intersectoral externalities and indeterminacy abstract we consider a two sector economy with positive intersectoral external effects and nonincreasing social returns we show that if the discount factor is close to 1 then local indeterminacy may be obtained with mild market imperfections moreover with additional conditions when is made smaller the steady state becomes totally unstable and quasi periodic cycles along which equilibrium paths are indeterminate may appear through a hopf bifurcation this will be proved even if the investment good is capital intensive at the private level while this condition guarantees local determinacy in the sector specific case journal of economic literature classification numbers c62 e32 o41

production function regressions returns to scale and externalities a number of recent papers have used simple linear regressions in an attempt to identify market structure the extent of returns to scale and possible external effects in u s manufacturing industries the results obtained from these regressions have important implications for several branches of modern macroeconomics as a result the macro literature frequently cites specific numerical evidence from caballero and lyons 1992 and hall 1990 which suggests that there are quantitatively significant increasing returns to scale or external effects in u s manufacturing in contrast it is the argument of this paper that this evidence is not convincing the most robust evidence suggests that the typical u s manufacturing industry displays constant returns with no external effects on the other hand there is significant heterogeneity across industries

exploiting ergodicity in forecasts of corporate profitability abstract theory suggests that competition tends to equalize profit rates through the process of capital reallocation and numerous studies have confirmed that profit rates are indeed persistent and mean reverting recent empirical evidence further shows that fluctuations in the profitability of surviving corporations are well approximated by a stationary laplace distribution here we show that a parsimonious diffusion process of corporate profitability that accounts for all three features of the data achieves better out of sample forecasting performance across different time horizons than previously suggested time series and cross sectional models as a consequence of replicating the empirical distribution of profit rates the model prescribes a particular strength or speed for the mean reversion of all returns which leads to superior forecasts of individual time series when we exploit information from the cross sectional collection of firms the new model should appeal to managers analysts investors and other groups of corporate stakeholders who are interested in accurate forecasts of profitability to the extent that mean reversion in profitability is the source of predictable variation in earnings our approach can also be used in forecasts of earnings and is thus useful for firm valuation

a statistical equilibrium model of competitive firms abstract we find that the empirical density of firm profit rates measured as returns on assets is markedly non gaussian and reasonably well described by an exponential power or subbotin distribution we start from a statistical equilibrium model that leads to a stationary subbotin density in the presence of complex interactions among competitive heterogeneous firms to investigate the dynamics of firm profitability we construct a diffusion process that has the subbotin distribution as its stationary probability density this leads to a phenomenologically inspired interpretation of variations in the shape parameter of the subbotin distribution which essentially measures the competitive pressure in and across industries our findings have profound implications both for the previous literature on the persistence of profits as well as for understanding competition as a dynamic process our main formal finding is that firms idiosyncratic efforts and the tendency for competition to equalize profit rates are two sides of the same coin and that a ratio of these two effects ultimately determines the dispersion of the equilibrium distribution

comparing four models of aggregate fluctuations due to self fulfilling expectations abstract this paper compares four equilibrium business cycle models with increasing returns to scale production technologies that allow for aggregate fluctuations due to self fulfilling expectations necessary and sufficient conditions for the existence of stationary sunspot equilibria are derived numerical examples demonstrate that the degree of increasing returns necessary for the existence of stationary sunspot equilibria lies in the upper range of available empirical estimates the paper also shows that persistent fluctuations are not a necessary property of these four models when the only source of fluctuations is changes in people s expectations about the future path of the economy journal of economic literature classification numbers e32 d43

uniqueness and indeterminacy on the dynamics of endogenous growth abstract in this paper we study the dynamics of endogenous growth both in the model of lucas and in a generalization that incorporates a labor leisure choice we characterize the regions of the parameter space that give rise to unique equilibria as well as the regions that yield a continuum of equilibria with positive growth rates we find that such multiple equilibria exist for empirically very plausible parameters in particular when the lucas model is modified to incorporate endogenous labor journal of economic literature numbers e00 e3 o40

