Conditional ordering extensions

We produce a solution to the problem of extending a quasiordering conditional on a finite list of ex-ante comparisons between pairs. This constitutes yet another extension of the classical Szpilrajn’s theorem. Some examples of use of our result follow.     

Mobile phone termination charges with asymmetric regulation

We model competition between two unregulated mobile phone companies with price-elastic demand and less than full market coverage. We also assume that there is a regulated full-coverage fixed network. In order to induce stronger competition, mobile companies could have an incentive to raise their reciprocal mobile-to-mobile access charges above the marginal costs of termination. Stronger competition leads to an increase of the mobiles’ market shares, with the advantage that (genuine) network effects are strengthened. Therefore, ‘collusion’ may well be in line with social welfare.      

State prices,liquidity, and default

We show, in a monetary exchange economy, that asset prices in a complete markets general equilibrium are a function of the supply of liquidity by the Central Bank, through its effect on default and interest rates. Two agents trade goods and nominal assets to smooth consumption across periods and future states, in the presence of cash-in-advance financing costs that have effects on real allocations. We show that higher spot interest rates reduce trade and as a result increase state prices. Hence, states of nature with higher interest rates are also states of nature with higher risk-neutral probabilities. This result, which cannot be found in a Lucas-type representative agent model, implies that the yield curve is upward sloping in equilibrium, even when short-term interest rates are fairly stable and the variance of the (macroeconomic) stochastic discount factor is 0. The risk-premium in the term structure is, therefore, a monetary-cost risk premium.     

Keynes and Wagner on government expenditures and economic development: the case of a developing economy

This paper investigates the Keynesian view and the Wagner’s Law on the role of public expenditure on economic growth for Malaysia (1970–2004). The empirical results using the Auto-Regression Distributed Lag (ARDL) model and the ‘bounds test’ (Pesaran et al. in J Appl Econ 16:289–326, 2001) showed evidence of a long run relationship between total expenditures (including expenditures on defense, education, development and agriculture) and Gross National Product. The results also show that with the structural break in 1998, the long run causality is bi-directional for GNP and expenditures on administration and health, supporting both Keynes view and Wagner’s Law. For all other expenditure categories the long run causality runs from GNP to the expenditures, which supports Wagner’s Law. An erratum to this article can be found at     

Secrecy and fairness in plea bargaining with multiple defendants

I consider a model of plea bargaining with multiple codefendants. I mainly compare the equilibrium outcomes under joint negotiations whereby both defendants can observe both plea offers and under separate (secret) negotiations whereby they can observe only their own respective offer. Contrary to the widespread perceptions, the prosecutor is made worse off under secret negotiations or at best as well off as under joint negotiations. I also discuss the implication of equilibrium offers on fairness.      

Monetary policy before and after the euro: evidence from Greece

We model Greek monetary policy in the 1990s and use our findings to address two interrelated questions. First, how was monetary policy conducted in the 1990s so that the hitherto highest-inflation EU country managed to join the euro by 2001? Second, how compatible is the ECB monetary policy with Greek economic conditions? We find that Greek monetary policy in the 1990s was: (i) primarily determined by German/ECB interest rates, though still influenced by domestic fundamentals; (ii) involving non-linear output gap effects; (iii) subject to a deficit of credibility culminating in the 1998 devaluation. On the question of compatibility our findings depend on the value assumed for the equilibrium post-euro real interest rate and overall indicate both a reduction in the pre-euro risk premium and some degree of monetary policy incompatibility. Our analysis has policy implications for the new EU members and motivates further research on fast-growing EMU economies.     

Debreu’s social equilibrium theorem with asymmetric information and a continuum of agents

We provide several different generalizations of Debreu’s social equilibrium theorem by allowing for asymmetric information and a continuum of agents. The results not only extend the ones in Kim and Yannelis (J Econ Theory 77:330–353, 1977), Yannelis and Rustichini (Stud Econ Theory 2:23–48, 1991), but also new theorems are obtained which allow for a convexifying effect on aggregation (non-concavity assumption on the utility functions) and non-convex strategy sets (pure strategies). This is achieved by imposing the assumption of “many more agents than strategies” (Rustichini and Yannelis in Stud Econ Theory 1:249–265, 1991; Tourky and Yannelis in J Econ Theory 101:189–221, 2001; Podczeck in Econ Theory 22:699–725, 2003). To the memory of Gerard Debreu. A preliminary draft was presented in Paris, in April of 2005. I have benefited from the discussion, comments and questions of Erik Balder, Jean-Marc Bonnisseu, Bernard Cornet and Filipe Martins Da-Rocha and Conny Podczeck. A careful and knowledgeable referee made several useful comments and rescued me from a mishap.     

Is the monetary policy rule responsive to exchange rate changes? The case of Indonesia,Malaysia, the Philippines,and Thailand

Extending Obstfeld and Rogoff (J Econ Perspect 9:73–96, 1995), Ball (Monetary policy rules, University of Chicago Press, pp. 127–144, 1999), Svensson (J Int Econ 50: 155–183, 2000), Taylor (Am Econ Rev 91: 263–267, 2001), Gali and Gertler (J Econ Perspect 21:25–46, 2007), and others, this paper finds that central banks in the Philippines and Thailand respond negatively to the current real exchange rate and positively to the lagged real exchange rate whereas central banks in Indonesia and Malaysia do not react to the current or lagged real exchange rate. For the Philippines and Thailand, the null hypothesis that the sum of the coefficients of the current and lagged real exchange rates is zero cannot be rejected at the 5% level. Central banks in these four countries respond positively to the inflation rate and the output gap, suggesting that the concept of a simple or an extended Taylor rule would apply to these countries. Monetary policy reaction functions for Indonesia and Thailand are steeper than those for Malaysia and the Philippines and would be more responsive to a change in the inflation rate.      

Regulatory effects on the market penetration and capacity of reliability differentiated service

This paper investigates the effects of alternative forms of regulation on the market penetration and capacity that are determined by a profit-maximizing monopolist providing reliability differentiated service to consumers. Both price cap and rate of return regulation lead to larger capacity and market penetration than in the absence of regulation. These forms of regulation also lead to larger consumer surplus than in the absence of regulation. A minimum reliability standard reduces market penetration, and this reduction may lead to a decrease in consumer surplus.      

The threat of regulatory environmental inspection: impact on plant performance

The expected costs of violating a regulation would typically increase if the probability of regulatory inspection increases. Thus, changes in the anticipated threat of inspection should affect firm compliance. Like environmental protection agencies in several other countries, the Norwegian agency typically emphasizes compliance with institutional requirements (e.g. firm-internal routines and auditing systems) rather than emission caps. Using a panel dataset of polluting Norwegian plants, we find that the threat of inspection significantly reduces the probability of serious violation. However, emissions are not significantly affected. We point at various reasons for the regulator to emphasize institutional requirements, but we also argue that the lack of effect on emissions encourages the agency to review the pros and cons of the common emphasis on institutional requirements over emissions.