optimal incentive schemes with many agents the grossman hart principal agent model of moral hazard is extended to the multiple agent case to explore the use of relative performance in optimal incentive contracting under the assumption that the principal chooses incentive schemes to implement agent actions as nash equilibria necessary and sufficient conditions are derived for the optimality of independent contracts of rank order tournaments and for attainability of the first best in this context the relation of the principal s welfare to the correlation between the underlying randomness in outputs of different agents is also investigated finally some problems with the nash equilibrium implementation assumption are discussed in this paper we extend the grossman hart analysis of the principal agent problem to a multiple agent setting in this version of the problem a risk neutral principal is assumed to observe the output or a performance index for each risk averse agent the output of any agent depends on a privately observable action chosen by the agent and an exogenous random variable the realization of which is not observed either by the principal or by the agent before choosing its action we especially focus attention on the role of relative performance evaluation in optimal incentive contracts and the way this depends on properties of the underlying production technology and the joint distribution of the random variables affecting the outputs of different agents in section 2 of the paper we consider the principal s problem of finding an optimal incentive scheme and an action tuple for agents subject to the constraint that the latter be implemented as a nash equilibrium between agents by the chosen incentive scheme where agents must attain at least their reservation utilities a characterization of optimal incentive schemes is derived analogous to the grossman hart characterization for the single agent problem this characterization is then utilized to find sufficient and generically necessary conditions for a optimal contracts for any agent to be independent of the performance of other agents and b optimality of rank order tournaments where payments depend solely on ordinal comparisons of output across agents we then describe a necessary and sufficient condition for the principal to extract maximum advantage from relative performance clauses i e achieve the first best level of expected utility in the multiagent situation an implication of this result is that under fairly weak conditions perfect correlation in the underlying production uncertainties for different agents enables the principal to attain the first best if and only if sufficiently heavy penalties can be inflicted on agents we then enquire what happens in intermediate cases of non perfect correlation it turns out that while in general the principal s welfare is a continuous function of the correlation coefficient it is not always nondecreasing in the latter because the correlation coefficient is not a general measure of association between two random variables but rather a measure of linear association between them

effort levels in contests with two asymmetric players a contest is a situation in which players compete with one another by expending effort to win a prize examples abound firms compete by spending rd 26 krueger 14 posner 20 rogerson 23 appelbaum and katz 1 hillman and riley 12 hirshleifer 13 ellingsen 8 nitzan 18 and baik 2 3 have studied rent seeking contests lazear and rosen 15 o keeffe viscusi and zeckhauser 19 and rosen 24 have examined performance incentives associated with reward schemes riley 22 has analyzed the war of attrition and auctions dixit 7 has considered strategic commitments in contests with different applications these are only a part of the literature on the theory of contests despite the vast literature however the effects of asymmetries between players have not been clarified except by harris and vickers 11 who analyze in a patent race model the strategic consequences of asymmetries the purpose of this paper is to examine the effects of asymmetries between two players on individual and total effort levels in a model with a logit form probability of winning function effort levels expended by the players deserve attention effort in a rent seeking contest is interpreted as social costs and thus total effort level is a measure of economic efficiency effort in an r d contest is interpreted as r d expenditures and thus effort levels determine the expected date of invention we focus on asymmetries between the players resulting from their different valuations of the prize their different abilities to convert effort into probability of winning or both such asymmetries are common in contests for example people in different locations may receive different

inherited corporate control and returns on investment this paper contributes to the literature on management in family firms by investigating how succession in family firms affects returns on investment the identities of the chief executive officer ceo and the chairman of the board cob were used to establish whether the management of the firm can be characterized as founder descendant or external management a unique unbalanced panel data set on listed swedish firms covering the period from 1990 to 2005 was used in the analysis the results show that founder management has a positive effect on the returns on investment in family firms whereas descendant management has a negative impact an external ceo as a successor in family firms leads to more efficient investment policies with increased firm value as a result that is when studying corporate governance in family firms it is important to account for what type of management the firm has further studies are required to understand the relationship between ownership control management and firm performance

