exhaustible resource allocation in an overlapping generations economy abstract this paper analyzes competitive allocations of an exhaustible resource in an overlapping generations economy conditions are given for the existence of equilibrium extraction rules such that both extraction and investment in future stocks are increasing and continuous in the current stock the paper then considers the time paths of equilibrium allocations and shows that there are economies where equilibrium resource extractions and prices exhibit nonclassical behavior this is illustrated through a finite horizon example in which extractions increase and prices decrease over the entire time horizon and an infinite horizon example where there are persistent cycles in extractions and prices and multiple equilibria the paper concludes by examining welfare issues

sustainability and externalities is the internalization of externalities a sufficient condition for sustainability in an important contribution in ecological economics van de bergh 2010 correctly concludes that sustainability does not imply zero externalities however he continues with the delphic statement delphic statements were uttered by the renowned oracle of ancient greece at delphi they were phrased in such a way as to be self fulfilling because alternative interpretations covered every possibility without externalities the problem of sustainability vanishes if this statement refers to an impossible economic process that produces no externalities then he is right however it might be interpreted as stating that whenever environmental policy internalizes environmental externalities then sustainability will be ensured in this note i assert that in the real world where externalities prevail their internalization or neutralization in the traditional way cannot lead to sustainability only if internalization takes a very specific form that results in the inviolable preservation of environmental rights of future generations in pure biological terms can sustainability be ensured after revised the original commentary i resubmit it the issues raised by the editor have been carefully considered

intertemporal equilibria and exhaustible resources an overlapping generations approach abstract this paper presents a general equilibrium model of an abstract intertemporal economy with overlapping generations production possibilities and capital investment under the constraint of a nonreproducible natural resource the model provides for institutionally mandated asset transfers between successive generations under the assumption that each generation has perfect foresight concerning future prices and economic conditions competitive exchange supports a multiplicity of pareto efficient equilibria that correspond to particular asset transfer regimes the achievement of a desirable distribution of welfare between present and future generations requires that the asset transfer regime be chosen according to a social welfare function or explicit distributional criterion economic efficiency per se is insufficient to ensure social optimality these results have important implications for resource planning in the real world where policy makers and the public at large are often highly concerned over the potential impacts of current resource utilization on the welfare of future generations

on the policy ineffectiveness proposition and a keynesian alternative a rejoinder i the basis of rush and waldo s rw results is the introduction of a war dummy variable in the dg equation this is however difficult to justify in the context of a rational expectations model under incomplete learning wars by their very nature are unique events and it is not clear how the public are supposed to learn the quantitative effects that the ending of three totally different wars may have had upon the growth of real government expenditure the fact that in i946 the public knew that world war ii was over does not mean that they could also estimate its precise quantitative effect on government expenditure rw estimate their dg equation using data for the whole of the period i943 73 and i943 85 thus implicitly assuming that all these data were available to the public in i946 for the computation of the coefficient of the war dummy in the dg equation but in i946 the public could not possibly have known about the timing and the intensities of the korean or the vietnam wars the assumption of complete learning that underlies the rational expectations hypothesis in general and rw s version of the nc model in particular is especially troublesome when the model contains dummy variables that correspond to unique events

economics and sustainability balancing trade offs and imperatives the concept of sustainability has been increasingly invoked in scholarly and public policy debates discussion has been hampered however by uncertainty and lack of uniformity in the meaning of sustainability this paper seeks to identify some common ground among economists ecologists and environmen tal ethicists two issues seem salient require ments for intergenerational and the defi nition of social capital to be provided to future generations a concept of safe minimum standard which has received at least some recognition in the ecology philosophy and eco nomics literatures may provide the beginnings of a common ground for debate about sus tainability jel q2

on real and sticky price theories of the business cycle after presenting some facts about the growth of government in western industrialized countries possible causes of this development are analyzed from a public choice perspective next some empirically tested theories which seek to explain this growth are discussed finally possible consequences for efficiency and individual liberty are examined it is shown that both the number and size of interest groups age of democracy as stated by mancur olson 1982 and the increasing share of government expenditure in gdp seem to exert a negative influence on the growth rate of gdp copyright 1986 by ohio state university press

