optimal price and inventory adjustment in an open economy model of the business cycle this paper presents a macroeconomic model containing optimizing inventory holding firms that is consistent with a number of prominent empirical regularities concerning fluctuations in output exchange rates relative prices and money prices are sticky but they are not predetermined still our model is consistent with exchange rate overshooting in the sense of dornbusch typical sticky price models allow a divergence between current production and current demand but this divergence is never allowed to feed back into the model our optimal inventory adjustments reconcile divergences between current demand and production and the inventory stock movements provide expected future dynamics

land consumption and income in italy a case of inverted ekc abstract the ekc hypothesis postulates that the relationship between economic growth and environmental deterioration is represented by an inverted u shaped function its validity has been questioned from several perspectives and a need for public policies has been expressed this paper uses a heuristic approach to analyze the relationship between per capita income and land consumption as proxied by the number of building permits issued by public authorities using data from the italian regions we run a panel data regression model to test whether the ekc hypothesis holds results confute it evidencing a u shaped relationship in the authors opinion the combined effect of market conditions lifestyle evolution and institutional and political factors have produced an adverse effect on environment on this basis the paper claims that when social and intergenerational aspects are involved a balanced mix of market policies and institutional architecture is needed

price and output adjustment inventory flexibility and cost and demand disturbances this paper analyses how inventory output and sales of a monopolist firm respond to both production cost and demand disturbances if cost shocks dominate output exceeds sales variability and sales and inventory holdings arepositively related as empirical evidence indicates sales and inventory holdings are negatively related as the theoretical literature generally suggests only if demand shocks dominate greater inventory flexibility or persistance of shocks contributes to the smoothing of production to demand disturbances but leads to the amplification of the production response to cost disturbances ajustement des prix et des quantites flexibilite des inventaires chocs du c6te des couts et de la demande ce memoire examine la reaction d une firme monopoliste dans son niveau d inventaires son niveau de ventes et son niveau de production quand cette firme fait l experience de chocs en provenance de ses cofits de production ou de sa demande si les chocs en provenance des couts sont les forces dominantes le niveau de production depasse les ventes et ventes et inventaires sont positivement co relies ventes et inventaires sont negativement co relies ainsi que la litterature specialisee le suggere quand ce sont les chocs du c6te de la demande qui sont la force dominante une plus grande flexibilite des inventaires ou la persistence des chocs tendent a attenuer les effets d echo des perturbations de la production sur la demande cependant cela tend a amplifier les effets d echo des perturbations dans les cofits sur la production

inventories rational expectations and the business cycle abstract the simplest macroeconomic models in which markets clear instantaneously and expectations are rational preclude the existence of business cycles that is of serially correlated deviations of output from trend this paper studies one of several mechanisms that can be used to make these so called new classical models produce business cycles the mechanism is the gradual adjustment of inventory stocks two macroeconomic models of inventory holdings are formulated both imply first that current output should be a decreasing function of the stock of inventories and second that inventories once perturbed from equilibrium levels should adjust only gradually these two features are then embedded into an otherwise standard macroeconomic model in which markets clear instantaneously and expectations are rational two principal conclusions are reached first disturbances such as unanticipated changes in money will set in motion serially correlated deviations of output from trend second if desired inventories are sensitive to the real interest rate then even fully anticipated changes in money can affect real variables

the effects of prior beliefs and learning on consumers acceptance of genetically modified foods abstract new food products using genetically modified crops appeared in u s supermarkets starting in 1996 and consumers perceived some risks this paper examines the role of consumers prior beliefs about genetic modification and of diverse new information on their willingness to pay for foods that might be genetically modified we use data from economics experiments and show that participants who had informed prior beliefs discounted gm labeled food products more highly than those who had uninformed prior beliefs uninformed participants were especially susceptible to information from interested and third parties in contrast informed participants were generally not affected significantly by new information

money and economic activity inventories and business cycles abstract incomplete information is a necessary condition for any real effects produced by monetary impulses an alternative to the local global inference problem is explored in this paper agents are confronted with permanent and transitory shocks even with full knowledge about the stochastic structure their best perception at any particular time will usually be erroneous prices for each period are set at the beginning of the period on the basis of market conditions the realization of the shock process thus creates a short run disequilibrium absorbed by inventory adjustments this adjustment translates perceived transitory monetary shocks into serially correlated output movements the analysis proceeds within the context of rational expectations it offers a generalization of equilibrium analysis in two respects prices are always in equilibrium relative to perceived conditions but they do not reflect all ongoing shocks quantity adjustments reflect the perceived transitory shocks the framework used involves moreover a stock flow interaction operated by inventory adjustments the stock flow interaction imposes at any time a future expected adjustment path for price level and quantities to the system s unique stock equilibrium a major implication of the analysis resolves a puzzle experienced in a recent paper by robert hall it reconciles intertemporal substitution with lagged effects of monetary impulses it also reconciles small and inconclusive cyclic movements in real wages with the occurrence of production function and large variations in unemployment lastly the nature of the inference problem determined by the pattern of incomplete information produces serially correlated movements conditioned on large permanent shocks