a sequential choice model of family business succession management succession is a critical process especially in family owned businesses current models of management succession focus on elements such as personal development of potential successors and decision making processes by incumbents and governance bodies but do not account for interactions among actors this paper addresses this weakness using a game theoretic approach applied to the setting of family businesses we model a tournament style game in which two siblings pursue the ceo position of a family business in the course of our analysis we consider a variety of factors such as the predispositions of the founder to choose one sibling over the other the value placed on winning the top job by each sibling the cost for the siblings of pursuing the job and the possibility of first mover advantages we close the paper by discussing implications of our work for both family businesses and corporations

unemployment hysteresis and the natural rate hypothesis i introduction rod cross et al university of st andrews ii reflections on hysteresis and the natural rate 1 the irrelevance of the natural rate lawrence summers harvard university 2 on the history of hysteresis rod cross university of st andrews iii the characteristics of the unemployed 1 unemployment vacancies and the long term unemployed peter smith l b s paul levine south bank polytechnic alan budd l b s 2 characteristics of the long term unemployed evidence from the labour force survey stephen creigh department of employment 3 is unemployment irreversible peter r hughes department of employment gillian hutchinson queen mary college london iv analysis of hysteresis effects 1 union activity and wage employment movements assar lindbeck institute for international studies university of stockholm and dennis snower birkbeck college london 2 a simple model of imperfect competition with walrasian features huw dixon birkbeck college london 3 unemployment and worker quality simon price university of bristol 4 screening in labour markets with heterogeneous workers inge schnell university of bonn and l s e iv hysteresis effects and the explanation of aggregate unemployment 1 testing for multiple natural rates of unemployment in the british economy alan carruth university of kent and andrew oswald centre for labour economics l s e 2 why is wage inflation in britain so high stephen nickell university of oxford 3 phillips curve estimates incorporating a natural rate with hysteresis effects david coe o e c d 4 hysteresis and european unemployment olivier blanchard m i t and lawrence summers harvard university 5 the natural rate empirical fact or theoretical straitjacket tim jenkinson merton college oxford iv panel discussion the implications of hysteresis effects for unemployment policy 1 david stanton employment market research unit department of employment 2 charles adams i m f 3 marcus miller university of warwick 4 peter mcgregor fraser of allander institute university of strathclyde

collective moral hazard maturity mismatch and systemic bailouts the paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy when everyone engages in maturity transformation authorities haver little choice but facilitating refinancing in turn refusing to adopt a risky balance sheet lowers the return on equity the key ingredient is that monetary policy is non targeted the ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage while the distortion costs are to a large extent fixed this insight has important consequences first banks choose to correlate their risk exposures second private borrowers may deliberately choose to increase their interest rate sensitivity following bad news about future needs for liquidity third optimal monetary policy is time inconsistent fourth macro prudential supervision is called for we characterize the optimal regulation which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets we establish the robustness of our insights when the set of

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

are prices too sticky nominal price rigidity has a negative externality rigidity in one firm s price increases the variability of aggregate real spending which harms all firms this paper investigates whether this externality is large which would imply that stabilization policy can be highly beneficial even if the costs of making prices flexible are small there are three conclusions first both the private cost of price rigidity and the externality are second order in the size of fluctuations second the externality can nonetheless be arbitrarily large third in a simple model the externality is small for plausible parameter values

how should responsible investors behave keynes s distinction between entrepreneurship and speculation revisited this paper deals with keynes s distinction between entrepreneurship and speculation regarding business people in general and especially investors behaviour based on keynes s thoughts about financial markets it analyses how different motivations influence the decision making process of investors and its consequences for stock markets and the real economy and clarifies that keynes s considerations are still useful for understanding contemporary developments and risks in the financial system furthermore it points out that keynes s theories and policy recommendations should be understood in the context of his moral considerations especially relating to individual responsibility of investors finally keynes s moral thoughts can be taken as a foundation for a contemporary approach to investors responsibility

recent developments in macroeconomics underlying the existence of macroeconomics as a separate field of study are the phenomena of economy wide fluctuations of output and prices and sometimes persistent high levels of unemployment two basic views of macroeconomic behavior have persisted even as conceptual innovati ons and the application of more powerful analytic and empirical techn iques have brought significant changes in understanding of the macroe conomy copyright 1988 by royal economic society