stability global dynamics and markov equilibrium in models of endogenous economic growth abstract this paper studies the local and global dynamics of two sector models of endogenous growth with economy wide external effects and taxes on capital and labor the local analysis classifies the parameter space depending on the number of stationary solutions and local stability of equilibria the global analysis shows that if taxes are within certain bounds and the size of the external effects on the average level of human capital is smaller than the share of physical capital the equilibrium path is monotone and therefore a continuous markov equilibrium can be constructed

indeterminacy and sunspots with constant returns recently there has been a renewed interest in the possibility of indeterminacy and sunspots or alternatively put in the existence of a continuum of equilibria that arises in dynamic economies with some market imperfections much of the research in this area has been concerned with the empirical plausibility of indeterminacy in markets with external effects or with monopolistic competition and which exhibit some degree of increasing returns while the early results on indeterminacy relied on relatively large increasing returns and high markups more recently benhabib and farmer 1996a showed that indeterminacy can also occur in two sector models with small sector specific external effects and very mild increasing returns

does classical competition explain the statistical features of firm growth abstract we propose a statistical equilibrium model where the tendency for competition to equalize profit rates results in an exponential power or subbotin distribution the model supports and extends recent evidence on the laplace distribution of firm growth rates

indeterminacy under constant returns to scale in multisector economies recently there has been a renewed interest in indeterminacy or alternatively put in the existence of a continuum of equilibria in dynamic economies that exhibit some market imperfections one of the primary concerns of this literature has been the empirical plausibility of indeterminacy which arises in markets with external effects or with monopolistic competition often coupled with some degree 10 of increasing returns

implications of quantal response statistical equilibrium abstract this paper explores the foundations and properties of the quantal response statistical equilibrium qrse model developed by scharfenaker and foley 2017 the qrse model provides a behavioral foundation for the formation of aggregate economic outcomes in social systems characterized by negative feedbacks it can approximate a wide range of commonly encountered theoretical distributions that have been identified as economic statistical equilibrium and displays qualitatively similar behavior to the subbotin and asymmetric subbotin distributions that range from the laplace to the normal distribution in the limit asymmetry in the frequency distributions of economic outcomes can be understood as arising from the unfulfilled expectations of entropy constrained decision makers this paper demonstrates the logic of the qrse model in an application to us stock market data dating back to 1926 the model provides a parsimonious explanation for the distribution of rates of return on private equities as well as a behavioral foundation for asset price fluctuations

balanced budget rules distortionary taxes and aggregate instability a traditional argument against a balanced budget fiscal policy rule is that it amplifies business cycles by stimulating aggregate demand during booms via tax cuts and higher public expenditures and by reducing demand during recessions through a corresponding fiscal contraction this paper suggests an additional source of instability that may arise from this type of fiscal policy rule it shows that within the standard neoclassical growth model a balanced budget rule can make expectations of higher tax rates self fulfilling if the fiscal authority relies heavily on changes in labor income taxes to eliminate short run fiscal imbalances calibrated versions of the model show that indeterminacy occurs for income tax rates that are empirically plausible for the u s economy and other group of seven countries

on the choice of funtional form for hedonic price functions this study examines how errors in measuring marginal attribute pric es vary with the form of the hedonic price function in simulations consumers with known utility functions bid for houses with given attributes various forms of the hedonic function are estimated using equilibrium housing prices errors in estimating marginal attribute prices are calculated by comparing each consumer s equilibrium marginal bid vector with the gradient of the hedonic function when all attributes are observed linear and quadratic box cox forms produce lowest mean percentage errors however when some attributes are unobserved or are replaced by proxies linear and linear box cox functions perform best copyright 1988 by mit press