neoclassical labour market dynamics chaos and the real wage phillips curve abstract the relationship between wage inflation and unemployment has been extensively investigated since the early work of phillips phillips a w 1958 the relation between unemployment and the rate of change of money wage rates in the u k 1861 1957 economica 25 283 299 and lipsey lipsey r g 1960 the relation between unemployment and the rate of change of money wage rates in the u k 1861 1957 a further analysis economica 27 1 31 and it is still a matter of debate in this paper we study the dynamics of a standard neoclassical labour market under the simplest walrasian adjustment rule we show that when consumption and leisure are sufficiently low substitutes the unique walrasian equilibrium of the economy can be destabilised and regular or even chaotic fluctuations of wages and employment appear this leads to an interesting resurrection of a real wage phillips curve as a long term phenomenon

inventory behaviour and market power an empirical investigation abstract this paper examines the empirical relation between the market power of a firm and the level and variability of its inventories we suggest that firms with greater market power hold more inventories and that their inventories are more volatile these hypotheses were tested on a large sample of industrial firms using two different measures of market power and applying a number of estimation techniques the results strongly support our hypotheses

inventory and price behaviour the point of this paper is that inventory adjustment attenuates downward pressure on price when realized demand is low because firms accumulate inventory hold overs speculating that demand will be stronger in the succeeding period when realized demand is high the firm draws down its inventories until a stock out occurs and price rises to clear the market

measuring welfare effects of product contamination with consumer uncertainty abstract a methodology is developed for measuring consumer welfare loss from market demand due to contamination when information is imperfect comparison of behavior before and after awareness permits calculation of the cost of ignorance which occurs when news of contamination is withheld or undiscovered for a time as well as when excessive reporting and exaggeration cause overreaction avoidance costs are also calculated for consumers who consume less than they would with perfect information due to risk aversion the methodology is applied to analyzing the heptachlor crisis which reduced milk consumption in hawaii by over 80

housing bubbles and busts the role of supply elasticity existing studies of the relationship between housing price dynamics and housing supply which have relied upon questionable proxies for supply elasticity have yielded highly mixed results in this paper we provide new evidence on this relationship based on actual estimates of the price elasticity of supply for local markets in florida intermarket differences in housing supply elasticity are found to explain much of the variation in housing price movements and new construction during the most recent boom bust cycle additionally we find that variance in the elasticity of housing supply can be attributed to differences in land availability and the local fiscal and regulatory environment jel r14

effects and value of verifiable information in a controversial market evidence from lab auctions of genetically modified food food products containing genetically modified gm ingredients have entered the market over the past decade the biotech industry and environmental groups have disseminated conflicting private information about gm foods this paper develops a unique methodology for valuing independent third party information in such a setting and applies this method to consumers willingness to pay for food products that might be gm data are collected from real consumers in an auction market setting with randomized information and labeling treatments the average value of third party information per lab participant is small but the public good value across u s consumers is shown to be quite large jel c91 d12 d82

price smoothing and inventory this paper explains the phenomenon of price rigidity or price smoothing as the outcome of the optimal inventory policy of a multi period profit maximizing firm under demand and output uncertainties price smoothing may be manifested in two forms first price changes may be moderated with respect to those implied by the demand function and second the firm may choose to restrict price fluctuations by establishing upper and or lower bounds on prices we show that the extent of the asymmetry in price smoothing depends on the relationship between the inventory holding cost and the backlog penalty cost our model accommodates a wide range

the impact of demand and price expectations on the behavior of prices the effects of demand and price expectations on price behavior are analyzed using data from the manufacturing sector and a model formulated to pinpoint the demand oriented factors affecting prices and to incorporate price expectations as a direct influence on price behavior the expected normal demand is seen to have a strong and systemic influence on price behavior the expected normal level of new orders is found to be an adequate measure with sector data in general although some industries require more specification the effects of inventories and unfilled orders on prices are sporadic and across sectors and industries demand oriented forces are concluded to perform as well statistically as cost push determinants expectations concerning the current normal industry price level have a significant and consistent impact on price behavior this supports the idea that firms setting prices take into account their estimates of competitor s prices future price expectations appear to have little effect on current price information 15 references

