the transactions velocity of money and its efficiency this paper models the unobservable rate of return on money balances r as depending directly on the transactions velocity of money v approximating this relationship linearly the efficient markets hyphothesis emh is shown to imply that first differences of the log of v should either be random or should show negative first order serial correlation at most the empirical evidence presented below is consistent with the emh these results are of interest in three directions first they add support at the macroeconomic level for the emh velocity in the macroeconomy seems to behave as expected based on the fair degree of support for the emh at the micro

learning about a new technology pineapple in ghana this paper investigates the role of social learning in the diffusion of a new agri cultural technology in ghana we use unique data on farmers communication patterns to define each individual s information neighborhood conditional on many potentially confounding variables we find evidence that farmers adjust their inputs to align with those of their information neighbors who were surpris ingly successful in previous periods the relationship of these input adjustments to experience further indicates the presence of social learning in addition applying the same method to input choices for another crop of known technol ogy correctly indicates an absence of social learning effects jel d83 013 033 q16

vintage technologies and skill constraints evidence from u s exports of new and used machines when countries import production machinery they must choose between new and used equipment this article looks at that choice in the presence of labor saving technical progress and complementarity between technologies and skills within the firm it develops a theoretical model of the market for used machines it then analyzes data on united states u s exports of metalworking machine tools by country of destination classifying machines according to their vintage and their technological characteristics the data show that the share of used equipment imported is higher if the importing country has a lower level of development as measured by income per capita econometric estimation of the determinants of this share shows that it also is higher the greater is the technological change embodied in the machine or the greater is the change in the skills required to run the machine efficiently these results indicate that technological factors and skill constraints may be as important as factor prices in determining the choice of technique in developing countries the policy recommendation emerging from this work avoid constraints on imports of used equipment is similar to that in the existing literature but the reasoning is different instead of emphasizing inappropriate capital labor ratios for low wage countries the results indicate that investment in advanced technologies is effective only if importing countries have the skills to use them

stationary equilibrium in a market for durable assets this paper presents a dynamic model of consumer trading on the primary secondary and scrap markets for a stochastically deteriorating durable good in a stationary economy with perfect information and no transaction costs we explicitly model the trading process by tracking each durable from its birth in the primary market through its sequence of owners in the secondary market until its death in the scrap market we prove that a stationary equilibrium exists characterize the distribution of consumer holdings of durables and show that equilibrium asset prices are shadow prices to a particular regenerative optimal stopping problem we show that each heterogeneous agent equilibrium is observationally equivalent to a homogeneous agent equilibrium we derive a differential equation for equilibrium rental rates and a functional equation which links rental rates to asset prices these equations show precisely how the structure of durable prices and rental rates embody the functional form and population distribution of preferences and the technological characteristics of durable goods this abstract was borrowed from another version of this item

durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 on adverse selection this paper surveys durable goods theory starting with these three contributions where much of the focus is on recent literature and on models that explain real world phenomena in addition to the ideas found in the contributions of swan coase and akerlof topics covered include why producers sometimes practice planned obsolescence the role of adverse selection in new car leasing and reasons for aftermarket monopolization

a simple model of voice we think of voice as a means of information aggregation within groups operating in a variety of settings we explore how the characteristics of groups and their leaders influence voice in relatively homogeneous groups members farthest away from the leader have the best incentives to provide information and their voice tends to moderate policy decisions in large heterogeneous groups where leaders cannot identify individual members the possibilities for informational exchange are severely limited and any communication that exists pushes policies farther to the extreme

the political economy of linguistic cleavages article i nfo this paper uses a linguistic tree describing the genealogical relationship between all 6912 world languages to compute measures of diversity at different levels of linguistic aggregation by doing so we let the data inform us on which linguistic cleavages are most relevant for a range of political economy outcomes rather than making ad hoc choices we find that deep cleavages originating thousands of years ago lead to better predictors of civil conflict and redistribution the opposite pattern emerges when it comes to the impact of linguistic diversity on growth and public goods provision where finer distinctions between languages matter 2011 elsevier b v all rights reserved

bureaucratic capacity delegation and political reform thecentraltensionmotivatingcontemporarytheories of delegation from politicians to bureaucrats lies in the potential conflict between the value of bureaucratic expertise on one hand and the desire for political control on the other this tension is well known and has been debated at least since weber s classic work on bureaucracy modern bureaucracies are staffed with individuals who by virtue of rational bureaucratic organization are highly skilled policy experts who in principle should be able to help less knowledgeable politicians achieve their goals however the very skills and expertise that bureaucrats enjoy create the possibility that bureaucrats will usurp the rightful role of politicians in policymaking processes because the way this tension is resolved determines the ultimate compatibility of democracy and bureaucracy existing theories of delegation typically focus on understanding how and to what extent politicians can resolve it 1 in many contexts particularly developing democracies bureaucracy does not fit the weberian characteristics that are assumed in the existing delegation literature the bureaucracies may be staffed with individuals who lack the personal capacity to execute orders effectively the organizational structure may lead to breakdowns within bureaucratic hierarchies making it difficult for senior administrators to control their subordinates departments and ministries may lack basic budgets and resources to undertake implementation actions they may suffer from incentives for