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

why are distributions of firm growth rates tent shaped abstract recent empirical analyses on different datasets have revealed a common exponential behavior in the shape of the probability density of the corporate growth rates we present new evidence on this topic from the italian manufacturing industry and propose a very simple mechanism that under rather general assumptions provides a robust explanation for the observed regularities

a new approach to business fluctuations heterogeneous interacting agents scaling laws and financial fragility abstract in this paper we discuss a scaling approach to business fluctuations our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to re discover a set of stylized facts which have to be satisfactorily accounted for in their models standard macroeconomics based on a reductionist approach centered on the representative agent is definitely badly equipped for this task on the contrary we show that a simple financial fragility agent based model based on complex interactions of heterogeneous agents is able to replicate a large number of scaling type stylized facts with a remarkable high degree of statistical precision

introduction to a general equilibrium approach to economic growth abstract endogenous growth theory has had some success in explaining the observed data related to the process of economic growth however the results of the models in this literature are typically very sensitive to their micro economic structure it is therefore important to understand how the growth process behaves under more general specifications of such features as the number of commodities the number and preferences of consumers the factors of production and the financial and information structures in other words valuable insights can be gained by integrating growth theory into the framework of general equilibrium theory the summary of the papers in this volume focuses on seven issues that are crucial to this integration and highlights the contributions of the papers to the resolution of these issues journal of economic literature classification numbers c61 d50 d90 f43 o30 o41

valuing product attributes using single market data a comparison of hedonic and discrete choice approaches this paper compares via simulation the perfor mance of the multinomial logit and hedonic models in esti mating consumer preferences for product attributes we as cribe preferences over the attributes of houses to a population of consumers and by having them bid for a set of houses calculate equilibrium prices the resulting data are used to estimate the two models we find that the gradient of a linear box cox hedonic price function estimates marginal attribute bids at least as well as a linear logit model although the difference between the two is small when some variables are not observed or are replaced by proxies the logit model however outperforms the he donic model in valuing non marginal attribute changes this is true when the researcher knows the true form of consumers utility functions and when the utility function must be approx irnated

explaining the distribution of firm growth rates empirical analyses on aggregated datasets have revealed a common exponential behavior in the shape of the probability density of corporate growth rates we present clear cut evidence on this topic using disaggregated data we explain the observed regularities proposing a model in which firms ability to take up new business opportunities increases with the number of opportunities already exploited a theoretical result is presented for the limiting case in which the number of firms and opportunities go to infinity moreover using simulations we show that even in a small industry the agreement with asymptotic results is almost complete

estimating the demand for the characteristics of housing a hstract estimates of the demand for the characteristics contained in a differentiated product such as housing can be based on hedonic regressions however previous studies have not dealt with several potential problems in such estimation a more appropriate framework for the estimation is provided in this paper also data from a number of cities are used to eliminate the identification problem and the endogeneity of the marginal prices derived from non linear hedonic equations is considered in the estimation the results on own and cross price elasticities expenditure elasticities and the effects of socio economic vafiables accord well with expectations

competitive equilibrium cycles recently there has been a surge of interest in endogenous business cycles that arise in competitive laissez faire economies in the context of standard overlapping generations economies conditions for the existence of equilibrium cycles have been given by grandmont 1983 and by benhabib and day 1982 models of the economy with extrinsic uncertainty or sunspots that have been developed by shell 1977 and by cass and shell 1983 see also balasko 1983 can also lead to equilibrium cycles

intersectoral external effects multiplicities indeterminacies abstract this contribution focuses on the scope for indeterminacies that originate from global capital stock externalities in a reference two sector growth model a set of sufficient conditions for local indeterminacies and oscillations is established and builds upon a new class of intersectoral dependency in competitive economies the uniqueness of the steady state is also questioned and conditions for global indeterminacies are delimited the underlying features of preferences and sectoral production technologies are assessed in this paper it is shown that the principal attribute of a two sector environment i e a non linear production possibility frontier directly underlies indeterminacies it is the influence of external effects on the relative price of the investment good that leads to these phenomena a key role being detected in this perspective for external effects in the consumption good sector

indeterminacy and endogenous fluctuations in two sector growth models with externalities abstract this paper discusses the influence of technological externalities on the dynamic properties of accumulation paths in a two sector growth model in discrete time following the recent paper of boldrin and rustichini 1994 in which the authors study indeterminacy in a particular case we first provide some necessary and or sufficient conditions for the indeterminacy of equilibria in the general two sector model we also provide some conditions for the existence of period two cycles when equilibria are indeterminate we prove finally that depending on the nature of externality indeterminacy may lead to the existence of quasi periodic paths