cycles and chaos in a socialist economy abstract this paper deals with the dynamics of a continuous piecewise linear model of a socialist economy the model has hicksian type nonlinearities it is a linear model with ceilings and floors although the model is quite simple it produces a variety of different new phenomena in addition to stable cycles appearing in simonovits 1991b we demonstrate chaotic and quasi periodic behavior we investigate how the dynamics of the model depends on the control parameters and encounter border crossing bifurcations a rather new type of local bifurcation

land use planning and the housing market a comparative review of the uk and the usa this paper provides a review of some of the key articles and research examining the relationship between planning regulation and its impact on the housing market in the uk and the us in both count

inventories in a dynamic macro model with flexible prices this paper presents a disequilibrium macro model with inventories rational expectations and flexible prices it is found that less than full employment equilibria are possible even highly likely in the intermediate term and that wage reductions will cause employment to drop increasing aggregate demand will raise employment only if it is done gradually on a technical level we have multiple switching lines disconnected regimes and a connected equilibrium set which borders on a switching iline and otherwise lies in a single region

is the experimental auction a dynamic market experimental auctions are generally thought of as static markets this paper presents the results of an experimental auction designed to test whether participants perceptions regarding the relative difficulty of delaying or reversing a transaction outside the experimental market systematically affect their willingness to pay bids the results show that auction participants perceptions significantly impact their bids in a manner that is consistent with real option theory these results suggest that economists must be careful to consider the existence of outside markets when designing experimental auctions

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

the output inflation relationship abstract this paper shows how the optimal pricing and production policy of a multiperiod profit maximizing firm under demand and output disturbances leads in the aggregate to a positive relationship between production and price deviations from the expected level as depicted by the lucas type supply function the pricing and production decisions are made simultaneously by market agents who base their decisions on the same rational expectations before the disturbances are realized here although the planned production is not affected by the price deviations there is still a contemporaneous positive relationship between them where both production and prices reflect the firm s adjustment to unexpected levels of inventory we show that this positive relationship prevails even when the production decisions are made ex ante based only on expectations before the realization of the random shocks a closed form linear approximation for the supply function is derived which captures the effect of both systematic and unsystematic economic disturbances finally we present an empirical test which supports our assertion that our inventory adjustment mechanism contributes to the creation of the positive relationship between production and price deviations

inventories and the structure of macro models the message of this paper can be summed up in two words inventories matter they matter empirically in the sense that inventory developments are of major importance in the propagation of business cycles and they matter theoretically in the sense that recognition of their existence changes the structure of a variety of theoretical macromodels in some fairly important ways this paper is mainly about the implications of inventories for the structure of theoretical macro models but i begin by demonstrating the empirical importance of inventories in business fluctuations this abstract was borrowed from another version of this item

disequilibrium dynamics with inventories and anticipatory price setting this paper studies the sequence of short run quantity constrained equilibria of a model with a single storable output labor and money the durability of output gives rise to inventory fluctuations which influence the course of the equilibria attained one special feature of interest is the assumption that prices are not at the level which would equilibrate all markets if there were no stochastic shocks to the economy with prices frozen at this level the nature of the realized shocks determines the type of disequilibrium realized and the unintended component of inventory change the analysis concentrates on two questions what is the statistical nature of the process governing the real wage output employment and inventories and is it possible to test this model against the alternative hypothesis that prices are continually flexible even after the shocks have disturbed the system we find that although these theories are similar in their qualitative structure tests can be developed we also show how the frequencies of different types of quantity constrained equilibria vary with the stochastic specification this may shed some insight on why it is commonly believed that some types of disequilibrium phenomena have not been observed this abstract was borrowed from another version of this item

pollution shadow economy and corruption theory and evidence abstract we study how the shadow economy affects pollution and how this effect depends on corruption levels in public administration production in the shadow economy allows firms to avoid environmental regulation policies a large informal sector may be accompanied by higher pollution levels our theoretical model predicts that controlling the levels of corruption can limit the effect of the shadow economy on pollution we use panel data covering the period from 1999 to 2005 in more than 100 countries to test this theoretical prediction our estimates confirm that the relationship between the shadow economy and the levels of pollution are dependent on the levels of corruption our results hold when we control for the effects of other determinants of pollution time varying common shocks country fixed effects and various additional covariates