bicameralism and its consequences for the internal organization of legislatures theories of organization of legislatures have mainly focused on the u s congress explaining why committee systems emerge there but not explaining variance in organization across legislatures of different countries to analyze the effects of different constitutional features on the internal organization of legislatures we adopt a vote buying model and consider the incentives to delegate decision rights in a game among legislative chambers we show how presidential veto power and bicameral separation can encourage a legislative chamber to create internal veto players or supermajority rules while a unicameral structure can encourage legislators to delegate power to a leader

existence of stationary equilibrium in the markets for new and used durable goods abstract we prove the existence of stationary equilibrium in the primary and secondhand markets for an indivisible consumer durable in a general model with stochastic degradation and endogenous scrappage decisions unlike rust econometrica 53 1985 783 we introduce transaction costs in the model as a motivation for consumer holdings of durables across multiple quality levels our technique allows for both multiple types of durables e g porsche and bmw and relaxation of the single crossing condition on consumer tastes we provide a simple example showing how increasing transaction costs affect secondhand prices eventually for sufficiently costly transactions closing the secondhand market altogether

a quantitative analysis of the used car market we quantitatively investigate the allocative and welfare effects of secondary markets for cars an important source of gains from trade in these markets is the heterogeneity in the willingness to pay for higher quality newer goods but transaction costs are an impediment to instantaneous trade calibration of the model successfully matches several aggregate features of the u s and french used car markets counterfactual analyses show that transaction costs have a large effect on volume of trade allocations and the primary market aggregate effects on consumer surplus and welfare are relatively small but the effect on lower valuation households can be large

price discrimination via second hand markets consumers have heterogeneous tastes for new and used goods and second hand markets involve transactions costs a monopoly seller may gain or lose from the existence of a second hand market locally it may prefer lower transactions costs but globally it may prefer high transactions costs so it can strangle the used market the monopolist uses the second hand market as an indirect device to achieve a form of second degree price discrimination if the monopolist can control the quality of its product when used it may wish to deteriorate this quality to worthless or else to have it as good as new

diagnostics before prescription few branches of economics have wielded as much infl uence on the world ew branches of economics have wielded as much infl uence on the world of policy as development economics virtually every major development of policy as development economics virtually every major development strategy of the last 50 years is associated with some pioneering research that strategy of the last 50 years is associated with some pioneering research that provided its intellectual underpinnings consider some of the key milestones the provided its intellectual underpinnings consider some of the key milestones the dominant import substitution policies of the 1950s and 1960s were the practical dominant import substitution policies of the 1950s and 1960s were the practical realization of the ideas of prebisch 1959 and singer 1964 and were based on the realization of the ideas of prebisch 1959 and singer 1964 and were based on the famous prebisch singer thesis on the declining terms of trade for primary products famous prebisch singer thesis on the declining terms of trade for primary products and the dynamic benefi ts of manufacturing the emphasis on development planand the dynamic benefi ts of manufacturing the emphasis on development planning in those same decades was greatly infl uenced by rosenstein rodan s 1943 ning in those same decades was greatly infl uenced by rosenstein rodan s 1943 big push framework with its stress on increasing returns to scale and the need big push framework with its stress on increasing returns to scale and the need to kick start growth through large scale investments and the planning model of to kick start growth through large scale investments and the planning model of mahalanobis 1955 which argued that economic development could be accelermahalanobis 1955 which argued that economic development could be accelerated by government encouragement of heavy industry ated by government encouragement of heavy industry when such models were discarded in the 1980s in favor of more outwardwhen such models were discarded in the 1980s in favor of more outwardand market oriented strategies it was in no small measure because of the research and market oriented strategies it was in no small measure because of the research published during the 1970s by balassa 1971 bhagwati 1978 krueger 1978 published during the 1970s by balassa 1971 bhagwati 1978 krueger 1978 and little scitovsky and scott 1970 the washington consensus of the 1990s and little scitovsky and scott 1970 the washington consensus of the 1990s despite its appellation represented the common views of a group of despite its appellation represented the common views of a group of latin american technocrats and policymakers many of whom had trained at top economics departtechnocrats and policymakers many of whom had trained at top economics departments in the united states the infl uential human development reports of the

resale and collusion in a dynamic market for semidurable goods the paper studies the incentives to form collusive agreements when goods can be traded in second hand markets it will be shown that such incentives crucially depend on the rate of depreciation of the durable good and on consumer heterogeneity the main contribution of the paper shows that an active second hand market may strengthen the incentives to collude as do policies that affect the functioning of the second hand market e g leasing policy and buy back it will also be argued that the oligopoly incentives to adopt strategies that strengthen collusion often differ from the monopoly incentives to increase profits

