Intertemporal Equity and Hartwick's Rule in an Exhaustible Resource Model*

In a standard exhaustible resource model, it is known that if, along a competitive path, investment in the augmentable capital good equals the rents on the exhaustible resource (known as Hartwick's rule), then the path is equitable in the sense that the consumption level is constant over time. In this paper, we show the converse of this result: if a competitive path is equitable, then it must satisfy Hartwick's rule.     

CAP Reforms in the 1990s and their Price and Welfare Implications: The Case of Wheat

We use a nonlinear commodity market model to assess, theoretically and empirically, the impacts of recent reforms of the CAP on prices and economic welfare in the EU. The empirical analysis is based on an aggregate structural econometric model of the EU wheat economy and its links to the rest of the world. Instability issues are also investigated. Impacts of CAP reforms on the variance of domestic and world prices are analysed and a Monte Carlo simulation is used to evaluate uncertainty in the model's welfare computations. Recent reforms led to a net welfare gain within the EU during the period 1993–2000. Additional budgetary costs are less than the welfare gains of consumers and producers. Producers gained as lower price support was overcompensated by additional direct payments.     

Systematic Political Grass–Root Support for Tariffs

The leading political–economy–of–trade models are virtually silent on two fundamental questions raised by Rodrik in 1995. Why are trade policies systematically biased against trade? And why are tariffs rather than more efficient production subsidies adopted to redistribute income? This paper shows that systematic political grass–root support for trade–restricting and inefficient tariffs emerges when the government has a revenue goal and collecting taxes is costly. Even if no tax instrument enjoys an advantage with respect to collection costs and the factor ownership distribution is unbiased, more people support tariffs than import or production subsidies. More generally, the presence of tax–collection costs creates a grass–root support bias for taxes over subsidies as instruments to redistribute income.     

Debt-equity swaps and the heavily indebted countries

In search of solutions to the international debt crisis, attention has recently been focused on a new financing technique, so-called debt-equity swaps. An essential difference between these and the usual swapping of debt into equity is that the former allow a wider range of applications. The following article seeks to elucidate the possible contribution of debt-equity swaps towards easing the debt burden and to estimate the potential for a reduction in external debt and its effect on the balance of payments of the debtor nation.     

The generalized Stackelberg equilibrium of the all-pay auction with complete information

We characterize the equilibrium of the all-pay auction with general convex cost of effort and sequential effort choices. We consider a set of n players who are arbitrarily partitioned into a group of players who choose their efforts ‘early’ and a group of players who choose ‘late’. Only the player with the lowest cost of effort has a positive payoff in any equilibrium. This payoff depends on his own timing vis-a-vis the timing of others. We also show that the choice of timing can be endogenized, in which case the strongest player typically chooses ‘late’, whereas all other players are indifferent with respect to their choice of timing. In the most prominent equilibrium the player with the lowest cost of effort wins the auction at zero aggregate cost. We thank Dan Kovenock and Luis C. Corchón for discussion and helpful comments. The usual caveat applies. Wolfgang Leininger likes to express his gratitude to Wissenschaftszentrum Berlin (WZB) for its generous hospitality and financial support.     

How to control a chaotic economy?

An economic system which exhibits chaotic behaviour has been stabilized on various periodic orbits by use of the Ott-Grebogi-Yorke method. This procedure has been recently applied to controlling chaotic phenomena in physical, chemical and biological systems. We adopt this method successfully for Feichtinger's generic model of two competing firms with asymmetrical investment strategies. We show that the application of this control method to the particular economic process considered brings a substantial advantage: one can easily switch from a chaotic trajectory to a regular periodic orbit and simultaneously improve the system's economic properties. Numerical simulations are presented in order to illustrate the effectiveness of the whole procedure.The work was supported by the Alexander von Humboldt-Stiftung and by the Polish National Council (KBN) Grant No 2 P302 038 04.     

Global environmental problems and the strategic choice of technology

Reductions of environmentally harmful emissions are often a public good in a global context. For strategic reasons, countries may adopt a technology with high per unit cost of emission reduction, even if a technology with lower per unit cost is available at no extra cost. They thereby credibly commit themselves to not reducing emission much in the future. In a game of private voluntary provision of emission reduction, this commitment will make other countries increase their emission reductions. Also, in the case where countries cooperate in the future, such commitment gives a country a strategic advantage, because it shifts the disagreement point in a favorable direction.