Stationary cardinal utility and optimal growth under uncertainty

In the literature on multiperiod planning under uncertainty, it is generally postulated that preferences may be represented by a von Neumann-Morgenstern utility index that is additive over time. This paper accomplishes two objectives: First, an axiomatic basis is provided for a more general class of non-additive utility indices defined over infinite consumption streams. Second, this class of utility functions is applied to extend existing results (J. Econ. Theory4 (1972), 479–513; J. Econ. Theory11 (1975), 329–339) on the nature of optimal growth under uncertainty. Of particular interest are the existence and stability of a stochastic steady state.     

The efficacy and efforts of interest groups in post elections policy formation

This paper presents a new model of interest groups and policy formation in the legislature. In our setting, the already given party ideological predispositions and power distribution determine the expected policy outcome. Our analysis applies to the case of un-enforced or enforced party discipline as well as to two-party and multi-party (proportional representation) electoral systems. The interest groups’ objective is to influence the outcome in their favor by engaging in a contest that determines the final decision in the legislature. Our first result clarifies how the success of an interest group hinges on the dominance of its ideologically closer party and, in general, the coalition/opposition blocks of parties under un-enforced party or coalition/opposition discipline. Such dominance is defined in terms of ideological inclination weighted by power. Our second result clarifies how the success of an interest group hinges on the dominance of its ideology in the ruling coalition (party) in a majoritarian system with enforced coalition (party) discipline. We then clarify under what condition an interest group prefers to direct its lobbying efforts to two parties or the two coalition and opposition blocks of parties under un-enforced discipline rather than to the members of the ruling coalition (party) under enforced discipline. The lobbying efforts under un-enforced and enforced party discipline are also compared. Finally, we clarify the effect of ideological predispositions and power on the efforts of the interest groups.     

Least convex capacities

Summary. Debreu proposed the notion of `least concave utility' as a way to disentangle risk attitudes from the certainty preferences embedded in a von-Neumann Morgenstern index. This paper studies preferences under uncertainty, as opposed to risk, and examines a corresponding decomposition of preference. The analysis is carried out within the Choquet expected utility model of preference and is centered on the notion of a least convex capacity. Received: May 7, 1997; revised version: November 5, 1997     

THE SOCIAL ROLE OF BUSINESS ENTERPRISE IN BRITAIN: AN AMERICAN PERSPECTIVE. PART II

In Part I of this paper,²it was suggested that a concern for the social responsibilities of large business enterprises had received far less explicit attention in Britain than it has in the United States. In the latter it has preoccupied corporate managers, business critics, scholars, trade unionists and the general public for more than a generation. My analysis of the reasons for the comparatively lower degree of British concern with the social role of business enterprise stressed the importance of the following seven factors:

• 1 There exists in Britain (relative to the United States) greater reliance on publicly owned enterprises about which the public policy debate concerning the social role of business institutions has been focused.
• 2 British acceptance of corporate size and market dominance is greater than in the United States.
• 3 A long-standing governmental involvement in economy and society has characterized Britain's political economy.
• 4 A pre-emption of societal leadership functions by non-business élites has occurred in Britain.
• 5 The impact of Britain's social structure has produced an informal Clite consensus regarding a limited social role for business.
• 6 There is a British tradition of according privacy to business and other social institutions.
• 7 There is a lesser degree of‘professionalism’ in management practice–both in terms of substance and style–in Britain when compared with the United States.

     

IID: independently and indistinguishably distributed

The inability of the Bayesian model to accommodate Ellsberg-type behavior is well-known. This paper focuses on another limitation of the Bayesian model, specific to a dynamic setting, namely the inability to permit a distinction between experiments that are identical and those that are only indistinguishable. It is shown that such a distinction is afforded by recursive multiple-priors utility. Two related technical contributions are the proof of a strong LLN for recursive multiple-priors utility and the extension to sets of priors of the notion of regularity of a probability measure.     

HIGH-SKILLED MIGRATION AND THE EXERTION OF EFFORT BY THE LOCAL POPULATION

The optimal design of immigration policy is a topical issue, both in the policy debate and the economic literature. In this paper, we present empirical evidence from a firm level dataset collected in 2000 on the demand for high-skilled workers, including foreign workers, in Europe and its determinants. Our major findings are that the fraction of high-skilled workers recruited from the international labour market is very small, and that foreign and domestic workers are very similar in terms of their formal education (measured by specialization subject) and their job characteristics. We suggest an efficiency wage model to explain why firms recruit foreign workers in small numbers, and why they are willing to pay immigrants the same wage as local workers, whilst at the same time also paying for their moving costs, despite the similar human capital profile of immigrants to domestic workers.     

Good governance and good aid allocation

We model the aid allocation process as a rent-seeking contest between two countries and investigate the effects of differing allocation rules on recipients' behavior in a simple framework. We investigate the aid allocation mechanism design that attempts to increase the governance quality of potential recipient countries: the potential recipients spend costly resources improving governance, while the donor country allocates the fund based on their governance quality. The paper compares two mechanisms: one uses a simple winner-takes-all tournament to award the entire available purse to the country with the best governance; while under the other aid is distributed among countries in proportion to their governance qualities. The paper shows the second mechanism outperforms the first only if competing countries are sufficiently asymmetric. Moreover, the recipient who is most effective in governance – and stands to benefit the most from development assistance – has interests opposite to those of the donor. In addition, the paper shows that if the donor country allocates the fund based on both governance and the levels of poverty, it may result in a poverty trap: the leaders of potential recipient countries deliberately allocate funds away from the poorest so as not to better their position in order to receive more aid.