a direct test of the lemons model the market for used pickup trucks of the implications of models of markets with asymmetric information in the seminal paper on markets with asymmetric information george akerlof 1970 pointed out two possible outcomes that may occur where sellers have better information about the quality of products than do buyers one possibility is that bad products will drive out good products if buyers cannot distinguish quality until after the purchase has been made there will be no incentive for sellers to provide good quality products and the average quality in the market will decline in the case of cars an often cited example of this phenomenon owners who discover that they have a lemon will attempt to sell it in the used car market to an unsuspecting buyer the owner of a creampuff will not sell his car since it is indistinguishable from a lemon to buyers and must therefore sell for the price of a car of average quality the effect of quality uncertainty is to reduce the volume of transactions in the used car market below the socially optimal level a second possibility suggested by akerlof is that institutions may develop to counteract the effects of quality uncertainty warranties and brand names can be used to give the buyer some assurance of quality these institutions may prevent good products from being driven from the market but they will

the origins of state capacity property rights taxation and politics economists generally assume that the state has sufficient institutional capacity to support markets and levy taxes this paper develops a framework where policy choices in market regulation and taxation are constrained by past investments in legal and fiscal capacity it studies the economic and political determinants of such investments demonstrating that legal and fiscal capacity are typically complements the results show that among other things common interest public goods such as fighting external wars as well as political stability and inclusive political institutions are conducive to building state capacity some correlations in cross country data are consistent with the theory

durable good monopoly and best price provisions best price provisions guarantee buyers that the prices they pay are the lowest available if the seller subsequently cuts price then each previous buyer is entitled to a refund a durable good monopolist who offers certain forms of these provisions can construct a consistent plan yielding the same profits as rental agreements and contracts with explicit quantity commitments the provisions require special circumstances to be practical but they are simple and effective and appear in a variety of economic settings three applications are discussed international commodity agreements markets for electric turbogenerators and markets for financial claims copyright 1990 by american economic association

understanding the role of trade ins in durable goods markets theory and evidence the act of trading in a used car as partial payment for a new car resonates with practically all consumers such transactions are prevalent in many other durable goods markets ranging from golf clubs to ct scanners what roles do trade ins play in these markets what motivates the seller to set up a channel to facilitate trade ins intuitively accepting a trade in would appear to stimulate demand for the producer s product but facilitating the resale of these used goods that substitute for new goods might also increase cannibalization although such transactions involve billions of dollars we know relatively little about this practice from the extant research literature this paper develops an analytical model that incorporates key features of real world durable goods markets i coexistence of new and used goods markets ii consumer heterogeneity with respect to quality sensitivity iii firms that anticipate the cannibalization problem arising from the coexistence of new and used goods and iv lemon problems in resale markets whereby sellers of used goods are better informed than buyers about the quality of their particular item in our analysis a trade in policy amounts to an intervention by the firm in the used goods market which reduces inefficiencies arising from the lemon problem it motivates owners to purchase new goods and reduces their proclivity to hold on to purchased goods because of the low price the latter would fetch in a lemon market we also show that trade in programs are more valuable for less reliable products as well as for products that deteriorate more slowly our analysis shows that producers in durable goods markets should consider trade in programs as a matter of routine despite cannibalization concerns arising from a more active resale market a producer s profits will inevitably rise from introducing trade ins given pervasive lemon problems we test the key predictions of the model about price and volume of trade by assembling a data set of transactions of u s automobile consumers and find broad support for our model

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

social mobility and redistributive politics just like economists voters have conflicting views about redistributive taxation because they estimate its incentive costs differently we model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs in the long run left wing dynasties believing less in individual effort and voting for more redistribution coexist with right wing dynasties this allows us to explain why individual mobility experience and not only current income matters for political attiitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries

