Rational expectations and fixed-event forecasts: An application to UK inflation

This paper tests a version of the rational expectations hypothesis using ‘fixed-event’ inflation forecasts for the UK. Fixed-event forecasts consist of a panel of forecasts for a set of outturns of a series at varying horizons prior to each outturn. The forecasts are the prediction of fund managers surveyed by Merrill Lynch. Fixed-event forecasts allow tests for whether expectations are unbiased in a similar fashion to the rest of the literature. But they also permit the conduct of particular tests of forecast efficiency - whether the forecasts make best use of available information - that are not possible with rolling-event data. We find evidence of a positive bias in inflation expectations. Evidence for inefficiency is much less clear cut.First version received: June 2002/ Final version received: November 2003We would like two anonymous referees and an editor for comments that have significantly improved the paper. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of England.     

Rent-setting in multiple winner rent-seeking contests

In this paper, we analyze a multiple winner rent-seeking contest where the number of winners is set by a self-interested regulator. The winners receive a license to compete in a market. The structure of competition in the market influences the number of winners through the preferences of the regulator. The model indicates that Cournot competitors can be better off than firms that are able to collude on output determination.     

Strategic Behavior,Private Information,and Decentralization in the European Union Emissions Trading System

In the European Union Emissions Trading System, the supply of carbon permits is determined in a decentralized manner by Member States. Alternatively, the supply could be determined by an EU central authority. We analyze whether decentralization leads to lower total abatement costs under various assumptions about the behavior of Member States and the privacy of information about their abatement costs. If Member States do not behave strategically, then decentralization is preferred, regardless of whether abatement costs are private information. If the Member States behave strategically, then decentralization may or may not be preferred, depending on the degree of uncertainty about abatement cost parameters, the variation in emission endowments, and the number of Member States.     

Equilibria in rent-seeking contests with homogeneous success functions

Summary. We characterize pure-strategy Nash equilibria for symmetric rent-seeking contests in which the contest success function is homogeneous of degree zero. The equilibrium strategies have a simple form. We give sufficient conditions for existence of an equilibrium.Received: 11 February 2003, Revised: 27 August 2004, JEL Classification Numbers: D72. Correspondence to: Andrew J. YatesWe thank Douglas Nelson, Jac Heckelman, and two anonymous referees for helpful comments.     

Diversity as a Means of Individualizing Instruction

Judith Yates asserts that “… tests do not necessarily enable us to infer anything about what students have learned or the manner in which they have learned it.” She then concentrates on the tailoring of instruction to the individual, discussing the evidence for the existence of many different learning styles, and the possible influence of these styles on learning. She explains the concepts of “field independence” and “field dependence,” and presents their possible implications for economic education.     

Bilateral Oligopoly,Private Information,and Pollution Permit Markets

We analyze the effects of strategic behavior and private information in pollution permit markets in which all firms have market power. The market is characterized by supply-function equilibria. Firms submit net supplies for permits and a market maker determines the market-clearing price. Net supplies depend on abatement cost functions, which in turn depend on private information parameters. We calculate the increase in aggregate abatement costs due to strategic behavior and private information and show that private information attenuates the effects of strategic behavior.      

On a Fundamental Advantage of Permits Over Taxes for the Control of Pollution

We extend the tax versus permits literature by considering permit supply functions and pollution tax functions that are generalizations of the usual constant permit supply and constant pollution tax rate. In our model, pollution is not uniformly mixed and the regulator is uncertain about the polluting firms’ abatement costs. We determine the optimal permit supply functions and the optimal pollution tax functions. Using these functions, we show that permits lead unambiguously to lower total expected costs than taxes. We analyze the magnitude of this difference for a simple model of climate change. By relating the optimal permit supply functions to Weitzman (Am Econ Rev 68:683–691, 1978) we provide a new interpretation of his results.     

Housing Finance and Deregulation: Predictions and Outcomes

This article explores the extent to which the deregulation of the Australian financial system over the past few years has borne out the claims of the Campbell and Martin Reports with regard to housing finance. It concludes that claims that there would be an increase in the availability of finance were optimistic but that claims that the effective rate of interest would not increase have been vindicated. It also concludes that the most significant innovations which have taken place have come, not from the private sector as predicted, but from the public sector.