why u s wage and employment behavior differs from that in britain and japan if a poll were to be conducted among american academic economists to select the most mystifying economic phenomenon of our time surely the sticky nominal wage rate would emerge at or near the top of the list the slow and partial response of the nominal wage rate to changes in aggregate nominal spending has been a central postulate of macroeconomic theory for the past 45 years from keynes general theory down to the standard postwar textbook keynesian paradigm to the more modern fixed wage price models of robert barro and herschel grossman i976 and edmond malinvaud i977 unwilling passively to accept nominal wage rigidity as an unexplained assumption many labour market theorists have followed the lead of costas azariadis i975 and martin baily i974 in building models to explain rigid wages and layoff unemployment as the rational outcome of a profit maximising calculus as i pointed out in an early critique of the azariadis baily model i976a their assumptions cannot explain cycles in employment but rather why workers would want fixed incomes i e a fixed wage rate and fixed employment soon thereafter barro i977 went one step further and argued that contract theory is a facade which cannot explain why workers would choose a rigid wage and variable employment in preference to the classical equilibrium quantity of employment that equates the marginal product of labour with the marginal value of time now an examination of the evidence has led me to the realisation that rigid wages cannot provide the underpinnings for a universally valid theory of the business cycle simply because wages are not universally rigid i document below with postwar quarterly data that the share of fluctuations in the manufacturing wage bill taking the form of nominal wage changes as compared to changes in hours worked is five to ten times greater in britain and japan than in

wages and employment in a segmented labor market this paper analyzes the impact of business cycle fluctuations on a labor market segmented into a unionized primary sector and a competitive secondary sector either permanent or temporary changes in real aggregate demand are shown to widen the intersectoral wage differential in recession and under reasonable specifications of key parameters to cause greater fluctuations of primary sector employment than secondary sector employment this pattern agrees with the stylized facts of the u s economy

g e moore and j m keynes a missing chapter in the history of the expected utility model in his posthumous essay my early beliefs john maynard keynes outlined his mental history in the dozen years before the war and asserted their importance to his later life yet despite keynes s assertion of the importance of this part of his mental history to who he was and what he did in 1938 the year the essay was written and two years after he published the general theory there is virtually no treatment in the history of economic thought of this period of his life or of its impact on his economic theory the purpose of this essay is to treat an episode of that period of his life which has particular analytical importance and to suggest some ways in which it might contribute to a clearer understanding of his later work in economics the episode in keynes s early life which the essay examines is his role in g e moore s changing opinion about the importance of rules in ethics in his classic principia ethica 1903 moore had originally asserted that obeying certain rules is a necessary part of ethically correct behavior but in his ethics 1912 he makes exactly the opposite argument saying that individuals are always justified in judging a case for themselves and are under no obligation to follow general rules of conduct in the parlance of modern philosophy moore switched from a rule utilitarian argument to an act utilitarian argument the first four sections of the essay detail the role which keynes played in moore s change of heart the final section discusses how the episode affects our understanding of keynes s work in economics

remaining puzzles and neglected issues in macroeconomics this paper analyses the chain of transmission mechanisms of economic policy actions to financial markets output and employment and finally unemployment in an attempt to identify remaining puzzles and neglected issues in macroeconomics the paper emphasizes the consequences of fiscal and monetary policy actions on real variables including real interest rates and real exchange rates an attempt is made to explain why product demand shocks often tend to have faster effects on output and employment than on prices the paper also discusses why demand induced increases in output and employment are not systematically connected with a reduction in the product wage rate the paper ends with a discussion of various supply side considerations in macroeconomics

predetermined wages and prices and the impact of expansionary government policy this paper characterizes the monetary equilibria of an economy with commodity and labour contracts if government policy is not too variable there may exist an equilibrium with predetermined wages and prices in this equilibrium observed changes in the money supply to finance government purchases have persistent real effects the paper also provides theoretical support for an inverse relationship between the degree of indexation in contracts and the persistence of policy effects