inventory fluctuations in a disequilibrium macro model as fig i shows this pattern continues to hold with remarkable fidelity over the postwar period as well notice that stock levels tend to peak during recessions shaded areas and to trough shortly after recessions while the stock sales ratio tends to peak during the latter part of recessions and to trough during expansions given the huge role played by stocks in business fluctuations 1 it is surprising that so little theoretical attention is directed toward improving our understanding of the timing of stock and stock sales ratio movements 2 the purpose of this paper is to offer a theoretical model which is consistent with the observed cyclical behaviour of stocks and the stock sales ratio the present model has firms forming sales expectations and then producing enough output if possible to cover the expected sales and to maintain a given stock expected sales ratio trade takes place out of equilibrium and inaccurate sales expectations or capacity constraints give rise to involuntary stock changes we find that stock holding may or may not be destabilising if stocks are not destabilising the familiar keynesian multiplier will obtain though the path of output after a shock will differ from the keynesian path if stocks are destabilising the system is found to enter a cycle with stocks and output ultimately rising and falling in a pattern much like that observed in actual cycles

the effect of growth and corruption on soil sealing in italy a regional environmental kuznets curve analysis this paper analyses and looks more closely at the empirical debate regarding the income elasticity hypothesis postulated in relation to the environmental kuznets curve and the impact of corruption on the relationship between growth and environmental impact measured in terms of soil sealing as proxied by the number of building permits issued by public authorities it postulates that when current private rent is high compared to perceived social costs and a large enough minority benefits from the rules the ekc does not emerge and public intervention fails to perceive social optimality to validate this hypothesis we run a panel data regression model based on data from all italian regions results confirmed the hypothesis evidencing a u shaped relationship i e a detrimental relationship between income and environmental impact quality it also demonstrated that this is contingent on the level of corruption the latter affects the position and the shape of the inverted ekc speeding up the exploitation process it shows that the higher the income the higher the effect of corruption on the environment therefore it advocates caution against any simplistic inference from ekc

the economic value to smokers of graphic warning labels on cigarettes evidence from combining market and experimental auction data abstract many countries now require prominent pictorial health warning labels hwls on the front and back of cigarette packages in the us pictorial hwls have been adopted but tobacco industry litigation has delayed their implementation this intervention could have value to smokers if it increases their information and changes their smoking behavior in this paper we estimate the value of two different health warning labels for cigarette packages relative to the current us labeling policy our methodology does not depend on the personal values of policy makers or other individuals as the value of information estimates we derive are based solely on smokers own consumption choices not any public health or other effects we introduce an approach to valuing information with a surplus measure that couples willingness to pay from non hypothetical experimental auctions with time series revealed preference demand estimates we find that a pictorial hwl has a large value to smokers and a higher value than a label that only contains text insofar as changing purchase behavior

stable quantities in fixed price disequilibrium recent work in the area of non walrasian process analysis has focused on three primary deficiencies in the walrasian tatonnement assumptions these are the walrasian neglect of endowment and spillover effects together with the failure to assign a special role for money in detail first it has long been known that if trade takes place during the process of price adjustment the resulting capital gains and losses coupled with the change in the distribution of commodities will tend to shift the position of the equilibrium for an early source see 18 book v chap ii this leaves the system with the problem of trying so to speak to close in on a moving target this is the endowment effect surprisingly hahn negishi and others see 17 1 chap 131 h ave found that stability follows in this class of models more readily than in walrasian models second clower 3 and patikin 9 chap xiii have argued that if trade takes place away from equilibrium we should expect that non zero excess demands in some markets will influence trading plans in other markets this is the spillover effect the classic case is that if a worker on the long side of the labor market cutting his planned consumption below its walrasian level because of spillovers the demands which actually get expressed in the marketplace can differ significantly even in sign from the demands which the walrasian auctioneer responds to initially there was speculation that spillovers would generate instability and or unemployment equilibria but thus far the theoretical results are mixed compare for example 11 io finally clower 4j has argued that the patikinesque macromoney general equilibrium models have not succeeded in formally distinguishing between money and other durables as a means of payment noting that the walrasian budget constraint implicitly allows trading in any pair of commodities he urges that a tighter restriction be introduced in the interest of enforcing the rule money buys goods and goods buy money 302 0022 0531 81 050302 12502 00 o