environmental valuation under sustainable development environmentalism has evolved since the 1960 s from a concern with the preservation of wilderness in the american experience to a concern over pollution of human habitat throughout the industrialized world northern anxiety spread to the loss of tropical rainforests and biodiversity in the south where environmentalism evolved further in an encounter with indigenous interpretations conditions and priorities by the late 1980 s climate change emerged as a central issue in a now global discourse on the relationship between environment and development the principle of sustainable development that current needs are to be met as fully as possible while ensuring that the life opportunities of future generations are undiminished relative to present is now widely accepted this paper illustrates that incorporating environmental values per se in decision making will not bring about sustainability unless each generation is committed to transferring to the next sufficient natural resources and capital assets to make development sustainable 11 refs 3 figs

intergenerational transfers and the social discount rate this paper investigates the relationship between intergenerational asset transfers and the choice of the discount rate for use in cost benefit analysis in a model of a competitive overlapping generations economy constrained by a socially managed exhaustible resource provided that there are no distortions in capital markets and that all agents hold perfect foresight cost benefit techniques will result in a pareto efficient resource allocation if the discount rate is set equal to the market rate of interest but since the path of the interest rate depends on the level of intergenerational transfers cost benefit techniques do not ensure a socially desirable distribution of welfare between generations a social optimum will result only if intergenerational transfers are properly chosen and enforced decentralized private altruism may result in intergenerational transfers that both present and future individuals would agree are too small if members of the present generation attach positive weight to the general welfare of future generations not simply their personal descendants in a world where intergenerational transfers are non optimal second best policy making may imply a constrained optimum that is inefficient together these findings suggest that cost benefit analysis is at best a partial criterion to policy formulation that should be used only in conjunction with ethical principles that define the proper distribution of welfare between present and future generations

a critique of the proposed tests of the natural rate rational expectations hypothesis the failure of the governments of most industrialised countries over the past decade to deal successfully with the problems of rising unemployment and high and often accelerating rates of price and wage inflation has revived interest in the pre keynesian macro economics of sound money and has renewed the controversy of the 1930 s over what governments should or should not do if they wish to achieve full employment with reasonable price stability in democratic societies keynesian economics has come under attack both by those who primarily oppose interventionist policies on ideological grounds and by the so called new classical macro economists who adhere to the natural rate of unemployment hypothesis nrh advanced by phelps i967 and friedman i 968 and the hypothesis of rational formation of expectations reh originally due to muth i96i armed with this joint natural rate rational expectations nr re hypothesis the new classical macro economists have argued that in a world capable of being represented by linear or log linear relations with a unique and stable equilibrium and no information discrepancy between the government and the private sector no government macro economic policy whether monetary or fiscal no matter how ingeniously formulated and how effectively implemented can have any systematic or lasting impact upon the level of output or the rate of unemployment 2 clearly this fundamental policy

sustainable development challenges to profession of agricultural economics fundamentally sustainable development is a notion of discipline disciplining our current consumption this sense of intergenerational responsibility is a new political principle a virtue that must now guide economic growth the industrial world has already used so much of the planet s ecological capital that the sustainability of future life is in doubt that can t continue brundtland page 5

fertility choice land and the malthusian hypothesis in a standard overlapping generations growth model with a fixed amount of land and endogenous fertility the competitive economy converges to a steady state with a zero population growth rate and positive consumption per capita the malthusian hypothesis is interpreted as a positive statement about the relationship between population growth and consumption per capita when production exhibits diminishing returns to labor and there is a fixed amount of land essential for production even when individuals care only about the number of their children and not about their children s welfare the equilibrium is such that they eventually would choose to have only one child for each adult hence if malthus s positive check on population is the result of the response of optimizing agents to competitively determined prices malthus s pessimistic conjecture is not necessarily true even though his other assumptions hold from authors

adjusted p and f tests and the keynesian classical debate the debate over the manner in which changes in money growth rates affect real economic activity and over the role that systematic monetary policy plays in this relationship has been a protracted one yet it remains unresolved this paper shows that a model proposed by fischer 13 in which multi period ahead expectational errors in money growth are crucial for the determination of real economic aggregates is empirically superior to two leading alternatives when the three are estimated on a sample of u s quarterly data spanning the 1970s in addition we show that the test used to demonstrate these results a version of davidson and mackinnon s 9 p test which we adjust experimentally to remove small sample biases in its size is in this application more powerful than the more commonly used f ratio form of the likelihood ratio test we use these results on relative power to explain and reconcile some conflicting decisions to which the two alternative tests lead