the effect of used markets with endogenous replacement of durable goods the purpose of this paper is to examine the effect of used asset markets for a particular class of durable goods markets where replacement and trading ages are endogenous and where the imperfect substitutability between new and used goods results from the heterogeneity of buyers durable goods are assumed to be like automobiles the quality of the service declines with the age of the durable but the time at which the durable is traded and replaced with a new one is a choice variable for the owner as in my earlier work on heterogeneous buyers 3 it is assumed that the decline in service value with age is lower for some buyers so that these buyers will specialize in used assets in the presence of used markets however this paper departs from previous work by allowing the retirement age and the age at which goods are traded in the used market to be endogenously determined this extension has important implications because it will be shown that retirement age durability will be affected by the presence of used asset markets this paper examines the question of whether a competitive industry will favor a ban on used markets previous authors 2 6 8 have examined this question in markets where durable goods are like textbooks the used asset markets exist because the length of the demand for services by the purchaser is less than the lifetime of the durable in these models the presence of a used asset market is equivalent to a lengthening of the lifetime of the good however in the model of this paper the opening of a used asset market results in uniformity of the lifetime of the durable good since all of the oldest durables will be held by the user type that places the highest value on old durables this uniform retirement age with the used market will be shown to lie between the retirement ages adopted by the two user types when there are no used markets thus the average age of the stock of durables could rise or fall with the introduction of used markets second the model of this paper allows for the analysis of restrictions on used markets that raise the cost of used market transactions but do not eliminate trading it will be shown that the effects of a per unit tax on used market transactions will differ from that of an ad valorem tax because of the greater incentive created by an ad valorem tax to postpone used market transactions this result is in the spirit of barzel s 1 result that the form of the tax is important because different types of taxes may affect characteristics of the good in different ways in the present context goods

dynamics and equilibrium in a structural model of wide body commercial aircraft markets summary this paper develops and estimates a dynamic equilibrium model of the market for new and used commercial aircraft the model is estimated by maximum simulated likelihood using data on wide body aircraft owners and prices for transactions occurring 1978 1997 the importance of explicitly modeling dynamics and equilibrium in new and used markets for durable goods is illustrated in two counterfactual experiments estimates of the structural model are used to show that implementing an investment tax credit not only increases demand for new wide body aircraft by the airlines that receive the tax credit but also increases the number of new wide body aircraft owned by airlines not directly affected by the policy further the model indicates that a policy which improves the efficiency of secondary markets for used wide body aircraft will also stimulate demand for new wide body aircraft copyright 2010 john wiley sons ltd

bureaucratic structure and bureaucratic performance in less developed countries abstract we argue that several easily identifiable structural features constitute the key ingredients of effective state bureaucracies and should help to predict ratings of bureaucratic performance competitive salaries internal promotion and career stability and meritocratic recruitment we collect a new dataset on these features for bureaucracies of 35 less developed countries controlling for country income level of education and ethnolinguistic diversity we find that our measure of meritocratic recruitment is a statistically significant determinant of ratings supplied by two of three country risk agencies the importance of competitive salaries and internal promotion and career stability could not be clearly established

second best institutions the focus of reforms in the developing world has moved from getting prices right to getting institutions right this reflects the recognition that markets are unlikely to work well in the absence of a predictable and legitimate set of rules that support economic activity and dis pense its fruits governance reforms have become the buzzword for bilateral donors and multilateral institutions in much the same way that liberalization privatization and stabiliza tion were the mantras of the 1980s but what kind of institutions should reform ers strive to build it is easier to list the func tions that good institutions perform than it is to describe the shape they should take desirable institutions provide security of property rights enforce contracts stimulate entrepreneurship foster integration in the world economy maintain macroeconomic stability manage risk taking by financial intermediaries supply social insurance and safety nets and enhance voice and account ability but as the variety of institutional forms that prevail in the advanced countries themselves suggests richard freeman 2000 peter hall and david soskice 2001 each one of these ends can be achieved in a large number of different ways rodrik 2007a

endogenous indoctrination occupational choices the evolution of beliefs and the political economy of reforms i analyse a model where workers self select in the educational occupation in a way which is correlated with their beliefs about the working of the market economy teachers have a disproportionate effect on the transmission of beliefs therefore they generate a bias which makes it harder for the population to learn the true parameters of the economy if these are favourable to the market economy two parameters determine this bias social entropy defines how predictable one s occupation is as a function of one s beliefs heritability is the weight of the family s beliefs in the determination of the priors of a new generation both heritability and social entropy reduce the bias and make it easier to learn that the market economy is good under the assumption that it is

durable goods oligopoly with secondary markets the case of automobiles we study the effects of durability and secondary markets on equilibrium firm behavior in the car market we construct a dynamic oligopoly model of a differentiated product market to incorporate the equilibrium production dynamics that arise from the durability of the goods and their active trade in secondary markets we derive an econometric model and estimate its parameters using data from the automobile industry over a 20 year period our estimates are used to provide a measure of the competitive importance of the secondary market

on forecasting interest rates an efficient markets perspective abstract efficient markets do not preclude economic agents from successfully forecasting movements in short term interest rates for brief forecast intervals however ex ante changes in long term rates are sufficiently close to zero that economic agents are not likely to improve upon the no change prediction of the martingale model economic agents in effect are not likely to succeed in forecasting short term movements in long term interest rates this paper illustrates the closeness of the martingale approximation for two sets of canadian interest rates data emphasizing the importance of the forecast interval the paper then examines three sets of recorded forecasts of canadian interest rates and finds results consistent with the theoretical discussion

