A complete characterization of Pareto optimality for general OLG economies

In the context of general pure exchange OLG economies where agents can have heterogeneous longevities, we provide both sufficient and necessary conditions for Pareto optimality of competitive equilibria. For the case in which all agents live for the same number of periods, we find that these conditions are equivalent. We also find this equivalence when agents can have different lifetimes, but in this case we need to impose particular restrictions on relative equilibrium prices. Moreover, we show that without these conditions on prices the equivalence, and hence a full characterization, is not necessarily obtained.     

Fiscal stabilizations: When do they work and why

This paper studies the determinants and channels through which fiscal contractions influence the dynamics of the debt-to-GDP ratio and GDP growth. Using data from a panel of OECD countries, the paper shows that the success of fiscal adjustments in decreasing the debt-to-GDP ratio depends on the size of the fiscal contraction and less on its composition. The rate of growth of output matters too, but higher GDP growth does not drive the success of a fiscal stabilization. In contrast, whether a fiscal adjustment is expansionary depends largely on the composition of the fiscal maneuvre. In particular, stabilizations implemented by cutting public spending lead to higher GDP growth rates. The effects of the composition on growth work mostly through the labor market rather than through agents’ expectations of future fiscal policy. Finally, the evidence suggests that successful and expansionary fiscal contractions are not the result of accompanying expansionary monetary policy or exchange rate devaluations.     

Modelling cost complementarities in terms of joint production

Cost complementarities arise from synergies in the production of heterogeneous goods. It is shown that synergies can be accounted for in terms of shared public inputs (roughly) if and only if synergies decrease as the scope of production increases. This case of “substitutive” synergies is argued to be typical. The key technical tool is a novel interpretation of conjugate Moebius inversion in terms of higher-order differences.     

The unbearable tightness of being in a monetary union: Fiscal restrictions and regional stability

We study how constrained fiscal policy can affect macroeconomic stability and welfare in a two-region model of a monetary union with sticky prices and distortionary taxation. Both government spending and taxes can be used to stabilize regional variables; however, the best welfare outcome is obtained under some tax variability and constant regional inflations. We use a variety of rules to characterize constrained fiscal policy and find that strict fiscal rules coupled with a monetary policy that targets union-wide inflation result in regional inflation stability and the welfare costs of such rules are not as unbearable as one would expect. Fiscal authorities can enhance welfare by targeting the regional output gap, while targeting regional inflation is less successful since inflation stability is guaranteed by the central bank.     

Corporate Restructuring in Japan Part I: Can M‐Form Organization Manage Diverse Businesses?

The purpose of this paper is to examine the recent organizational restructuring in Japan in the framework of organizational economics, assuming that the product/market portfolio of the firm is fixed. How does a firm set about organizing its internal divisions? I first summarize some stylized facts on corporate diversification strategy and multi‐divisional (M‐form) organization in large Japanese firms from different perspectives. I then analyse the problem of choosing an organizational form. In particular, I argue that, precisely because of its related diversification, the multi‐business Japanese firm adopting the M‐form finds it difficult to differentiate its diverse businesses internally.     

Consumer inertia, firm growth and industry dynamics

We develop a model of firm size, based on the hypothesis that consumers are “locked in,” because of search costs, with firms they have patronized in the past. As a consequence, older firms have a larger clientele and are able to extract higher profits. The equilibrium of this model yields: (i) A downward sloping density of firm sizes. (ii) Older firms are less likely to exit than younger firms. (iii) Larger firms spend more on R&D.     

On the distributional effects of income in an aggregate consumption relation

Abstract .  In this paper we analyse the influence of characteristics of the income distribution in modelling aggregate consumption expenditure. We model the aggregate consumption relation of a heterogeneous population, using a statistical distributional approach of aggregation, and apply it to UK-Family Expenditure Survey data. A bootstrap test based on a non-parametric estimation methodology, which accounts for the presence of continuous and discrete variables, suggests that the mean and the dispersion of the income distribution significantly influence aggregate consumption expenditure. Also, the parameters of the aggregate relation are time varying. These findings have implications for constructing empirically sound models of aggregate consumption expenditure.     

Evaluating the performance of the search and matching model

Does the search and matching model fit aggregate U.S. labor market data? While the model has become an important tool of macroeconomic analysis, recent literature pointed to some significant failures in accounting for the data. This paper aims to answer two questions: (i) Does the model fit the data, and, if so, on what dimensions? (ii) Does the data “fit” the model, i.e. what are the data which are relevant to be explained by the model?The analysis shows that the model fits certain specifications of the data on many dimensions, though not on all. This includes capturing the high persistence and high volatility of most of the key variables, the negative co-variation of unemployment and vacancies, and the behavior of the worker job finding rate. A key role in this fit is played by the convexity of hiring costs and the stochastic properties of the separation rate. The latter is a major component of the rate discounting the future value of the job-worker match.The paper offers a workable, empirically grounded version of the model for the analysis of aggregate U.S. labor market dynamics.     

Delays and equilibria with large and small information in social learning

The general model of social learning with irreversible investment and endogenous timing is analyzed for any distribution of private informations. Strategic complementarities and multiple equilibria appear which are generated solely by information externalities. Different equilibria generate strikingly different amounts of information. The impacts of various assumptions (bounded beliefs, large number of agents, discrete time and short periods) are examined carefully. The properties are robust to the introduction of observation noise with a continuum of agents.     

Concave utility on finite sets

When does a preference relation on a finite set have a concave or a strictly concave utility function? We provide a complete answer. Our proof is an application of the Theorem of the Alternative, and constructs a concave utility if one exists.