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

redistributive politics and economic efficiency the political process often compensates the losers from technical change or international competition in an economically inefficient way namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses we find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome to achieve economically efficient outcomes it is necessary that those making economically inefficient choices not be given offsetting transfers but the political process distributes income on the basis of political characteristics which are in general different from the economic characteristics that are rewarded by the market we identify circumstances in which the inefficient choosers have desirable political characteristics and are therefore immune from threats of having to face the economic consequences of their choices

neglected risks the psychology of financial crises sometimes referred to as mit shocks e g caballero and simsek 2013 are consistent with rational expectations in that investors recognize that there is a small chance that the shock might occur but they are harder to reconcile with the reinhart rogoff 2009 observation that crises are not that unusual the 2008 financial crisis in the united states has deepened the challenge by bringing up direct evidence that investors underestimated the risk of a crisis coval jurek and stafford 2009 show that investors underestimated the probability of mortgage defaults in pricing mortgage backed securities foote gerardi and willen 2012 find that investors did not even contemplate the magnitude of home price declines that actually materialized rather than being considered unlikely the risks appear to have been entirely neglected we need a theory of beliefs consistent with sharp underestimates of the odds of a crisis in this paper we present a psychological theory of the neglect of risk and financial crises the theory seeks to explain precisely why the probability estimates of a crisis in a boom are too low offering a foundation of unanticipated shocks and of zero probabilities attached to some states of the world by investors gennaioli shleifer and vishny 2012 our theory yields boom bust financial crises based entirely on beliefs we do not incorporate into the model any economic mechanisms that amplify the shocks such as fire

retrospectives john maynard keynes investment innovator john maynard keynes made a major contribution to the development of professional investment management based on detailed archival research at king s college cambridge we describe keynes investment philosophy his investment performance and the evolution of his investment approach as the manager of a large educational endowment his portfolios were actively managed and unconventional he was an investment innovator both in making a substantial allocation to the then new institutional asset class of common stocks as well as in championing value investing

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

the wage price spiral this paper rehabilitates the old wage price spiral it shows that after an increase in aggregate demand the process of adjustment of nominal prices and nominal wages results from attempts by workers to maintain or increase their real wage and by firms to maintain or increase their markups of prices over wages under continuous price and wage setting the process of adjustment would be instantaneous under staggering of price and wage decisions the adjustment takes time the more inflexible real wages and markups are to shifts in demand the higher is the degree of price level inertia and the longer lasting are the effects of aggregate demand on output

sticky prices new evidence from retail catalogs this paper presents new results on the size frequency and synchronization of price changes for twelve selected retail goods over the past 35 years three basic facts about the data are uncovered first nominal prices are typically fixed for more than one year although the time between changes is very irregular second prices change more often during periods of high overall inflation third when prices do change the sizes of the changes are widely dispersed both large and small changes occur for the same item and the sizes of these changes do not closely depend on overall inflation

conflict and rent seeking success functions ratio vs difference models of relative success the rent seeking competitions studied by economists fall within a much broader category of conflict interactions that also includes military combats election campaigns industrial disputes lawsuits and sibling rivalries in the rent seeking literature each party s success pi which can be interpreted either as the probability of victory or as the proportion of the prize won has usually been taken to be a function of the ratio of the respective resource commitments alternatively however pi may instead be a function of the difference between the parties commitments to the contest the contest success function csf for the difference from is a logistic curve in which as is consistent with military experience increasing returns apply up to an inflection point at equal resource commitments a crucial flaw of the traditional ratio model is that neither onesided submission nor two sided peace between the parties can ever occur as a cournot equilibrium in contrast both of these outcomes are entirely consistent with a model in which success is a function of the difference between the parties resource commitments

vote buying general elections we examine the consequences of vote buying assuming this practice were allowed and free of stigma two parties compete in a binary election and may purchase votes in a sequential bidding game via up front binding payments and or campaign promises platforms that are contingent on the outcome of the election we analyze the role of the parties and voters preferences in determining the winner and the payments to voters