disagreement and learning about reforms when it comes to economic reforms in developing countries many economists agree on broad objectives broad objectives however can be pursued in different ways and policy experimentation is often indispensable for learning which alternative works locally we propose a theoretical model to study this societal learning process the model explores the role of disagreeing beliefs about what works it suggests that such disagreement can stall the societal learning process and cause economic stagnation although everyone knows that growth promoting reforms do exist our analysis is motivated by the observation of a negative relationship between disagreement and economic growth among poorer countries

in search of the holy grail policy convergence experimentation and economic performance we consider a model of policy choice in which appropriate policies depend on a country s own circumstances but the presence of a successful leader generates an informational externality and results in too little policy experimentation corrupt governments are reined in while honest governments are disciplined inefficiently our model yields distinct predictions about the patterns of policy imitation corruption and economic performance as a function of a country s location vis aa vis successful leaders in particular it predicts a u shaped pattern in economic performance as we move away from the leader in the relevant space of characteristics close neighbors should do very well distant countries moderately well on average with considerable variance and intermediate countries worst of all an empirical test with the experience of post socialist countries provides supportive results

relicensing as a secondary market strategy secondary markets in the information technology industry where used or refurbished equipment is traded have been growing steadily for original equipment manufacturers oems in this industry the importance of secondary markets has grown in parallel not only as a source of revenue but also because of their impact on these firms competitive advantage and market strategy recent articles in the press have severely criticized some oems who are perceived to be actively trying to eliminate the secondary market for their products other oems have policies that enhance their secondary markets the goal of this paper is to understand how an oem s incentives and optimal strategies vis a vis the secondary market are shaped contingent on her relative competitive advantage product characteristics and consumer preferences the critical trade off that we examine is whether the indirect benefit from maintaining an active secondary market the resale value effect can outweigh the potentially negative effect of the sales of used products at the expense of new product sales the cannibalization effect to that end we develop a durable good model where the oem can directly affect the resale value of her product through a relicensing fee charged to the buyer of the refurbished equipment we analyze the oem s strategy in both the monopoly and the duopoly cases characterize the optimal relicensing fee set by the oem and draw conclusions on the conditions that favor stimulating or deterring the secondary market this paper was accepted by candace a yano operations and supply chain management

used clothing donations and apparel production in africa this article examines the importance of one possible explanation for the failure of african countries to step onto the bottom rung of the manufacturing sophistication ladder that is to produce apparel used clothing donations to thrift shops and other organisations in industrialised countries typically end up being sold to consumers in africa since used clothing is initially provided as a donation it shares characteristics with food aid which always assists consumers but at times harms african food producers used clothing imports are found to have a negative impact on apparel production in africa explaining roughly 40 of the decline in production and 50 of the decline in employment over the period 1981 2000

adverse selection in the used car market evidence from purchase and repair patterns in the consumer expenditure survey we analyze adverse selection in the used car market using a new approach that considers a car as an assemblage of parts some with symmetric information and others with asymmetric information using data from the consumer expenditure survey and consumer reports we examine turnover and repair patterns we find evidence of adverse selection due to the conditions of the transmission engine and during colder months air conditioning and sorting due to the conditions of the vehicle body and during warmer months air conditioning our quantification exercises indicate that adverse selection may have a meaningful effect on trade volume and quality in the secondhand market

macroeconomic volatility and welfare in developing countries an introduction macroeconomic volatility both a source and a reflection of underdevelopment is a fundamental concern for developing countries their high aggregate instability results from a combination of large external shocks volatile macroeconomic policies microeconomic rigidities and weak institutions volatility entails a direct welfare cost for risk averse individuals as well as an indirect one through its adverse effect on income growth and development this article provides a brief overview of the recent literature on macroeconomic volatility in developing countries highlighting its causes consequences and possible remedies it then introduces the contributions of a recent conference on the subject sponsored by the world bank and pompeu fabra university barcelona

better statistics better economic policies abstract more and more economic transactions leave a digital footprint this trend opens unprecedented opportunities for improving economic statistics and underpins demands to give statistical agencies far reaching access to private sector data we analyze the consequences of better economic statistics in a political agency framework that includes fundamental uncertainty about the impact of potentially welfare enhancing reforms we demonstrate that improvements in economic statistics can inhibit rather than stimulate reform attempts with better statistics the government is less likely to receive the benefit of the doubt if the numbers suggest its past reforms are failing reforms therefore come with a higher risk of electoral losses implying that the government has stronger incentives to preserve the status quo we identify political environments that are particularly vulnerable to this mechanism and contribute to the debate on private sector data access

economic development as self discovery in the presence of uncertainty about what a country can be good at producing there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated we develop a general equilibrium framework for a small open economy to clarify the analytical and normative issues we highlight two failures of the laissez faire outcome there is too little investment and entrepreneurship ex ante and too much production diversification ex post optimal policy consists of counteracting these distortions to encourage investments in the modern sector ex ante but to rationalize production ex post we provide some informal evidence on the building blocks of our model