information theoretic approaches in economics economics has seen a recent rise in interest in information theory as an alternative framework to the conventional notion of equilibrium as a fixed state such as walrasian market clearing general equilibrium the information theoretic approach is predicated on the notion of statistical equilibrium se that takes a distribution over all possible states as an equilibrium and therefore predicts the endogenous fluctuations of the system along with its central tendency simultaneously for this reason se approaches can explain the observed data without relying on arbitrary assumptions about random noise and provide useful insights for many interesting economic problems that conventional methods have not been able to satisfactorily deal with in this paper we review the key elements of information theory focusing on the notions and applications of entropy and se in economics particularly paying attention to how entropy concepts open up a new frontline of economic research

asymmetric competition risk and return distribution abstract we propose a parsimonious statistical model of firm competition where structural differences in the strength of competitive pressure and the magnitude of return fluctuations above and below the system wide benchmark translate into a skewed subbotin or asymmetric exponential power aep distribution of returns to capital empirical evidence from us data illustrates that the aep distribution compares favorably to popular alternative models such as the symmetric or asymmetric laplace density in terms of goodness of fit when entry and exit dynamics of markets are taken into account

simultaneity in the market for housing characteristics abstract the nature of simultaneity in the markets for housing characteristics is examined simultaneity is found to arise in the implicit markets for individual characteristics because of the presence of nonlinearity in the market hedonic price function for housing however this simultaneity is not the kind discussed by s rosen j political econ 82 34 55 1974 between firm supplies and household demands as a result the rosen suggestion of identifying demand with firm supply shifters is inappropriate among the alternative approaches to identification the most desirable involve use of data over two or more markets in which residence for a given household is exogenous to the choice of housing

do real estate brokers add value when listing services are unbundled i introduction real estate brokers typically provide sellers with bundles of services most of which are ostensibly aimed at improving the terms at which homes are sold and helping homeowners find buyers more quickly 1 traditionally access to the multiple listing service mls a pooled database of homes for sale that is owned and operated by an association of local real estate brokers has been an important component of that bundle other components of the traditional brokerage bundle that potentially affect the terms and timing of a sale include market information and recommendations pertaining to the appropriate asking price 2 promotional services preparing a home for sale circulating flyers placing advertisements holding open houses and recommending the home to individual buyers the screening of prospective buyers the facilitation and acceleration of matches between buyers and sellers 3 and assistance with negotiations 4 the object of this paper is to measure the effects of real estate brokerage services provided to sellers other than mls listings on the terms and timing of home sales it is not obvious that sellers benefit from those services on the one hand brokers offer potentially useful knowledge and expertise on the other hand because the relationship between the homeowner and the broker resembles a classical principal agent problem the broker may not deploy services in ways that promote the seller s interests while appropriately structured compensation schemes may alleviate the principal agent problem to some degree see e g the recent survey by miceli pancak and sirmans 2007 significant conflicts remain as levitt and syverson 2008 emphasize an agent has strong incentives to sell the house quickly even at a substantially lower price their empirical analysis shows that homes owned by agents sell for nearly 4 more and stay on the market roughly 9 days longer than other comparable houses similarly rutherford springer and yavas 2005 find that real estate agents receive a premium of 3 0 7 0 when selling their own condominiums in comparison to similar client owned condominiums by waiting longer to sell 5 while those studies shed light on the magnitude of agency costs i e the extent to which the deployment of brokerage services departs from the first best they do not tell us how those costs compare to the benefits flowing from a broker s knowledge and expertise consequently they do not answer the question posed at the outset of this paragraph the importance of the question addressed in this paper is most readily apparent within the context of the recent policy debate over service bundling in real estate brokerage as long as valuable mls listings are bundled with brokerage services homeowners may use brokers even if the agency costs exceed the benefits of brokers knowledge and expertise in that case unbundling would benefit homeowners and promote efficiency in practice a small but growing number of brokers now offer to place clients homes in the mls for a fixed fee 6 yet in many jurisdictions established brokers have resisted pressures to unbundle mls listings from other services in some cases they have pressed for minimum service laws that prevent agents from offering mls only options as of 2007 eight states had such laws in place 7 some states have also adopted licensing requirements that impede the entry of non traditional real estate brokers where such laws are not in force some mlss have adopted their own rules and procedures to prevent or at least discourage unbundling 8 though the internet increasingly provides alternatives to mls databases at least in some jurisdictions the u s federal trade commission observed as recently as november 2009 that t he mls is generally acknowledged to be a superior platform for matching home buyers and sellers 9 thus the practice of bundling mls listings with other real estate brokerage services handicaps homeowners who wish to sell their homes either completely independently for sale by owner or fsbo transactions or without the ancillary services of a listing broker