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

varieties of clientelism machine politics during elections although many studies of clientelism focus exclusively on vote buying political machines often employ diverse portfolios of strategies we provide a theoretical framework and formal model to explain how and why machines mix four clientelist strategies during elections vote buying turnout buying abstention buying and double persuasion machines tailor their portfolios to the political preferences and voting costs of the electorate they also adapt their mix to at least five contextual factors compulsory voting ballot secrecy political salience machine support and political polarization our analysis yields numerous insights such as why the introduction of compulsory voting may increase vote buying and why enhanced ballot secrecy may increase turnout buying and abstention buying evidence from various countries is consistent with our predictions and suggests the need for empirical studies to pay closer attention to the ways in which machines combine clientelist strategies

a test of dual labor market theory despite substantial differences in their views of the appropriate policy response to the existence of poverty neither the proponents of dual market theory nor its critics have proposed potentially conclusive tests of the dual market hypothesis this paper presents a test of the two central propositions of dual market theory 1 the existence of two distinct labor markets with different wage setting mechanisms and 2 the existence of barriers to mobility between the labor markets we find considerable support for both hypothesis estimation of a switching model of wage determination with unknown regimes yields two distinct wage equations the one which most workers are associated with closely resembles the standard human capital regression with significant returns to education and experience the other equation is flat with no returns to human capital these two equations resemble the predictions of dual market theory for the primary and secondary markets respectively further we present evidence that at least some non white workers are involuntarily confined to the secondary market this crowding of minority workers into the low wage labor market accounts for a substantial portion of white non white wage differences we interpret these results as providing empirical support for the dual market hypothesis and for recent theoretical work on efficiency wagemodels in addition combining the efficiency wage argument with the observation that much of the white non white wage difference is explained by the exclusion of non whites from the primary sector suggests an explanation for the persistance of wage differences this abstract was borrowed from another version of this item

good enough for government work macroeconomics since the crisis this paper argues that when the financial crisis came policy makers relied on some version of the hicksian sticky price is lm as their default model these models were good enough for government work while there have been many incremental changes suggested to the dsge model there has been no single big new idea because the even simpler is lm type models were what worked well in particular the policy responses based on is lm were appropriate specifically these models generated the insights that large budget deficits would not drive up interest rates and while the economy remained at the zero lower bound that very large increases in monetary base wouldn t be inflationary and that the multiplier on government spending was greater than 1 the one big exception to this satisfactory understanding was in price behaviour a large output gap was expected to lead to a large fall in inflation but did not if new research is necessary it is on pricing behaviour while there was a failure to forecast the crisis it did not come down to a lack of understanding of possible mechanisms or of a lack of data but rather through a lack of attention to the right data

the electoral benefits of unemployment clientelism and distributive politics abstract we show that in the month prior to the 2003 argentine presidential election the expenditures of an argentine poverty relief program exhibit a partisan bias taking into consideration the number of potential recipients the unemployed with children 18 years old or less the counties that were ideologically against the incumbent received a disproportionately large amount of the spending hence instead of targeting swing or core districts as established in the distributive politics literature in argentina the incumbent targeted opposition strongholds to identify these effects and to classify districts into swing core and opposition ones we exploit the 2001 crises in argentina in particular we use the 2001 political discontent that led to 15 of blank and null votes to estimate swing districts finally we also show that this tactical spending had an electoral purpose in counties where it was arguably cheaper to monitor the recipients voting behavior the spending was significantly larger in return the clientelist exchange took place in districts with greater spending and monitoring thus the politicians incentives to design an appropriate poverty relief program may be at odds with their electoral motivation