durable goods price cycles theory and evidence from the textbook market i introduction one of the features of the market for new textbooks is that the price of new textbooks is relatively inflexible over the life of an edition in the sense that it fails to decline as the end of an edition approaches this inflexibility seems surprising because the availability of used textbooks which are a close substitute for new textbooks rises as the textbook ages furthermore the willingness to pay of a purchaser of a new textbook who plans to resell the book should decline at the end of the edition as the introduction of a new edition will destroy the resale value of the previous edition both of these factors would be expected to put downward pressure on the price of the good as the edition ages our goal of this article is to develop a model of textbook pricing that is capable of explaining this price inflexibility over the life of an edition we model the textbook pricing decision as that of a monopoly seller of a durable good over the life of an edition of the good where the life of the edition is exogenously given at two periods and the introduction of a new edition kills off the used market for the previous edition we assume that the market for the good is made up of two types of consumers high valuation buyers who will keep the good and low valuation buyers who value the option of being able to resell the good in the used market after using the services of the good in the current period the willingness to pay of high valuation buyers will thus be constant over the life of an edition while that of the low valuation buyers will decline in the second period due to the elimination of the used market we show that this model may lead to an optimal price for the durable good that may either rise or fall over the life of an edition and identify two effects that influence the monopolist s pricing decision the first we refer to as the used goods supply effect which is the impact of the quantity of goods available in the used market on the optimal price of new goods in the second period we show that if the quantity of high valuation buyers is sufficiently low the price of new goods may be increasing in the quantity of used goods in the second period this results from the fact that the increased supply of used goods may reduce the elasticity of demand for new goods making it optimal for the monopolist to sell only to high valuation buyers in the second period the second effect is the potential for resale effect which is due to the fact that the ability to sell goods in the used market will raise the willingness to pay of low valuation buyers relative to that of high valuation buyers in the first period the combination of these two effects leads to the possibility that the monopolist will choose to sell to both types of buyers in the first period of the edition but to sell only to high valuation buyers in the second period our empirical analysis tests for the presence of used goods supply and potential for resale effects on the prices of new textbooks we utilize a panel dataset from college bookshops that contains price and quantity information for economics textbooks for each semester between 1997 and 2003 we estimate simple pricing equations with textbook fixed effects instrumental variables are also used to account for the potential endogeneity of a regressor we find that textbook prices increase as the share of used textbooks increases which is consistent with the presence of a used good supply effect in which the increased presence of used goods makes the demand curve for new goods less elastic we also find evidence that prices of the goods are higher in the last period of an edition controlling for the stock of used goods in the market this is consistent with the potential for resale effect our theoretical model can be distinguished from other work that has analyzed the optimal pricing problem for a monopoly seller of a durable good

the bank capital decision a time series cross section analysis this paper seeks to explain the dramatic decline in capital to asset ratios in u s commercial banks during the last two decades it is hypothesized that the rise in nominal interest rates during this period might have contributed substantially to the fall in capital ratios time series cross section estimation supports the hypothesis regarding the interest rate bank capital is the sum of equity plus debt subordinated to deposits capital provides a cushion that protects the bank from insolvency when the value of its assets falls a bank can meet its obligations to depositors as long as losses on its asset portfolio do not exceed its capital the ratio of capital to total assets in u s commercial banks has fallen dramatically in the last two decades dropping from 11 7 percent in 1961 to 5 7 percent in 1978 the lowest level since world war ijj1 figure 1 shows the decline in the ratio of capital to noncash assets these figures suggest that the federal deposit insurance corporation fdic and uninsured depositors are being exposed to increased probabilities of losses from bank insolvencies however relatively little empirical research has been devoted to the determinants of the bank capital decision further the existing work see for example peltzman 24 mingo 20 or mayne 17 18 uses only cross sectional data and therefore does not necessarily explain the decline in capital to asset ratios over time previous empirical research has also focused on book values rather than market values of debt and equity although market values provide better estimates of the protection afforded by capital this practice might be partly justified by the attention paid to book values by bank regulators however the increasing use of qualitative factors as well as book ratios in capital regulation indicates that regulators are aware of the deficiencies in book values many of the so called qualitative considerations are precisely the factors that distinguish market from book value 6 pp 78 80 finally difficulties arise over the proper measure of capital the empirical studies cited above treat equity and debt capital symmetrically both equity and assistant professor of finance economics boston university school of management this paper was originally written as part of a doctoral dissertation at m i t helpful suggestions from robert mcdonald richard schmalensee larry summers and edward j kane are gratefully acknowledged l these statistics are based on the market values of capital and assets the methods used to construct the market value series are described in the appendix capital asset ratios based on book values also have fallen over the period in question although not as severely