gibrat s law redux think profitability instead of growth we argue that firm profitability can be conveniently characterized by one and the same diffusion process for all firms akin to gibrat s seminal idea of a common stochastic description for the dynamics of firm growth here we show that the diffusion of profit rates applies across all surviving corporations irrespective of their size or industry which is not true for growth rates the diffusion process is empirically consistent with both the cross sectional distribution of profit rates and the individual time series of corporate profit rates leading to the notion of a statistical equilibrium this has stark and unexpected implications for our understanding of individual destinies since the model and data suggest that idiosyncratic efforts have no impact on the aggregate distributional outcome instead idiosyncratic efforts merely affect the individual persistence of abnormal profits from the system wide norm put differently corporations have to participate in the same game and can merely choose the speed at which they play it but they cannot bend the rules

innovation and corporate growth in the evolution of the drug industry abstract this work studies the processes of growth of the worlds top 150 pharmaceutical firms on the grounds of an original database which also allows disaggregate analysis at the level of single therapeutical classes and chemical entities our findings show that the industry whose long term evolution is driven by innovation imitation and permanent creation of new markets displays i fat tails in the distribution of growth shocks present at all levels of aggregation with relatively rare big spurs of growth ii a significant autocorrelation of growth rates iii a fall of variance of growth rates with size entirely dependent on corporate diversification patterns in turn plausibly shaped by the competence scope of each firm and iv different lifecycles of diverse types of products and persistent forms of heterogeneity across firms in terms of innovative output which however do not not seem to affect comparative growth performances

divergence in economic performance transitional dynamics with multiple equilibria abstract special pairs of the utility functions and the production functions are used in this paper to uncover the transitional dynamics in a lucas model of growth the main findings are as follows a continuum of equilibria exists if the external effect of human capital in goods production is sufficiently large the process of lagging behind catching up with and overtaking that we often observe in the world economy can be explained finally some equilibrium paths are shown to have such complicated patterns that the dynamics conjectured by lucas are too simple to be correct journal of economic literature classification numbers o41 c61

valuing housing characteristics a case study of single family houses in edmonton alberta specified characteristic of the houses in question pi i l n is az interpreted as the marginal implicit value of each specified characteristic and e is a random error term in the analysis reported here it is assumed that within the relatively shortterm period analyzed buyers demand for housing attributes is stable and the supply of the range of single family housing and associated attributes is fixed thus abstracting from the potential problem of identification that may affect estimation of the demand for attributes rosen 1974 epple 1987 2 a random sample of 60 single family homes which had sold in edmonton alberta in march 1993 was drawn from the edmonton real estate board s

turnover activity in wealth portfolios we examine several subsets of the wealthiest individuals in the us and the uk that are compiled by forbes magazine and the sunday times since these are named subsets we can calculate the returns to wealth portfolios and calibrate a statistical equilibrium model of wealth distribution that accounts for the power law of wealth and the asymmetric laplace distribution of portfolio returns the model provides a relative measure of turnover activity that indicates how often changes in the composition of the wealthiest portfolios occur finally we investigate trends in equality mobility and turnover activity

