dynamic processes for public goods an institution oriented survey a nontechnical but nevertheless not informal account is given of dynamic models recently developed in the theory of public goods after a purely descriptive presentation of three basic models section 2 and their many subsequent extensions section 3 various reflections are made in section 4 on issues raised by an institutional perspective first the usual planning interpretation of such processes is presented and commented upon next contrasting normative and positive approaches to public goods it is argued that one category of processes can be given an interpretation much in line with the literature on positive public economics third the planning vs voluntary exchange institutions are contrasted from the point of view of cooperation among the agents in an economy with public goods

market socialism the current debate with the decline of command economies in eastern europe china and elsewhere the systemic issue of the feasability of combining the market mechanism with some form of public or collective ownership or control over the distribution of surplus has assumed topical importance the essays in this book aim at advancing the old debate on this issue to a new analytical stage questions of incentive compatability agency problems depoliticization of economic decisions and those of justice and worker autonomy are at the heart of the discussion the defenders as well as critics of market socialist proposals in this book are particularly sensitive to the centrality of these questions

the competitive allocation process is informationally efficient uniquely abstract this paper establishes that the competitive allocation process is the only informationally decentralized mechanism for exchange environments which i achieves pareto optimal allocations ii gives each consumer an allocation which is according to his preferences at least as good as his endowment iii satisfies certain regularity conditions and iv has a message space of the smallest dimension necessary to satisfy i iii

incentives in the generalized mdp procedure for the provision of public goods malinvaud 1970 1971 and dreze and de la vallee poussin 1971 have independently proposed a well defined planning procedure for an economy with public goods this procedure which has come to be called the mdp procedure has several desirable properties given correct revelation of each participant s preference if each individual truthfully announces his marginal rates of substitution between public goods and a private good every trajectory of the process lies entirely in the space of feasible allocations and monotonically converges to an individually rational pareto optimum moreover as is shown in champsaur 1976 given correct revelation this procedure is neutral to any kind of distributional value judgements in the sense that every individually rational pareto optimum can be attained as a limit of some trajectory defined by the process in connection with the problem of whether the participants in the mdp procedure reveal their correct preferences little literature has so far been written there are now results available which have been derived by dreze and de la vallee poussin 1971 and roberts 1979 that i at every iterative stage telling the truth is a maximin strategy for each individual and at an equilibrium of the process is a nash equilibrium strategy and that ii correct revelation produces a dominant strategy equilibrium at every instant if a society consists of just two individuals nevertheless maximin strategies are played only because of the rather restricted assumption on each participant s behaviour while confinement to the case of a two person society is too severe to give meaningful implications for reality in either case one might be fully justified in believing that truthful revelation will hardly appear in the mdp procedure fortunately almost all the properties of the mdp procedure can be preserved under circumstances where the agents misrepresent their marginal rates of substitution henry 1979 and roberts 1979 have shown that as long as each individual chooses a nash type strategy at each instant the process maintains the same properties as in the case of correct revelation except that the adjustment speeds of public goods are significantly reduced this result implies the mdp procedure is implementable under game theoretic circumstances but at the same time it exposes serious problems in several respects in the first place since the nash equilibrium strategy of each agent is not necessarily the truthful announcement the virtue of honesty is no longer of positive significance in the mdp procedure secondly for the validity of its solution concept if each agent plays a nash equilibrium strategy at all he must have complete knowledge relating to the possible strategies chosen by all the other agents clearly this supposition

firm specific assets and the link between exchange rates and foreign direct investment foreign direct investment fdi theory and empirical studies have generated mixed support for a link between exchange rates and fdi this paper argues that exchange rate movements may affect acquisition fdi because acquisitions involve firm specific assets which can generate returns in currencies other than that used for purchase using data on japanese acquisitions in the united states across three digit sic industries from 1975 to 1992 maximum likelihood estimates from discrete dependent variable models support the hypothesis that real dollar depreciations make japanese acquisitions more likely in u s industries particularly those which more likely have firm specific assets copyright 1997 by american economic association