financing durable assets this paper studies the nancing of durable assets in a model with collateral constraints due to limited enforcement durability aects the ease of nancing we show that more durable assets require larger down payments of internal funds per unit of capital making them harder to nance because durability raises the price of an asset and hence the overall nancing need more than its collateral value thus nancial constraints have a bigger impact on purchases of more durable capital such as land structures and durable equipment this basic insight has implications for the choice between new and used capital technology adoption and the rent versus buy decision since new assets are more durable than used ones unconstrained borrowers buy new assets and sell them when they are used while constrained borrowers purchase used assets financial constraints inhibit technology adoption as constrained borrowers may adopt less durable low quality assets that are otherwise dominated technologies more durable assets are more likely to be rented given their larger nancing need legal enforcement aects trade in durable assets and technology adoption with weak legal enforcement economies being net importers of used assets and investing a larger fraction in less durable low quality assets

a theory of finitely durable goods monopoly with used goods market and transaction costs we construct a dynamic game to model a monopoly of finitely durable goods the solution concept is markov perfect equilibria with general equilibria embedded in every time period our model is flexible enough to simultaneously explain or accommodate many commonly observed phenomena or stylized facts such as concurrent leasing and selling active secondary markets for used goods heterogeneous consumers endogenous consumption patterns depreciation an infinite time horizon and nontrivial transaction costs within our model consumers have incentives to segment themselves into various consumption classes according to their willingness to pay and nontrivial transaction costs to sell used goods put strong constraints on consumers consumption sequences in time as a direct consequence of the finite durability the market power of the monopolist remains intact leasing manifests itself as a facilitator of price discrimination by debundling the durable good into new and used portions that are naturally bundled together under outright sales the concurrent leasing and selling reflects the degree of the comparative advantage the monopolist has over consumers in disposing used goods this comparative advantage which is partially exploited by the monopolist and partially shared by the consumers provides a sufficient mechanism to gain pareto improvement on the market

a theory of economic obsolescence a new generation of durable goods makes an old generation economically even if not physically obsolete economic obsolescence due to technological innovation requires the durable goods monopolist to implement price discrimination in two dimensions both between consumers with different valuations and between consumers with different purchase histories equilibrium in the game between the durable goods monopolist and consumers depends on the extent of economic obsolescence and the relative sizes of the consumer groups underinvestment in innovation may take place this contrasts with the standard literature on planned obsolescence where the durable goods monopolist overinvests in durability reducing technology

the political economy of used automobile protection in latin america i n the wake of the debt crises of the early 1980s latin america embarked upon a process of trade liberalisation the levels of both average tariffs and tariff dispersions fell throughout the region as did the coverage of non tariff barriers in the case of used automobiles however this liberalisation has not in general taken place many latin american countries retain significant restrictions on the imports of used automobiles even as liberalisation has occurred in the new automobile sector from a factor proportions standpoint these restrictions are difficult to justify for a number of reasons elucidated by sen 1962 used machinery should be imported relatively intensively into labourabundant countries such as those of latin america further this insight was specifically applied to the case of used automobiles by grubel 1980 the key factor identified by grubel is the lower repair costs of used automobiles in developing countries importantly grubel s analysis suggests that the bulk of the gains from trade in used automobiles would accrue to the developing countries explaining latin american protection against imports of used automobiles requires an exploration of the political economy of the protective measures in this paper we make a preliminary attempt at this exploration we begin in the following section by presenting the degree of used passenger automobile protection in 24 latin american and caribbean countries this is followed by a

dynamic demand for new and used durable goods without physical depreciation the case of japanese video games we develop a new dynamic demand model for new and used durable goods and quantify the impact of used goods markets on producers profits and consumer welfare

why do voters dismantle checks and balances voters often dismantle constitutional checks and balances on the executive if such checks and balances limit presidential abuses of power and rents why do voters support their removal we argue that by reducing politician rents checks and balances also make it cheaper to bribe or inauence politicians through non electoral means in weakly institutionalized polities where such non electoral inauences particularly by the better organized elite are a major concern voters may prefer a political system without checks and balances as a way of insulating politicians from these inauences when they do so they are e ectively accepting a certain amount of politician presidential rents in return for redistribution we show that checks and balances are less likely to emerge when equilibrium politician rents are low when the elite are better organized and are more likely to be able to inauence or bribe politicians and when inequality and potential taxes are high which makes redistribution more valuable to the majority we show that the main intuition that checks and balances by making politicians icheaper to bribe i are potentially costly to the majority is valid under di erent ways of modeling the form of checks and balances

forecasting canadian short term interest rates the author investigates the forecasting performance of a number of simple prediction techniques for short term interest rates in particular quarterly forecasts of canadian three month t bill rates from one to forty quarters in the future are generated during 1963 92 using several time series methods and market based yield curve strategies comparison is made with the martingale and for a shorter recent sample with the predictions made by several economic forecasters for the most part utilization of the yield curve proved best though it must be granted that no methodology was able to outperform the martingale for horizons up to a year