measuring the contributions of site characteristics to the value of agricultural land this study examines the effects of different combinations and qualities of selected site characteristics on the value of agricultural land in six substate regions in washington state the analysis follows the general hedonic regression form but incorporates nonnegativity constraints on the models this coupled with an adaptation of bierens s conditional moment test yields consistent results showing a land value is a function of site characteristics b land markets in washington state are highly regional c parsimonious empirical models can provide adequate representations of expected land values and d nonnegative truncation is a valuable procedure in hedonic models

real business cycles and the animal spirits hypothesis abstract we calibrate a quantitative equilibrium macroeconomic model with an aggregate technology that is subject to increasing returns and show that this model may display fluctuations at business cycle frequencies even when there are no shocks to the fundamentals of the economy these fluctuations are due to the self fulfilling beliefs of investors which we call animal spirits we compare the impulse response functions predicted by our model and by two other more standard models with a four variable vector autoregression on u s data our animal spirits economy is the most successful of the three at matching broad features of the dynamic responses in the data journal of economic literature classification numbers e00 e3 e32

hedonic prices and implicit markets estimating demand and supply functions for differentiated products in choosing the level of quality to purchase the buyer of a differentiated product also chooses a point on the marginal price schedule for that product hence in general the demand functions for product characteristics cannot be consistently estimated by ordinary least squares market equilibrium results in a matching of characteristics of demanders and suppliers this matching restricts the use of buyer and seller characteristics as instruments when estimating demand and supply functions for product characteristics the paper develops these issues a stochastic structure for hedonic equilibrium models is then proposed identification results are presented and estimation procedures are outlined

multiplicity of equilibria and fluctuations in dynamic imperfectly competitive economies this paper investigates two aspects of the macroeconomic consequences of market participation decisions of imperfectly competitive firms first can there exist multiple pareto ranked nash equilibria indexed by the level of market participation that is can there exist both thin and thick market equilibria second can the variations in the degree of competition that stem from shocks to preferences and technologies help to understand observed fluctuations in the macroeconomy this paper is part of an ongoing research program intended to understand the macroeconomic implications of the coordination of economic activities in model economies without complete and or competitive markets in such environments the fundamental theorems of welfare economics do not apply and it is quite possible for the economy to have multiple pareto ranked equilibria low welfare equilibria represent situations in which individual agents acting noncooperatively are unable to successfully coordinate their activities and reach a preferred equilibrium this is termed a coordination failure in equilibria of this type there are 100 bills lying on the sidewalk but it takes the effort of more than one individual i e coordination to reap these gains our model relates to two important strands of the literature on coordination failures first are model economies in which the deviation from the arrow debreu paradigm arises from the market power of sellers see for example oliver hart 1982 in these models the number of active firms is usually taken to be exogenous our contribution is in part to allow the number of firms to be determined by the costs and benefits of market participation this allows us to relate the degree of competition in the economy to variations in fundamentals like technology and preferences in addition to exogenous but self fulfilling variations in expectations second our model represents another example of a participation externality in which the gains to participating in an activity such as entering a market depend on the number of other agents participating as well the papers by peter diamond 1982 chatterjee 1988 and m pagano 1987 1988 explore market participation externalities of a different variety in diamond s work these externalities arise through the matching process while chatterjee and pagano 1987 explore the risk reducing effects of large markets similar externalities are found in the industrial organization literature on networks as in michael katz and carl shapiro 1985 the model explored in this paper highlights a participation externality arising from the interaction of imperfectly competitive firms 1 tdiscussants robert e hall stanford university peter diamond mit olivier j blanchard mit

on the stability of the two sector neoclassical growth model with externalities we study a class of two sector growth models with sector specific externalities in which one sector produces consumption and the other sector produces investment the novelty is that investment allocated to the consumption sector is an imperfect substitute for investment allocated to the investment sector we show analytically that in this case local indeterminacy near the steady state is impossible for every empirically plausible specification of the model parameters more specifically we show that a necessary condition for local indeterminacy is an upward sloping aggregate labor demand curve in the investment sector which requires a counterfactual strength of the externality we show numerically that an elasticity of substitution of plausible size implies determinacy near the steady state these findings differ sharply from the standard result for two sector models that if the investments allocated to the two sectors are perfect substitutes then local indeterminacy occurs for a wide range of plausible parameter values