distribution access pricing application of the oftel rule to a yardstick competition scheme the paper formulates an access pricing model applied to electricity distribution based on the uk office of telecommunications oftel model originally structured to price telecommunications monopolistic essential facilities the aim is to achieve an optimal access price charge in an environment where a distribution network monopoly serves both regulated and nonregulated customers the nonregulated market faces competition so that the competitors must use the network to reach their customers a usage based hybrid model is proposed to couple with a tariff scheme for regulated customers that uses yardstick competition a way to set appropriated opportunity costs by the use of the oftel model is introduced finally the paper focuses on properly recognizing both regulated distribution and competitive supply costs the scheme is assessed within the chilean regulatory scheme proposing a way to establish marginal and fixed distribution costs for distribution companies

discussion of distribution access pricing application of the oftel rule to a yardstick competition scheme for original article see ibid vol 17 no 4 p 1001 7 nov 2002 the authors thank drs jamasb pollitt rivier and giaconi for their valuable discussions see ibid vol 19 no 4 p 2113 5 nov 2004 as well as for their suggestions for improvement when the paper was being finalized their discussions allow us to clarify ideas concepts and restrictions of the developed model and its applications that are not clear enough or may be misunderstood they deal with each discussion separately although they have some common questions

intergenerational competitive equilibria under technological uncertainty and an exhaustible resource constraint abstract this paper presents a model of competitive intertemporal equilibrium in a finite horizon overlapping generations economy facing technological uncertainty and an exhaustible resource constraint individuals form rational expectations regarding future prices and economic conditions and income is redistributed from one generation to the next through government mandated lump sum transfers under uncertainty the relationship between resource price appreciation and the interest rate is mediated by consumers risk aversion with respect to consumption in alternative states of nature the intuitively appealing proposition that the expected resource price rises at the expected rate of interest holds only as a special case if future generations are taken to be state contingent in the sense that their composition depends on the states of nature prevailing when they are born then equilibria are generally pareto efficient but if future generations are state independent so that the set of individuals born at a given date is independent of the prevailing state of nature then equilibria may be inefficient because markets do not exist where successive generations may equilibrate their marginal rates of substitution across consumption in alternative contingent states such inefficiencies may be remedied through the implementation of appropriate intergenerational transfers an optimal intergenerational welfare distribution may be supported as a competitive equilibrium if the income transfer regime is properly selected and enforced the social optima that result for a simple version of the model under the maximin welfare criterion indicate that greater sacrifices are required on the part of the present generation when future generations are taken to be state contingent than when they are regarded as state independent this finding provides a possible explanation for the extreme risk aversion of conservationists with respect to the welfare of future generations

is aging harmful to the environment how does aging affect the environment we analyze this question using anoverlapping generations model featuring uncertain lifetimes andenvironmental externalities we show that whether aging is harmful to theenvironment depends on the curvature of utility function which ismeasured by the degree of relative risk aversion we also explore theimplication of the results for environmental policy in an aging society

the relevance of unanticipated money growth in explaining output variation this paper tests a reduced form equation in which real gnp for the united states is explained by deviations of multi period m1 growth rates from ex ante expectations of those rates formed from one to eight quarters earlier the theoretical model is suggested by stanley fischer s 1977 article and may be thought of as a new keynesian model the equations are tested in both level and first difference specifications to allow for possible unit roots empirical results strongly support this model in preference to new classical and keynesian alternatives ex ante expectations or m1 growth are formed from multi period forecasts made by chase econometrics inc between 1970 and 1979