inventories and sticky prices note in a recent contribution to this review alan blinder provides an interesting analysis of the relationship between optimal inventory decisions and the process of price adjustment arguing that inventory permits separation of production and sale decisions and allows the firm greater flexibility in responding to anticipated demand disturbances blinder shows that the responsiveness of relative prices depends critically upon the cost of storage and the temporal structure of the demand shocks few economists would fault the intuitive substance of blinder s basic proposition and the proposition is justified with characteristic precision the analysis however is considerably less general than blinder maintains the formal argument of his paper relies upon a simple model of a monopolist capable of backlogging orders and storing unsold goods as the model is constructed order backlogs assume a role of fundamental importance in any stationary equilibrium this feature of the model vitiates blinder s extension of his result to situations in which order backlogs are prohibited the basic monopoly model developed in sections i and ii of blinder s paper places no restriction upon the sign of inventory negative inventory is interpreted as net unfilled orders while no distinction is drawn between reductions in gross inventory and additions to the order backlog as a result the cost of holding inventory is symmetric around an arbitrary minimum point the only role of inventory is to permit the time paths of production and sales to differ gross inventory allows production to antedate sales while order backlogs generate revenue before production costs are borne under these circumstances if future costs and revenues are discounted it is natural to expect any stationary equilibrium level of net inventory to be negative this can be shown to be true of blinder s model it is useful to distinguish in general between the nonstochastic stationary level of inventory n and the stochastic stationary level n the former is realized when the current expected demand disturbance eo is zero and production equals sales the latter which differs from customary usage represents the level of inventory expected to prevail when adjustment to the current nonzero expected demand disturbance is complete if the demand disturbance is not a random walk so that p 1 in blinder s 5 the two equilibria coincide relatively little attention is devoted to either stationary solution because blinder s main interest is in the optimal current solution level n1 the stochastic stationary level is crucially important however since it represents the goal toward which the current choice must provide an optimal first step to verify that both nand n are negative whenever production is strictly positive note that blinder s necessary condition 7 with the coefficient cl set equal to zero together with the definition of xa as the deviation of the shadow value of inventory q from its nonstochastic stationary value q implies

money supply variability in a macro model of monopolistic competition the effects of changes in money supply variability are examined for a macro model of monopolistic competition increases in money supply variability raise demand uncertainty causing individual firms to produce more for inventory in addition expected profits decrease inducing a number of firms to leave the economy aggregate income then falls in spite of an increase in firm level production the result on aggregate income is standard but the results on inventories and the number of firms in the economy distinguish this monopolistic macro model empirically from conventional macro models when changes in money supply variability occur

corruption and the environmental kuznets curve empirical evidence for sulfur abstract we investigate how corruption influences the income level at the turning point of the relationship between sulfur emissions and income using a wide cross national panel of countries at different levels of development and with different degrees of corruption our results support the environmental kuznets curve hypothesis for sulfur we find evidence that the higher the country s degree of corruption the higher the per capita income at the turning point suggesting different income pollution paths across countries due to corruption we build upon a new specification for the ekc developed by bradford et al 2005 that avoids using nonlinear transformations of potentially nonstationary regressors in panel estimation also we account for the indirect impact of corruption on emissions through its impact on per capita income our main findings remain unchanged when we investigate additional heterogeneity allowing for different income slopes across richer and poorer countries

factor demand under conditions of product demand and supply uncertainty the paper develops a theory of factor demand under uncertainty that encompasses neo classical factor demand and keynesian effective factor demand as special cases the model allows factor demand and output to move positively with product demand even with a constant product price this in turn permits real wages to move pro cyclically in response to product demand shocks in addition the model provides a new perspective on the adding up problem which posits that total factor payments exceed output if increasing returns to scale exist and generates positive uncertainty profits that are similar in spirit to those of frank knight

measuring the welfare effects of nutrition information cost benefit analysis justifies regulations altering the amount of health related information presented to consumers the current method of benefit analysis the cost of avoided illness is limited it assumes the benefits of health related information are adequately represented by changes in illnesses the manuscript develops a benefit estimation method to measure the welfare impacts of providing nutrient information nutrient labeling significantly affects purchase behaviour but may not lead to increased consumption of health foods nutrient labeling may increase welfare without any change in health risk thus the cost of avoided illness approach can underestimate the social benefits of providing nutrient information copyright 2001 oxford university press

adaptive expectations and perfect foresight in a nonlinear metzlerian model of the inventory cycle it has long been known that the motions of aggregate inventory investment are an important facet of the business cycle see e g blinder and maccini 1991 some elementary insights into the dynamic feedback effects between inventories production and sales were provided by metzler 1941 in a small theoretical model the present note adopts his framework but seeks to overcome the limitation of its linear specifications our basic idea corresponds to the concept of a flexible inventory accelerator while metzler postulated that desired inventory investment in discrete time is equal to the gap between desired and actual stocks of inventories some later studies have introduced a constant proportionality factor for the adjustment of inventories here we go one step further and hypothesize a variable stock adjustment speed as it turns out fast adjustments in a vicinity of the stationary equilibrium cause local instability but if for

quality disclosure and certification theory and practice this essay reviews the theoretical and empirical literature on quality disclosure and certification after comparing quality disclosure with other quality assurance mechanisms and describing a brief history of quality disclosure we address two sets of theoretical issues first why don t sellers voluntarily disclose through a process of unraveling and given the lack of unraveling is it desirable to mandate seller disclosure second when we rely on certifiers to act as the intermediary of quality disclosure do certifiers necessarily report unbiased and accurate information we further review empirical evidence on these issues with a particular focus on healthcare education and finance the empirical review covers quality measurement the effect of third party disclosure on consumer choice and seller behavior as well as the economics of certifiers jel d18 k32 l15 m31

