Arrow's equivalency theorem in a model with neoclassical firms

Summary. In this paper we consider a two-period general equilibrium model with uncertainty and real assets as financial instruments. The novelty of the analysis is that real assets are the stocks of neoclassical firms, so that both returns and yields depend on anticipated spot goods prices (and, of course, the yield matrix may change rank with prices). Assuming that financial markets are potentially complete, we establish generic existence of financial equilibrium and prove that there exists a dense set of economies such that financial equilibria are efficient.Received: 19 April 2001, Revised: 23 April 2003, JEL Classification Numbers: C60, D51, G10, D60.I am extremely grateful to Dave Cass for drawing my attention to this problem and inspiring me to work on it as well as for many stimulating discussions. I also benefited from discussions with H. Polemarchakis, M. Stinchcombe, and A. Villanacci. I am thankful to the anonymous referee of the first versions of the paper for thoughtful comments and suggestions, and to participants of a recruiting seminar at the University of Texas at Austin (January 2001), the Conference on Economic Design SED 2000, Istanbul, Turkey (June 2000), and Inter-University Student Conference, New York University, New York (May 2000).     

A Backward Induction Experiment

This paper reports experiments with one-stage and two-stage alternating-offers bargaining games. Payoff-interdependent preferences have been suggested as an explanation for experimental results that are commonly inconsistent with players' maximizing their monetary payoffs and performing backward induction calculations. We examine whether, given payoff-interdependent preferences, players respect backward induction. To do this, we break backward induction into its components, subgame consistency and truncation consistency. We examine each by comparing the outcomes of two-stage bargaining games with one-stage games with varying rejection payoffs. We find and characterize systematic violations of both subgame and truncation consistency. Journal of Economic Literature Classification Numbers: C70, C78.     

人类能最终战胜“人口魔鬼”吗？

界定了两种"人口魔鬼"的概念,并简单回顾了人类与"人口魔鬼"斗争的历程.在今后几十年或者稍长的时间里,世界人口总数不会无限增殖下去,人类有望战胜"过剩人口魔鬼".但在达到人口顶峰后,由于人口持续缩减,人类的未来不太乐观.     

On the Rationality of the Post-Announcement Drift

This paper demonstrates that a post-announcement earnings drift, which is often advanced as an example of market irrationality, can arise even if traders act rationally on their information. Specifically, we show that in the presence of share supply variations which are unrelated to information, there is a positive correlation between the unexpected component of current public signals and future price changes. Such a correlation arises from the fact that while prices reveal private information that cannot be found in public signals, non-information based trading distorts the information content of prices relative to the implications of both private and public information. Under these circumstances, markets may appear semi-strong inefficient and slow to respond to earnings announcements even though information is processed in a timely and efficient manner. Our findings correspond well with previously documented empirical evidence and suggest that the robustness of earnings-based anomalies may be rational outcomes of varying uncertain share supply.     

Optimal design of trade institutions

We model an economy with social institutions that facilitate trade and induce three types of costs: establishment costs, access costs, and use costs. Use costs are specific transaction costs related to the use of these trade institutions. We assume that a trade institution is economically completely determined by the costs it imposes and by the effects on the trades it facilitates. We extend the Pareto efficiency concept to include various modes of organization of social institutions: the costs and benefits of these organizations are expressed in the trades they facilitate.Within this setting we discuss a valuation equilibrium concept, in which all agents use a common conjectural price system that assigns to every trade institution the price vector that would prevail under it. This feature of the equilibrium is important in securing the second welfare theorem, and is new to the analysis of economies with costly trade. Since the use costs can be nonlinear, there are non-convexities that prevent the second welfare theorem from obtaining in a finite economy, but we show it for large economies.Received: 3 April 2002, Accepted: 30 April 2003, JEL Classification: D59, D70, H49Robert P. Gilles: donewhile visiting the Center for Economic Research, Tilburg University, Tilburg, The Netherlands. Financial support from the Netherlands Organization for Scientific Research (NWO), grant B46-390, is gratefully acknowledged.Dimitrios Diamantaras: Part of this research wasSupport from Temple University via a Fuller research fellowship is gratefully acknowledged.The authors would like to thank Suzanne Scotchmer, Andreu Mas-Colell, Marcus Berliant, Shlomo Weber, Hans Haller, Dhanajay Gokhale, Julian Manning, and two anonymous referees for their valuable comments and discussions of previous drafts of this paper. A previous version of this paper was circulated as Equilibria of economies with costly trade.     

Sraffa's legacy

This review essay of Critical Essays on Piero Sraffa's Legacyin economics situates Sraffa's work in relation to the Marshalliantradition and neo-Walrasian general equilibrium theory, andreviews the current state of debate between adherents of thesetraditions on the role of demand, returns to scale, capitaltheory and policy analysis. Other issues considered includethe corn model, Sraffa's critique of Hayek, and the extensionof the capital theory critique to the intertemporal equilibriummodel.     

Environmental Tax Reform in a Small Open Economy With Structural Unemployment

The paper examines the effects of an environmental tax reform in a small open economy with decentralised wage bargaining, monopolistically competitive firms and equilibrium unemployment. There is a tradable and a non-tradable sector and all firms use labour as well as an imported polluting factor of production (energy). A key result is that a tax on energy, recycled to reduce the payroll tax, reduces unemployment if there is a tradable sector wage premium. However, even if energy taxes may boost employment, welfare will not necessarily improve. Numerical simulations suggest that energy taxes in general provide an environmental dividend but also reduce real GDP.     

The Importance of the Exchange Rate Regime in Limiting Misalignment

This paper explores how the choice of a country’s exchange rate regime may affect exchange rate misalignment for developing and developed countries. A measure of misalignment is obtained by using a panel cointegration vector estimator. This paper finds that for developing countries, an intermediate exchange rate regime (a regime falling somewhere between a pure float and a hard peg) is most effective in preventing exchange rate misalignment. Additionally, the choice of an exchange rate regime as a means to limit misalignment matters for developing countries, but does not seem to matter for developed countries.     

Generic determinacy of Nash equilibrium in network-formation games

This paper proves the generic determinacy of Nash equilibrium in network-formation games: for a generic assignment of utilities to networks, the set of probability distributions on networks induced by Nash equilibria is finite.     

农村金融困境:一个基于金融创新视角的分析

政府、金融机构、农村经济个体三者从个体理性出发的博弈行为所导致的结果是集体的非理性“纳什均衡”——农村金融困境。这与当前社会主义新农村建设亟待金融支持形成极大的反差。将金融创新原理运用于农村金融行为的研究,对摆脱农村金融困境具有较强的理论与实践意义。本文主张从市场主体、客体、交易方式及金融环境等方面进行创新,建立以市场为基础、政府为主导的农村金融体系。