some welfare theoretic implications of endogenous fertility this paper explores the implications of endogenous fertility for inter and intragenerational equity and for intergenerational efficiency considering equity requires social welfare criteria with respect to the issue of intragenerational equity 2 possible criteria in relation to the laissez faire solution are 1 total utility across generations and 2 average or per capita utility when population size is not fixed the 2 are not the same when fertility is not endogenous it is possible to consider noncoercive policies for achieving socially optimal population size or rate growth in general child allowances or taxes and subsidies to future consumption are sufficient to achieve the desired outcome with respect to within generation income distribution a system of child allowances and tax exemptions designed to alleviate poverty and reduce inequality may actually worsen the situation when both fertility and labor supply are endogenous discussing the issue of efficiency for members of the current generation does not require a social welfare function neither diminishing returns nor the existence of public goods unless financed by distortionary taxes leads to market failure from this point of view but the inability of parents to enforce transfers among their offspring or to bargain with the families of the potential spouses of their children may indeed lead to market failure finally the paper examines the implications for fertility of the inefficiency in an economy resulting from the absence of a capital market for transferring from present to future consumption in this case the welfare improving introduction of a capital market may increase the rate of growth of population when parents value children for themselves as well as a means of providing sustenance in old age

sustainability as intergenerational fairness efficiency uncertainty and numerical methods this paper presents an economic model of sustainability defined as intergenerational fairness assuming that intergenerational fairness is an obligation of each generation a recursive optimization problem is obtained the problem has the advantage that uncertainty can readily be incorporated in the model and it can be solved numerically for a wide range of specifications the possibility of trade offs between efficiency and sustainability are discussed under plausible conditions it is shown that a sustainability obligation is met only if there is the expectation of economic growth

does contractual wage rigidity play a role in determining real activity interest in nominal wage ridigity as a source of macroeconomic fluctuations has waxed and waned over the past half century the most recent wave of interest was triggered by the rational expectations revolution of the 1970s which inspired an improved sticky wage paradigm the paradigm posits the existence of short term contractual arrangements that in their simplest form fix wage schedules in nominal terms for a predetermined period the life of the contract and leave employment at the discretion of the firm the most influential examples of the paradigm incorporate rational expectations and satisfy the natural rate hypothesis 9 14 thus meeting the new minimum standards for demand driven theories of the business cycle nominal wage contracting models have been vigorously criticized for both a lack of theoretical rigor and an absence of empirical support despite their critics however the models have remained a popular analytical tool and after almost a decade of inattention economists are showing a renewed interest in empirical tests of nominal contracting models the studies produced to date are small in number and offer conflicting conclusions they are perhaps as important for the objections they provoke as for the answers they provide while the work reported in this paper

on the policy ineffectiveness proposition and a keynesian alternative one of the most controversial macroeconomic developments of the last decade has been the rise of the so called new classical nc approach to macroeconomic theory and policy lucas i972 sargent and wallace i975 and barro i 976 have presented models which combine the friedman i968 phelps i970 natural rate theory with assumptions of market clearing and rational expectations as is well known these models deliver the striking result that the mean values of real variables cannot be affected by the government s monetary policy the publication of the theoretical work establishing the impotency result led to much empirical testing of the nc models one of the most successful approaches from the point of view of nc advocates is contained in a series of papers by barro i977 i978 i98i barro and rush i980 and rush i986 recently pesaran i982 has questioned barro s results and claimed that once an implausible assumption is discarded barro s work can be rejected in favour of a keynesian alternative because pesaran has put forth an explicit counter model to barro s work his results are potentially quite important this paper examines in detail pesaran s work and conclusions

nominal wage contracts and real activity evidence from the german economy the research on microfoundations of the phillips curve over the last two decades has produced two alternative new classical explanations of the short run output inflation trade off the nominalwage contracting variety explanation of fischer 4 and gray 7 and the equilibrium explanation of lucas 11 both explanations are similar in their prediction that real activity responds to aggregate demand disturbances through price surprises that they generate they are very different however in mechanisms that generate such response the contracting theory emphasizes the existence of long term contractual arrangements that in their simplest form fix wage schedules in nominal terms for a predetermined period the life of the contract and leave the level of employment at the discretion of the firm in this framework a positive aggregate demand shock that occurs after the contract negotiation date will cause an increase in the general price level a decrease in the real wage and an increase in employment and output by contrast the equilibrium theory makes imperfect information central to the non neutrality of nominal disturbances according to this theory agents lack full current information about aggregate variables and thus cannot dichotomize unanticipated price movements into their relative and absolute components in this framework unanticipated changes in aggregate demand lead to positive movements in output and employment because their price level effects are confused with relative price movements 2 differences between the contracting and equilibrium explanations of the response of real activity to aggregate demand shocks provide empirically testable hypotheses gray kandil and spencer 8 test for the proposition that while both theories predict a positive output response to aggregate demand shocks the size of the response is larger in the contracting model than in the