optimal pricing and production in an inventory model abstract this paper deals with the problem of simultaneously determining the optimal price policy and production rate over a given planning horizon for nonlinear demand functions and convex inventory and shortage cost functions the optimal solution paths are derived by using optimal control theory the treatment of linear nonsmooth cost functions requires the use of a generalized maximum principle the solution method is a phase portrait analysis providing insight into the optimal pricing and production policies as well as the resulting inventory paths moreover it is shown that in the case of nonsmooth piecewise linear cost functions the equilibrium is approached within finite time although the model is nonlinear in the control variables finally it is illustrated that exogenous fluctuations in the demand rate seasonal demand pattern amount to cyclical optimal solutions

local taxation and urban development testing for the side effects of the italian property tax land is an essential yet limited natural resource its current unsustainable use asks for a better understanding of the main determinants of urban expansion a heuristic approach is used to analyze urban development in italy in particular the paper estimates an econometric model to test the impact of the italian property tax ici on the local authorities behavior and in particular on urban planning and development it tests whether its introduction has fostered rather than dampened construction activity the hypothesis put forward is that because of the concurrent market conditions the introduction of the tax has facilitated urban development the structure of the tax and the devolution process that began in the 90s induced local municipalities to adopt less tight accommodative urban policies to offset budgetary needs a more elastic urban policy reduces price volatility however its overall welfare effect is not clearly determined indeed ceteris paribus geographical areas with more elastic housing supply witness larger land consumption the land use changes we witnessed in the last decades could be the combined effect of financial and fiscal aspects if this is so careful attention should be given to the issue of whether leaving urban planning and the power to levy property taxes under the same jurisdiction

corruption income and the environment an empirical analysis abstract in response to the recent growth of a largely theoretical body of literature analysing the linkages between corruption and pollution this paper subjects the corruption pollution relationship to a detailed empirical examination a distinction is drawn between the direct impact of corruption on pollution and the indirect impact which operates through corruption s impact on per capita income and the resultant impact of income on pollution using data for 94 countries covering the period 1987 2000 both direct and indirect impacts of corruption on air pollution emissions are estimated for both sulfur dioxide and carbon dioxide corruption is estimated to have a positive direct impact on per capita emissions indirect effects are found to be negative and larger in absolute value than direct effects for the majority of the sample income range as a result the total effect of corruption on emissions is negative for all but the highest income countries in the sample

property rights corruption and the allocation of talent a general equilibrium approach we consider an economy where contracts are necessary to encourage investments contract enforcement requires that a fraction of the agents work in the public sector and do not accept bribes we find that 1 it may be optimal to allow some corruption and not enforce property rights fully 2 less developed economies may choose lower levels of property right enforcement and more corruption 3 there may exist a free lunch such that over a certain range it is possible simultaneously to reduce corruption increase investment and achieve a better allocation of talent bureaucratic corruption is widespread in many societies casual empiricism and case studies suggest that corruption distorts the allocation of resources and discourages investment and the creation of new firms e g mydral 1968 desoto 1989 cross country studies also find that countries with high corruption or long bureaucratic delays suffer lower growth e g mauro 1996 sartre 1997 it is therefore tempting to conclude that government policies and bureaucratic corruption are at least partly responsible for the lack of development or slow growth of many economies e g shleifer and vishny 1993 nevertheless governments and bureaucracies do not exist only to seek rents they perform a number of useful functions including provision of public goods correction of market failures and redistribution without understanding why the state exists it is difficult to assess why corruption arises what its consequences are and whether and how it should be prevented in this paper we analyse how the employees of the state bureaucrats can misuse their power to enforce property rights the protection of property rights is commonly viewed as one of the most important roles of the state by political philosophers as diverse as david hume karl marx and robert nozick while a number of social scientists including north and thomas 1973 and rosenberg and bridzell 1989 emphasise the importance of secure property rights in the development of western societies for the state to have a role in enforcing property rights some contractual problems must exist between private parties in our economy these contractual problems are between entrepreneurs in particular production requires two agents and one of the entrepreneurs needs to undertake an investment but the returns accrue to the other one this can be thought as a partnership with the first agent as an upstream supplier providing an input of variable