the keynesian recovery although modem macro economic analysis has almost immortalized keynes s is lm framework it has largely ignored the central message of the general theory this is attributable at least in part to keynes s failure to provide a clear concept of market organization as an alternative to the walrasian auction paradigm recent developments however in the theory of search and transaction externalities may ultimately provide that missing concept also work on indeterminacy in rational expectations models may direct the profession s attention away from wage stickiness and back towards the intertemporal co ordination problems that keynes saw as lying at the root of unemployment la reprise keynesienne meme si l analyse macroeconomique moderne a presque immortalis6 le cadre d analyse is lm de keynes elle a en gros ignore le message central contenu dans sa theorie generale cela est attribuable au moins en partie au fait que keynes n a pas propose une notion claire d organisation du marche qui puisse remplacer le paradigme de l encan a la walras cependant certains developpements recents dans la theorie des cofuts de la recherche d un emploi des cofuts de transaction et des effets extemes que ce phenomene entraine pourraient fournir un des ces jours le chainon manquant i1 se pourrait aussi que les travaux sur l indetermination dans les modeles d anticipations rationnelles puissent aider a faire que l attention des membres de la profession economiste cesse d etre braquee sur les problemes de rigidit6 des salaires pour se fixer de nouveau sur les problemes de coordination intertemporelle qui etaient pour keynes au coeur du probleme du chomage it is an honour to be giving the harold innis memorial lecture for 1986 i m especially happy to be giving it in 1986 because this is the fiftieth anniversary of keynes s general theory of employment interest and money and i d like to take this occasion to speak on the subject of the influence keynes s central the 1986 harold innis memorial lecture presented at the canadian economics association meetings in winnipeg 29 may 1986 robert clower david laidler michael parkin and douglas purvis provided useful comments on the original lecture canadian journal of economics revue canadienne d economique xix no 4 november novembre 1986 printed in canada imprime au canada 0008 4085 86 626 641 1 50 canadian economics association this content downloaded from 157 55 39 244 on fri 17 jun 2016 05 48 33 utc all use subject to http about jstor org terms the keynesian recovery 627 message in the general theory has had on contemporary macro economics and the influence it is likely to have in coming years if i had been asked to address this subject five or ten years ago i would have made the lecture very short although the keynesian is lm apparatus was still the main organizing device of all intermediate macro textbooks and of most policy oriented economists keynesian theoretical ideas had virtually disappeared from the leading journals having been displaced by unkeynesian ideas such as perfect wage flexibility perfect foresight the absence of involuntary unemployment the pareto optimality of business cycle fluctuations and so forth keynesian policy advice had become downright disreputable in some academic circles and was clearly on the defensive everywhere as for the status of keynesian ideas in society at large keynes once expressed the wish that some day economists could get themselves thought of as humble competent people on a level with dentists 1930 332 by 1979 keynesian economists had become thought of the way i used to think of my dentist when i was ten years old with a mouth full of cavities and he could see no reason for using novocaine not humble or competent but a menace to society who was all the more dangerous because of his belief that he knew better than others what was good for them and because he now had his hands on some of the crucial policy instruments since 1979 the public status of keynesian ideas has fallen even further the madmen in authority are now distilling their frenzy from other defunct economists but i see signs of some recovery in the status of those ideas within the discipline of economics signs that at least they aren t yet completely dead what i d like to argue is that there is an important aspect of keynes s central message that was never incorporated into the mainstream of macro economic theory that the failure to incorporate this aspect is largely responsible for the decline of keynesian theoretical ideas but that some recent theoretical developments offer hope that that failure may finally be rectified

das maynard keynes problem one of the classic questions in the history of ideas first arose one hundred years ago in germany reading adam smith s two great works the theory of moral sentiments and the wealth of nations late 19th century german economists were struck by an apparent puzzle how could the theorist who made sympathy the mainspring of human action in the first book argue in the second that calculating self interest was the primary motive force thus arose das adam smith problem how could one reconcile the advocate of sympathy with the advocate of self interest the history of the attempts to answer this question is instructive in many ways it is instructive in part as a lesson in the fertility of the history of economic thought as a source of ideas a o hirschman is an outstanding example of an original and creative theorist who has come to fresh insights on the basis of his research on the question see hirschman 1977 1986 the history is also instructive in pointing out the indeterminate nature of the solution to the problem despite the stature of the scholars who have worked in the field and the high quality of their work one must ultimately accept that we shall never know the true answer to the question smith left few papers and the context of his thought is itself a puzzle for us careful reconstruction of the unfolding social cultural and philosophical worlds that smith inhabited would certainly be hallmarks of any acceptable answer to the question but authorities on each of these background areas themselves disagree about what was happening in the worlds in which smith lived reasonable persons must agree to disagree about the answer to the question

the equilibrium and optimal timing of price changes this paper studies the welfare properties of the equilibrium timing of price changes staggered price setting has the advantage that it permits rapid adjustment to firm specific shocks but the disadvantages that it causes unwanted fluctuations in relative prices and that by creating price level inertia it can increase aggregate fluctuations because each firm ignores its contribution to these problems staggering can be a stable equilibrium even if it is highly inefficient in addition there can be multiple equilibria in the timing of prices changes indeed whenever there is an inefficient staggered equilibrium there is also an efficient equilibrium with synchronized price setting