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

some further evidence on the policy ineffectiveness proposition nonnested hypothesis tests are used to evaluate the keynesian and three variants of the new classical output equations the author s results based on the u s data show that the keynesian equation could not be rejected by the new classical equations for the periods 1946 85 and 1946 89 when the new classical equations are tested against the keynesian alternative with one minor exception the latter always rejected the former copyright 1992 by royal economic society

discussion of distribution pricing based on yardstick regulation the authors discuss the original paper distribution pricing based on yardstick regulation j w marangon lima et al see ibid vol 17 p 198 204 2002 covering the following subject areas incremental and marginal costs distribution expansion planning tariff design information asymmetries open access distribution pricing and wire and commercialization business

intergenerational resource rights efficiency and social optimality the discipline of economics is generally defined as the science of the allocation of scarce resources between competing social objectives given an initial distribution of resources between economic agents how would they behave so as to improve their welfare according to the pareto criterion the agents would exchange commodities until the opportunities for fruitful exchange were fully exhausted and no agent could be made better off without rendering at least one other agent worse off pareto efficiency is a powerful concept in microeconomic analysis provided that the initial distribution of property rights is equitable allocative efficiency gives rise to the best of all possible worlds acknowledging that the assumptions of perfect competition are often violated firms are monopolistic information is incomplete and externalities exist economists have argued for the modification of institutions so that economic reality will conform more closely to the assumptions of the model that yields such gratifying results but microeconomic theory has always maintained that allocative efficiency is in itself insufficient to maximize social welfare bator 1957 a social welfare function is required to discriminate a social optimum among the array of efficient allocations that correspond to alternative assignments of property rights though economists have posited alternative functional forms for the sake of pursuing conceptual arguments welfare functions have remained elusive constructs for well known theoretical and practical reasons consequently a sharp line of demarcation has been drawn between questions of efficiency the province of economics and equity the principal focus of ethical and political discourse in resource economics however the line demarcating efficiency and equity is often crossed the term optimal depletion appears regularly where only efficient depletion is meant while political debates about resource exploitation over time are laden with questions of the proper distribution of our natural patrimony between generations resource economists have predominantly espoused particular use rules that guarantee efficiency but overlook potential improvements in social welfare achievable through the reassignment of property rights across generations we document the evolution and current status of the misuse of the term optimal depletion in section ii we develop a simple two generation three period general equilibrium model in section iii to illustrate how alternative distributions of resource rights between generations relate to alternative pareto efficient solutions in section iv we demonstrate how different social welfare functions affect the optimal solution and associated assignment of resource rights between generations

excessive environmental risks an intergenerational market failure abstract this paper cautions against the belief that markets work efficiently in transmitting across generations the right signals for investment decisions under risk overlapping generation models are used to show that the incompleteness of intergenerational insurance markets constitutes a market failure that leads to inefficient intergenerational investment decisions under risk early generations over diversify if they face risks that are larger than those of the following generation and could therefore be shared with them on the other hand if risks are increasing from generation to generation the current generation would under insure against those risks since the direction of the inefficiency depends on the nature of the risk assumed the policy implications depend on the empirical assessment of the risks that current and future generations are facing this paper provides applications of the general result to environmental problems such as inefficiently low protection against global warming the excessive reduction of biodiversity and inefficient depletion of a natural resource

keynesian and new classical models of unemployment revisited several keynesian and new classical models of unemployment for the united states are reevaluated the models are examined for adequacy by testing the cross equation restrictions where appropriate and using diagnostic and nonnested tests that explicitly recognize the problem introduced by generated regressors the best new classical model for the 1946 73 period is found to be adequate when it is estimated over the 1946 85 period whereas the keynesian model is not existing results of tests obtained at the single equation level ignoring generated regressors are not always supported when the test statistics are calculated using the correct covariance matrix or maximum likelihood copyright 1991 by royal economic society