does an unstable keynesian unemployment equilibrium in a non walrasian dynamic macroeconomic model imply chaos simonovits 1982 introduced a non walrasian dynamic macromodel which is based on the disequilibrium model with inventory dynamics due to honkapohja and ito 1980 this model describes transactions on two markets one market for labor and one market for goods and contains five parameters obviously there is an equilibrium which is the so called keynesian unemployment equilibrium point for suitable choices of the parameters this equilibrium point is locally stable and according to simonovits 1982 the keynesian unemployment equilibrium point is also globally stable i e the trajectories of all initial values converge to the equilibrium point for many parameter values the equilibrium point is unstable this is in fact the case when the product of the two eigenvalues at the equilibrium point is greater than 1 simonovits 1982 conjecture says if the keynesian unemployment equilibrium point is unstable then there is chaos first we recall some definitions of chaos we restrict our attention to systems whose trajectories are bounded a first definition is the following a system is chaotic if there exist infinitely many periodic points with different period and if there is an uncountable set of aperiodic points this kind of chaos is nowadays called li yorke chaos see li and yorke 1975 and diamond 1976 before turning to a second definition we need the notion of sensitive dependence on initial values a system may be said to have sensitive dependence on initial values if we can find with probability p where 0 p 1 a point x such that for every open neighborhood u of x there is a point y in u such that the trajectories of x and y will not be close

consumer welfare effects of introducing and labeling genetically modified food abstract non hypothetical valuations obtained from experimental auctions in three united states and two european locations were used to calculate welfare effects of introducing and labeling of genetically modified food under certain assumptions we find that introduction of genetically modified food has been welfare enhancing on average for united states consumers but not so for europeans and while mandatory labeling has been beneficial for european consumers such a policy would be detrimental in the united states

target buffer stocks the behaviour of a buffer stock holding firm facing stationary demand shocks is considered from the viewpoint of recent evidence on inventories and price setting attention is focussed on the responses of price and supply to changes in autonomous demand and compared with those of a nondurable producer the results conflict with recent theoretical work in providing support for a keynesian interpretation of inventory series

can inventory chaos be welfare improving abstract this study demonstrates the possibility that chaotic fluctuations may be preferable to a steady state for this purpose it uses a simple macro disequilibrium model in which inventory can be chaotically fluctuated in such a model the profit of a firm as well as the utility of a consumer fluctuates this raises the question of their average profitability and preferability in the long run this study with the aid of numerical examples demonstrates that the long run average profit can be greater than the profit obtained at the steady state while the long run average utility is the same as the utility obtained at the steady state

an empirical study of the impact of corruption on environmental performance evidence from panel data this paper extends the empirical debate on the effects of corruption on environmental degradation by considering a recently available measure of environmental quality the environmental performance index this indicator is more comprehensive than the measures of air pollutant emissions commonly used in the literature and in particular can also capture the impact of pollution on human health this allows for a better understanding of the actual effects of a wide range of human activities on the ecosystem from a panel data analysis two regularities emerge first corruption deteriorates the overall environmental quality this effect is robust and persistent second our findings highlight the improvement of environmental quality as income rises even at an initial level of development this is not in contradiction with the ekc hypothesis because an increase in income levels provides positive externalities on the whole environmental quality by compensating the mere negative effects induced by industrialization on the emission levels as a consequence in emerging economies policies fighting corruption and enhancing development are very likely to improve the environmental performances

corruption pollution and the kuznets environment curve abstract this paper examines the implications of corruption and rent seeking behavior by the government for the relationship between pollution and growth cases of both cooperative and non cooperative interaction between the government and the private firm are studied it is shown that corruption is not likely to preclude the existence of an inverted u shaped kuznets environmental curve under both these cases however for any level of per capita income the pollution levels corresponding to corrupt behavior are always above the socially optimal level further the turning point of the kuznets curve takes place at income and pollution levels above those corresponding to the social optimum

nonparametric estimation of exact consumers surplus and deadweight loss we apply nonparametric regression models to estimation of demand curves of the type most often used in applied research from the demand curve estimators we derive estimates of exact consumers surplus and deadweight loss which are the most widely used welfare and economic efficiency measures in areas of economics such as public finance we also develop tests of the symmetry and downward sloping properties of compensated demand we work out asymptotic normal sampling theory for kernel and series nonparametric estimators as well as for the parametric case the paper includes an application to gasoline demand empirical questions of interest here are the shape of the demand curve and the average magnitude of welfare loss from a tax on gasoline in this application we compare parametric and nonparametric estimates of the demand curve calculate exact and approximate measures of consumers surplus and deadweight loss and give standard error estimates we also analyze the sensitivity of the welfare measures to components of nonparametric regression estimators such as the number of terms in a series approximation

optimal inventories and equilibrium price behavior abstract this paper departs from the established tradition of equilibrium inventory theory by examining the relationship between inventories and market prices when production is instantaneous but distribution is costly inventory holdings are not buffer stocks and do not facilitate production smoothing rather production variability exceeds the variability of final sales voluntary holdings of marketable finished goods are not restricted to occasional speculation during periods of unexpectedly low demand but may persist even when capital losses are anticipated in these respects the paper reconciles important features of the inventory decision problem with the results of modern investment theory

