGENOUS CYCLES

The paper examines how a macro model, where there is an endogenous technical progress and strong interdependence between real and monetary aspects in both the labour and capital markets, can generate endogenous business cycles. This approach helps to understand the ambiguity of the NAIRU, the nature of the Phillips curve and the impact of labour productivity changes on the curve itself. Finally, the presence of expectation functions based upon a Markov‐switching time series process fosters endogenous dynamics and contributes to make asymmetries an important feature of the cycles.     

Income distribution and debts in a fragile economy: market processes and macro constraints

The purpose of the paper is to study fluctuations in a fragile economy, where the role of debt and income distribution is considered. It is based upon a macro approach that emphasizes interactions between market processes and macro constraints within an uncertain environment. By utilizing a regime switching approach, where behavioural functions change when a threshold is violated, robust dynamics can be generated. The model can mimic some aspects of the present evolution of the world economy by means of simulations.     

Mortality in elderly injured patients: the role of comorbidities

Home injuries in older people are an important cause of morbidity, disability and death. In addition, the presence of a pre-existing disease has generally been shown to be associated with higher mortality in this population. The objective of the study was to evaluate the association between pre-existing chronic conditions and risk of death among older trauma patients. A retrospective study was conducted in the Lazio Region, including the city of Rome. The study included all the people aged 65 years or older who were admitted to emergency departments in the year 2000 for home or road injuries, which was followed by hospitalisation within 24 hours. Comorbidities are quantified according to the Charlson Comorbidity Index (CCI). The outcome of interest was 30-day mortality. To measure the association between comorbidities and the probability of death, logistic regression was used, adjusting for triage code, sex, age and place of injury. An analysis stratified by triage was also performed. It was found that 17.9% of the injured subjects (8145) were affected by one or more chronic conditions. The probability of death was higher among males, older people, more severe patients and in cases of home accident. Risk of death for non-urgent and urgent patients increased with the increasing of the CCI score. Mortality among very urgent injured elderly was not affected by the presence of chronic conditions. It was concluded that chronic conditions are strong determinants of mortality, particularly for mild injuries.     

Long‐term Effects of the Efficiency Wage Hypothesis in Goodwin‐type Economies

The existence of an efficiency wage mechanism in Goodwin‐type models may lead to the unexpected appearance of an economically meaningful equilibrium with zero labour share, which is globally stable for some parameter constellation and allows the system to attain its ‘maximal growth'. A subsequent ‘normative’ comparison between the possible long‐term regimes of the economy shows that (1) the zero labour share equilibrium can be the ‘preferred’ equilibrium in terms of welfare; (2) in all the long‐term regimes the welfare is higher than in the original Goodwin model; (3) a point of maximal welfare exists. Moreover, the effects of rational behaviour of firms are compared with the ‘traditional’ situation in which rationality is not explicitly assumed. A striking result appears: myopic rationality can have deleterious effects on the profit of firms and on the overall welfare of the economy.     

REAL EXCHANGE RATE CYCLES AROUND ELECTIONS

We develop the implications of devaluation cycles for real exchange rates in a two-sector small open economy with a cash-in-advance constraint. Policy-makers are office-motivated politicians. Voters have incomplete information on the competence and the opportunism of incumbents. Devaluation acts like a tax, and is politically costly because it can signal the government is incompetent. This provides incumbents an incentive to postpone devaluations, and can lead to an overvalued exchange rate before elections. We compare the implied cycle of appreciated/depreciated exchange rates with empirical evidence around elections from Latin America.     

Neoclassical production theory and growth with unemployment: The stability issue revisited

A common belief in economic growth theory is that the instability of the balanced growth path of models based on a non-neoclassical production theory, such as the Harrod–Domar or Goodwin-type models, may be removed by introducing neoclassical technology and substitutability between factors. This does not need to be true. As shown in this paper, Solow-type models with sluggishly adjusting, non-market-clearing, real wages and endogenous fertility may suffer instability. Not only: instability may be favoured by too strong a degree of neoclassical substitution in the economy.     

DEMOGRAPHY IN MACROECONOMIC MODELS: WHEN LABOUR SUPPLY MATTERS FOR ECONOMIC CYCLES

The issue of the onset of Malthusian cycles is investigated by means of a demo‐economic model incorporating the age structure of the population. It is shown that the delayed recruitment into the labour force is a major source of demo‐economic instability, potentially leading to sustained oscillations. We also compare different modelling strategies for age structure, by showing that the results of our general model are borne out by those provided by a simpler model, based on a representation of age structure via time delays, which allows a deeper mathematical analysis. This suggests that simplified delay models may be of great help in understanding the qualitative properties of complex age structure models.     

Social security and risk sharing

In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex ante Pareto-improving in a stochastic OLG economy with capital accumulation and land. We argue that these conditions are consistent with realistic specifications of the parameters of the economy. In our model financial markets are complete and competitive equilibria interim Pareto efficient. Therefore, a welfare improvement can only be obtained if agents? welfare is evaluated ex ante, and arises from an improvement in intergenerational risk sharing. We also examine the optimal size of a given social security system as well as its optimal reform.