the discrete heal algorithm with intermediate goods good i by quantity a it is easy to modify this procedure for the case where final products are not homegeneous but the presence of intermediate production raises considerable difficulties they stem from the requirement that firms be asked about the effect of specific reallocations of inputs because heal type processes require that the aggregate production plan be feasible at each step of the procedure these reallocations must be consistent with each other in the presence of intermediate goods this consistency is difficult to maintain as the answer of one firm will dictate the feasible changes in inputs for other firms it should be possible to solve this problem for some special cases i have not been able to do so in other cases without changing the procedure fundamentally in our version of heal s procedure the planning board asks each firm to provide a local description of its production possibility set and does not commit itself to transfers of certain size the important difference here is between the examination of certain specific reallocations and the study of local approximations to the economy the questions that the centre asks of firms are composed of two parts a prospective production plan and a real number which indicates the maximal size of the reallocation which the planning board has in mind the answers of the firms are also composed of two parts the first corresponds to the vector of marginal rates of transformation in the continuous version of the procedure the second a real number is a measure of the distance between the proposal of the centre and the boundary of the production possibility set hence the sizes of the messages which are transmitted are minimally larger than in the continuous version of the procedure even in the framework where both are applicable the procedure of this paper has two advantages over that of henry and zylberberg first the message space is smaller

a characterization of strongly locally incentive compatible planning procedures with public goods this paper provides a systematic study of planning procedures with public goods in which local truthful revelation of preferences is a dominant strategy these procedures are said to be strongly locally individually incentive compatible sliic we first characterize the time invariant continuously differentiable planning procedures that are sliic then we study properties such as balancedness cheatproofness with respect to coalitions neutrality individual rationality and we point out the connection with the mdp procedures

myopic versus intertemporal manipulation in decentralized planning procedures manipulation is studied in abstract planning procedures in exchange economies with private goods and a generalization of the results of champsaur laroque 1980 is obtained when the nash equilibrium corresponding to myopic manipulation is unique the outcome of consistent intertemporal manipulation on a time interval 0 t is characterized it is shown that when t goes to infinity the exists a nash equilibrium only when the initial allocation is pareto optimal

high growth and low consumption in east asia how to improve welfare while avoiding financial failures this paper analyzes certain policies that are typical of a number of rapidly growing east asian countries in which a fixed exchange rate combined with a surplus labor market has made domestic assets relatively inexpensive generating high rates of fdi as well as domestic capital formation this investment hunger can lead to unanticipated declines in the returns to investment and resulting financial insolvencies private consumption remains low and there are concerns that high savings rates cannot be sustained we construct a dynamic general equilibrium model and apply it to a stylized asian economy loosely based upon china we calibrate a benchmark equilibrium and carry out various counterfactual simulations to analyze alternative policies in particular tax cuts and exchange rate revaluations as instruments in increasing private consumption while avoiding bank failures

leaving some stones unturned a reassessment of iterative planning theory abstract drawbacks of standard iterative planning algorithms include i planner actions are just on paper calculations without direct economic consequences and may converge very slowly ii planners cannot act systematically on hunches and intuitions and iii planners can observe unrealistically detailed information these problems are addressed through a bayesian learning model it is shown in sharp contrast to the standard literature that planners will not necessarily settle in the long run on even approximately optimal prices in an example the planner can end up setting prices in every period that guarantee chronic shortage this is an outcome of a fully optimizing model

the performance of alternative valuation models in the otc currency options market abstract we compare option valuation models based on regime switching garch and jump diffusion processes to a standard smile model in which black and scholes 1973 implied volatilities are allowed to vary across strike prices the regime switching garch and jump diffusion models provide significant improvement over a fixed smile model in fitting gbp and jpy option prices both in sample and out of sample the jump diffusion model achieves the tightest fit a time varying smile model however provides hedging performance that is comparable to the other models for the gbp options this result suggests that standard option valuation techniques may provide a reasonable basis for trading and hedging strategies

dynamic procedures and incentives in public good economies in this paper we consider economies involving one public good one private good and convex technology and propose an informationally decentralized dynamic nontatonnement procedure that converges in general from the initial endowments to an allocation in the core of the economy we then consider a general class of procedures and show that there exists none in the class that is locally incentive compatible and individually rational these results show that there exists a trade off between the requirements of local incentive compatibility and equitable cost sharing

theoretical foundations of negotiations and cost sharing in transfrontier pollution problems the negotiations model is described by a dynamic process bearing on a multilateral externality that converges to an individually rational pareto optimum the process embodies a cost sharing rule for pollutant abatement in the countries involved derived from a sharing rule of the surplus that is also shown to have strategic stability in the game theoretic sense of an imputation in the core of some cooperative game associated with the negotiation process the connections are explored between this cost sharing rule and the free rider problem in public goods theory