inventories and sticky prices more on the microfoundations of macroeconomics the role of inventories in making prices sticky is studied by analyzing a dynamic linear quadratic model of a monopoly firm facing stochastic demand but able to store its finished goods in inventory it is shown that in contrast to the usual presumption firms that exhibit the smallest output responses to demand fluctuations may also exhibit the smallest price fluctuations specifically firms which have very flexible inventory storage facilities or are subjected to very transitory demand shocks will rely on inventories as buffers and will change neither production nor price very much on the other hand firms which have very inflexible storage facilities or whose demand shocks are quite permanent will display large swings in both price and output the standard assumption about inventory carrying costs that has been used in the literature that they are linear is shown to imply that production is impervious to fluctuations in demand it is also established that prices may respond more strongly to positive demand shocks than to negative ones if it is impossible to hold negative inventories i e to have unfilled orders the model offers an explanation for stickiness in relative prices however under certain circumstances it may help explain the persistence of inflation this abstract was borrowed from another version of this item

equilibrium adjustment with endogenous information and inventories the paper analyzes the interaction of information acquisition and inventory flexibility with industry adjustment to imperfectly perceived cost and demand disturbances improved information about disturbances reduces the extent to which disturbances are unperceived and dampens the use of inventories reduced inventory flexibility induces firms to devote more resources to acquiring information about disturbances the analysis demonstrates how equilibrium price and output adjustment depend endogenously on the degree of inventory flexibility and other structural parameters influencing the acquisition of information in this paper we analyze how endogenous information acquisition and inventory flexibility influence price and output adjustment in a competitive industry we focus on the potential substitutability of information acquisition for inventory flexibility when disturbances are imperfectly perceived by individual firms the analysis highlights the general issue of how market adjustment depends on structural parameters that influence agents incentives to acquire information there are several reasons why information acquisition may play a role in market adjustment first the rapid development of information technology has enabled firms to gather and process data relevant to production and sales decisions from a greater number of external and internal sources this trend has reduced the costs of forecasting and monitoring factors influencing production and demand conditions for the individual firm relative to those of its competitors as well as for the industry as a whole in particular it has permitted quicker awareness of changing customer demand as well as greater control of the flow of inputs and intermediate goods during the production process this implies that the resources devoted to information acquisition and processing have come to play an important role in firm decisions 2 second improved information about demand and cost conditions may affect the function of inventories inventory adjustment allows a firm s production costs to be smoothed in response to anticipated movements in demand and costs and to be buffered against unanticipated disturbances see ashley and orr 1985 thus

price determination in a competitive industry with costly information and a production lag we analyze the role of information for price and output adjustment when competitive firms with rational expectations cannot directly distinguish between industrywide and firm specific cost disturbances firms may become informed about industrywide cost conditions by acquiring information at a cost the sensitivity of price and output to cost disturbances decreases as more firms choose to purchase information the equilibrium industry share of informed firms increases as the cost of information falls and total cost variability increases the equilibrium share of informed firms is largest when there is a comparable degree of variability in both industrywide and firm specific costs

bureaucratic corruption and endogenous economic growth there appears to be significant diversity in the incidence of bureaucratic corruption across countries at different stages of economic development and under different political and economic regimes little theoretical or empirical analysis has been offered however on the link between corruption government and growth the paper attempts to fill the void through equilibrium models of endogenous growth balanced growth is derived as a balancing act between accumulating human capital which engenders growth and accumulating political capital which mainly assures bureaucratic power the analysis focuses on the interplay between investment in these two types of capital and its implications for long term growth under alternative political regimes some propositions are tested and confirmed empirically

buffer stocks and naive expectations in a non walrasian dynamic macromodel stability cyclicity and chaos in their pioneering work honkapohja ito 1980 constructed a non walrasian macromodel with inventory dynamics some of their assumptions are modified in this paper e g the expected demand for goods is defined by previous rather than actual demand the modified model yields results which are both similar and dissimilar to those of honkapohja and ito for example the keynesian unemployment equilibrium remains invariant but the corresponding stability condition becomes milder the chaotic behavior of the unstable systems is also analyzed

inventories rational expectations and economic activities abstract this paper examines the role of inventories when adjustments in output involve fixed employment costs such as hiring and training costs these costs force the firm to use inventories to stabilize output fluctuations contrary to the blinder fisher model unanticipated aggregate disturbances in the present model may have no subsequent impacts on the economy the exchange between mccallum and blinder frydman are also discussed in this context