distributive politics with vote and turnout buying the objective of this paper is to model the incumbent s allocation of efforts that maximize his electoral chances in the presence of both vote buying persuasion and turnout buying mobilization the existing literature on distributive politics concludes that political candidates should concentrate their campaigning efforts either on safe districts or on swing districts this paper shows that when candidates can use both persuasion and mobilization strategies and the ideology of voters is unknown to the incumbent party a third option should be taken into account in fact the optimal allocation of resources rather than focusing on safe or swing districts should target opposition strongholds that is the incumbent should try to sway voters in those districts in which the challenger is favored the intuition for this result is simple since the incumbent does not know individual preferences he only observes the distribution of preferences in the districts all voters in a given district look identical to him hence when approaching voters in a district to buy their vote the incumbent always faces the risk of buying the vote of his supporters who would have voted for him anyway

distributive politics and conditional cash transfers the case of brazil s bolsa familia summary brazilian politicians have long relied on pork and clientelism to win political support and recent literature suggests that little has changed however researchers have yet to systematically investigate whether political criteria influence the distribution of funds through bolsa familia this is especially surprising given the program s prominence in the international community in this paper i examine whether political criteria explain the federal government s distribution of bolsa familia i find little evidence that political criteria explain the difference between the number of poor families that live in a municipality and the number of families that receive support i conclude by discussing the broader significance of this large programmatic policy to brazil s political development

relative wages efficiency wages and keynesian unemployment while modern economic theorists have produced a variety of explanations for the failure of wages to fall in the face of unemployment keynes emphasis on relative wages has not been reflected in most contemporary discussions this short paper suggests that relative wage theories in which workers productivity depends primarily on their relative wage provide the best available apparatus for understanding actual unemployment and its fluctuations such theories are very closely related to the efficiency wage theories that have received widespread attention in recent years this abstract was borrowed from another version of this item

the apostles justice cambridge reflections on economic inequality from moore s principia ethica to keynes s general theory 1903 36 this article explores economic justice in the writings of the cambridge authors g l dickinson g shove r hawtrey d h robertson h o meredith j h bell and f ramsey who were either members of the apostles discussion society or like hugh dalton lay followers of its philosophical leader g e moore the article challenges the prevalent view depicting the apostles as uninterested in social problems their analyses of economic inequality are reviewed in connection with the marshallian tradition the impact of fabianism and j m keynes s views of social justice special attention is paid to some neglected aspects of moore s principia ethica which were debated in the society and influenced the apostles social awareness they believed that large inequalities were both unjust and inefficient and as moore s disciples they rejected the hedonistic perspective and considered justice not as an end in itself but as a means to the good

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

hicks s contribution to keynesian economics phe purpose of this paper is to examine hicks s contribution to macroeconomic theory in those respects in which it constitutes a response to or a development of the work of john maynard keynes thus while it is narrower in scope than an attempt to assess hicks s contribution to macroeconomic theory it is broader in scope than an attempt to see hicks as keynes s interpreter for an interpreter is judged only by the faithfulness with which he translates the material given to him he is not required to extend recast criticize or reconstruct that material we shall be concerned then with what hicks got out of keynes s writings and what he did with it not with what was really there i therefore shall not be concerned with the authenticity or doctrinal purity of hicks s keynesianism in considering hicks s contribution to keynesian economics i shall be concerned with two distinct but related matters first i shall be concerned in sections ii and iii with hicks s response to and in particular his criticisms of what keynes himself actually wrote also however i shall in section iv be concerned with hicks s contribution to those ideas that eventually entered the public domain as keynesian economics quite irrespective of whether those ideas accurately reflect what keynes may or may not have had in mind at some crucial juncture of his career i should emphasize that these two concerns are intended to consist simply of a narrower and a broader one they do not involve a contrast between a profound and intellectually challenging economics of keynes on the one hand to be set against a vulgar and degenerate keynesian economics on the other accordingly i shall be using the term keynesian in a robust sense i use it in full recognition of the possibility of diverse shades of opinion and of extreme or borderline cases on the understanding that it is what all these have in common that is important

