PRICING,CAPACITY, AND CONSTRUCTION BOUNDARY OF A CONGESTIBLE HIGHWAY WITH AN ELASTIC DEMAND: SOCIAL OPTIMUM,SECOND BEST,PRIVATIZATION, AND VERTICAL DISINTEGRATION*

This paper uses a spatial model to analyse first‐ and second‐best policies, impacts of privatization and vertical disintegration of a congestible highway with elastic demand. The paper also uses simulation methods to analyse the welfare cost of a uniform‐toll constraint. Results show, inter alia, that the social optimum requires the marginal cost of highway extension to be equal to the net consumer benefit at the boundary, while in the second‐best case the aggregate user cost must be measured in terms of the shadow price. In turn, a profit‐maximizing firm equates the marginal extension cost to the markup revenue at the boundary.     

MONETARY POLICY DURING JAPAN'S LOST DECADE*

We develop a quantitative costly price adjustment model with capital formation for the Japanese economy. The model respects the zero interest rate bound and is calibrated to reproduce the nominal and real facts from the 1990s. We use the model to investigate the properties of alternative monetary policies during this period. The setting of the long‐run nominal interest rate in a Taylor rule is much more important for avoiding the zero bound than the setting of the reaction coefficients. A long‐run interest rate target of 2.3% during the 1990s avoids the zero bound and enhances welfare.