A Mechanism for Inducing Cooperation in Noncooperative Environments: Theory and Applications

We construct a market‐based mechanism that induces players in a noncooperative game to make the same choices as characterize cooperation. We then argue that this mechanism is applicable to a wide range of economic questions and illustrate this claim using the problem of “The Tragedy of the Commons.”     

Political‐Economic Regime and the Wage Curve: Evidence from Chile, 1957–96

This paper tests whether a wage curve—a negative relationship between the level of unemployment and the level of pay—existed in Chile during 1957–96. The analysis is divided into two periods. For 1957–73, during inward‐led development, we reject the existence of a wage curve. For 1974–96, when the economy opened, state‐run industries were privatised and labour rights weakened, we find a wage curve of ?0.08. Based on this finding we conclude that the unemployment–pay elasticity in the post‐reform period is similar to the ?0.07 to ?0.10 wage curve found in other western, capitalist countries. Disaggregating the analysis by group, we find that women, non‐university educated workers and public sector workers have suffered more from unemployment. Yet informal sector workers have not experienced pay drops as a result of unemployment, contradicting the hypothesis that the informal sector acts as a buffer during economic downturns.     

Higher Order Expectations in Asset Pricing

We examine formally Keynes' idea that higher order beliefs can drive a wedge between an asset price and its fundamental value based on expected future payoffs. We call this the higher order wedge, which depends on the difference between higher and first order expectations of future payoffs. We analyze the determinants of this wedge and its impact on the equilibrium price in the context of a dynamic noisy rational expectations model. We show that the wedge reduces asset price volatility and disconnects the price from the present value of future payoffs. The impact of the higher order wedge on the equilibrium price can be quantitatively large.     

Good‐Specific Habit Formation and the Cross‐Section of Expected Returns

I study asset prices in a general equilibrium framework in which agents form habits over individual varieties of goods rather than over an aggregate consumption bundle. Goods are produced by monopolistically competitive firms whose elasticities of demand depend on consumers' habit formation. Firms that produce goods with a high habit level relative to consumption have low demand elasticities, set high prices for their product, have low expected returns on their stock, and have low asset pricing betas and stock return volatilities. I find supportive evidence for these predictions in the data.     

A REDUCTION IN CONSUMER EXPENDITURE ON CIGARETTES AND ITS EFFECTS ON EMPLOYMENT: A CASE STUDY OF SOUTH AFRICA

This study estimates empirically the employment effects if stronger tobacco control policies result in reduced consumption in South Africa. Since 1995, the government has committed itself to a stronger tobacco control policy and increased excise taxes. Yet policy makers are sensitive to the need to pursue this public health policy in a way that will minimize job losses. This study uses input-output methodology and four expenditure scenarios to estimate output and employment effects following such policies. The analysis suggests that net employment effects will be positive if consumption expenditure is switched from tobacco to other goods and services in the economy. Further, this study suggests that these policy implications for tobacco control and public health hold, if a country has a self-sufficient industry like South Africa. (JEL 118, D57)     

Due Process and the Adoption of IFRS IN New Zealand

This paper reviews the decision to adopt IFRS in New Zealand and the subsequent decisions made on implementation of adoption. The emphasis of the review is on due process. The paper outlines the current regulatory structure for financial reporting in New Zealand, describes how the decision to adopt IFRS was made, and evaluates the due process followed in making the decision to adopt IFRS and in implementation of the decision. We conclude that the limited due process followed in making the decision to move to IFRS and in developing each New Zealand standard was adequate. However, the method adopted for converting international standards to New Zealand standards did not go through sufficient due process.