optimum pricing policy under stochastic inflation we describe aggregate inflation as a stochastic process in which the rate of change of the price level can be positive or zero where the times spent in each state are of random duration this class of processes includes two state markov chains and renewal processes as special cases it is shown that the optimal pricing policy of a monopolistic firm with non convex costs of price adjustment is s s in its real price i e its nominal price relative to the price level a basic certainty equivalence result is proved i e the firm behaves as if it faces a certain and fixed rate of inflation higher than the actual expected rate the difference between the two rates being a risk premium which depends on the real interest rate and the parameters of the stochastic process one can thus apply previous results from the case of certainty sheshinski and weiss review of economic studies 1977 to obtain comparative static results in particular one finds that an increase in the variance of expected inflation leads firms to choose a pricing policy with larger amplitude in real price the paper also addresses the question of consistency in firms expectations when the price level is determined by the firms actions in this paper we consider pricing policies of individual firms in an inflationary environment each firm expects the general price level to increase and must determine the rate of increase of its own price it is assumed that the firm incurs an adjustment cost when it changes its nominal price consequently firms choose to change prices occasionally rather than continuously

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

elevating the role of divestment in socially responsible investing the divest movement has focused attention on strategic and ethical differences in the practice of socially responsible investing sri and highlighted an unnecessary bifurcation of best of class engagement and divestment although best of class engagement is favored as a contemporary and pragmatic approach this paper calls for a more pronounced recognition of absolute dealbreakers and divestment as an underpinning for best of class engagement after linking divestment and best of class engagement to their foundations of absolutism and relativism respectively i critique best of class engagement and argue that without a distinct and explicit role for divestment best of class strategies are ethically and strategically fraught following a discussion of which types of issues suggest divestment or best of class engagement i identify the norway government pension fund as a noteworthy example and posit that divestment and engagement are best presented and employed in tandem particularly for issues that have yet to be addressed by law and convention

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

monetary policy rules targets and shocks the proper conduct of monetary policy is now once again wide open to discussion an immediate practical controversy concerns the role of central banks in recovery from the world depression underlying that debate are some unresolved fundamental issues regarding the responsibilities goals targets and operating procedures of central banks monetarism won the hearts and minds of many economists and most central bankers in the 1970s now it seems to be losing adherents and influence partly because it is blamed for the severe depression partly because regulatory institutional and technological changes have altered the meanings and velocities of monetary aggregates last summer chairman volcker and his federal reserve colleagues suspended their monetarist targets to almost universal relief the severity of the recession the international debt crisis and the pace of change in financial structure were all good reasons it is doubtful though possible that money stock targets will regain their previous status if not what philosophy of monetary control what framework for the conduct of policy will replace them a host of monetary architects are ready to fill the vacuum some would restore the gold standard or make paper money convertible into other commodities some would replace intermediate monetary aggregates with other targets the monetary base nominal gnp or final sales total domestic credit price indexes or their rates of change exchange rates some advocate irrevocable commitment to announced

the estimation of prewar gross national product methodology and new evidence the paper develops new methodology for the estimation of prewar gnp taps previously unused data sources and develops new estimates for the periods 1869 1908 and 1869 1928 primary among the new data sources are direct measures of output in the transportation communications and construction sectors and estimates of the consumer price index new measures of real gnp nominal gnp and the gnp deflator are developed the new estimates of real gnp are as volatile on average over the business cycle as the traditional kuznets kendrick series but dampen the amplitude of some cycles while raising the amplitude of others the new estimates of the gnp deflator are distinctly less volatile than the traditional series and in fact no more volatile than those in the postwar period

hicks a teoria geral e a teoria geral generalizada despite the most common interpretation of john hicks s formalization of the general theory that it was mainly oriented to achieve mathematical elegance this paper shows that hicks s results are based on theoretical arguments and specific causality relations hicks acknowledges the importance of the liquidity preference doctrine and examines the effects of investment on income the multiplier as well as the effects of income on investment the accelerator our interpretation of hicks s formulation and especially of the role of the rate of interest rate in his paper avails the understanding of the success of the so called neoclassical synthesis