theory and practice of decentralized planning procedures the paper surveys the theory of decentralized planning procedures dealing with price guided quantity guided and mixed procedures informational and incentive properties of the various procedures are dealt with as is the problem of public goods the practice of planning in the u s s r hungary and india is also discussed copyright 1990 by blackwell publishers ltd

exogenous shocks contagion and bank soundness a macroeconomic framework abstract in a model where all banks are initially solvent an exogenous shock affects confidence causing a flight from deposits into domestic and foreign currency real interest rates increase unexpectedly affecting firms and raising the share of the banks nonperforming assets this contagion causes a bank run simulations show that compensatory monetary policy mitigates the bank run but causes macroeconomic imbalances combining compensatory monetary policy with tight fiscal policies slows the bank run and mitigates insolvency a devaluation combined with compensatory monetary policy reduces insolvencies and increases the growth of real income but at the cost of increased inflation

can neoclassical economics underpin the reform of centrally planned economies te here s a curious symmetry between the arguments propounded over the last century in advocacy of socialism and the present popular discussion of the reform of centrally planned economies in those old discussions the vision of socialism was utopian which was contrasted with the dickensian realities of capitalism now the disasters of central planning are contrasted with the benefits flowing from perfectly functioning markets in the conventional wisdom of reform the vision of markets is utopian and that of central planning concentrates on the awful reality what is largely missing in the conventional wisdom is a satisfactory attempt to come to grips with the central question that should be answered in formulating reform plans how does one explain the differences in performance of market capitalist and centrally planned economies of course capitalism has outperformed central planning the developed west is therefore an obvious source of ideas for reforms but the institutions of capitalism come in many varieties and cannot be put in place instantaneously there are many alternative reform paths depending upon the importance attributed to each of these institutions thus there remains the problem of tracing the source of the superiority of capitalist economies to specific characteristics this point was made clear to me on hearing a vietnamese official justify single party rule by noting the economic success of taiwan and singapore reformers need a filter that interprets the experience of capitalist and socialist systems this is exactly where economic theory plays a vital role

public praise vs private pay effects of rewards on energy conservation in the workplace any solution to rising levels of co2 depends on human behavior one common approach to changing human behavior is rewarding desired behavior because financial incentives often have side effects that diminish efficacy we predict that social rewards are more effective because they invoke adherence to descriptive and injunctive social norms we investigated this by measuring electricity use for 13 weeks at a dutch firm each week employees were rewarded for conserving energy they either received monetary rewards 0 5 or social rewards grade points with a descriptive comment rewards were either private or public in both the short and long term public rewards outperformed private rewards and social rewards outperformed monetary rewards this suggests that private monetary rewards although popular may be ineffective instead public social rewards may be a more promising approach to stimulating energy conservation we argue that this approach should be considered more frequently by policy makers

input output prices with endogenous demand abstract this note presents a computable general equilibrium model which may be used for planning purposes in a mixed economy it consists of a sequence of short run equilibria linked by a capacity expansion process in which incomes and profitability are endogenously determined

sorting and incentive effects of pay for performance an experimental investigation agency theory highlights losses in productivity that may occur when the interests of owners and employees are imperfectly aligned pay for performance has been proposed as a solution to this proble

bank failures and fiscal austerity policy prescriptions for a developing country abstract this work employs a dynamic general equilibrium model to evaluate the causes and implications of bank insolvencies we apply the model to stylized data from bangladesh a country whose banking system is currently suffering from large stocks of non performing assets the model is used to derive positive conclusions about alternative policy instruments designed to alleviate the impact of these insolvencies a benchmark case is simulated using historical exogenous parameters we then generate a bank failure by assuming that firms cannot service their debt if their interest obligations rise above their anticipated return on capital the public withdraws deposits from the banking system in reaction to worries about defaulting bank assets if banks optimize by restricting credit to risky borrowers these failures can be partially avoided such bank behavior is often prohibited in developing countries so we investigate an active monetary policy that compensates banks for withdrawn deposits the resulting outcome indicates that such a policy can slow the pace of bank failures although at the cost of certain macro imbalances our final simulation imposes a reduction in public spending in order to tighten fiscal policy and thereby reduce budgetary pressure the resulting decline in interest rates eliminates all investor defaults and bank failures we conclude that the combination of compensating monetary policy and restrictive fiscal policy may offer the best way of responding to a bank crisis

differential effects of incentive motivators on work performance in this field experiment we first compared the performance effects of money systematically administered through the organizational behavior modification o b mod model and routine pay for perfo