turnover of used durables in a stationary equilibrium are older goods traded more this paper develops a dynamic model with transaction costs to determine the equilibrium resale pattern in a market for a durable good the key result is that the probability of resale is nonmonotonic in the age of the good trade volume is relatively low in the very beginning and in the middle of a good s life this result helps explain observed variations of resale rates across vintages for the u s market of used cars

durable goods leasing in the presence of exporting used products to an international secondary market abstract with the rapid growth of global trade used durable goods from wealthy countries increasingly find their way into the secondary market of less wealthy countries exporting used products to a physically separate market not only removes cannibalization for new products at home but also fetches additional revenue in this paper we investigate the implications of exporting used products to international secondary markets in the durable goods industry we find that such a practice may significantly stimulate new product lease on the home market an effect in which the market attractiveness and product quality are mutually reinforcing we discover that removing cannibalization pressure is more of a priority than generating additional revenue while exporting used products if the export is carried out by an agent who exports used products bought from oem original equipment manufacturer we observe the disadvantage of double marginalization in a channel structure which slows down export and causes quantity distortion and also reduces the effectiveness of government stimulus however if the agent and oem set export price based supply and demand equilibrium this reduces the quantity distortion one special characteristic of used products trade across borders is the involvement of governments on both sides of the border the government measures include penalties imposed on aging durable goods and trade barriers we find that legislation of penalizing used products on the domestic market can stimulate export but it does not have an intended effect of stimulating new products produced at home the channel structure worsens the problem

the october 1979 change in the u s monetary regime its impact on the forecastability of canadian interest rates subsequent to the october 1979 shift in monetary policy in the united states interest rates in north america not only reached unprecedented levels but also exhibited unprecedented volatility using canadian data the authors show that anticipated quarterly changes in long term rates associated with the rational expectations model have remained small during this post shift period the authors examine three sets of recorded forecasts of long term interest rates in canada and note their failure to improve upon the no change prediction the perverse relationship between the slope of the yield curve and the subsequent movement in long term rates exists in the canadian data but is of only modest value in a forecasting context the excess returns on long term bonds implicit in the recorded forecasts of the level of interest rates vary sharply yet there is little evidence that forecasters have identified a predictable component of time varying term premia

secondary markets with changing preferences if consumer valuations change over time then secondary market frictions may raise monopoly profits and cause durability to be distorted away from the cost minimizing level a monopolist who favors such frictions overinvests in durability but planned obsolescence instead may be preferred when market frictions exist but a monopolist wishes they did not evidence from the book market is presented

when do secondary markets harm firms to investigate whether secondary markets aid or harm durable goods manufacturers we build a dynamic model of durable goods oligopoly with transaction costs in the secondary market calibrating model parameters using data from the us automobile industry we find the net effect of opening the secondary market is to decrease new car manufacturers profits by 35 percent counterfactual scenarios in which the size of the used good stock decreases such as when products become less durable when the number of firms decreases or when firms can commit to future production levels increase the profitability of opening the secondary market

balladurette and juppette a discrete analysis of scrapping subsidies this paper studies the effects of subsidies on durable goods markets in particular we focus on a recent policy in france in which the governments of balladur and juppe subsidized the replacement of old cars with new ones to study this policy we construct a dynamic stochastic discrete choice model of car ownership at the household level the resulting decision rules and equilibrium conditions are used to estimate the underlying parameters of the model using aggregate data these policy functions are used to evaluate the short and long run effects of the french policies we find that these policies do stimulate the automobile sector in the short run but through the induced changes in the cross sectional distribution of car ages create the basis for subsequent low activity further while these policies increase government revenues in the short run revenues in the long run are lower relative to a baseline without intervention

buying frenzies in durable goods markets we explain why a durable goods monopolist would like to create a shortage during the launch phase of a new product we argue that this incentive arises from the presence of a second hand market and uncertainty about consumers willingness to pay for the good consumers are heterogeneous and initially uninformed about their valuations but learn about them over time given demand uncertainty first period sales may result in misallocation and lead to active trading on the secondary market after the uncertainty is resolved trading on the second hand market will generate additional surplus this surplus can be captured by the monopolist ex ante because consumers are forward looking and the price they are willing to pay incorporates the product s resale value as a consequence when selling to uninformed consumers the monopolist faces the trade off between more sales today and a lower profit margin specifically because the product s resale value is negatively related to the stock of the good in the second hand market selling more units today will result in a lower equilibrium price of the product therefore the monopolist may find it optimal to create a shortage and ration consumers to the second period we characterize conditions under which the monopolist would like to restrict sales and generate buying frenzies

entry deterrence and innovation in durable goods monopoly this paper investigates the efficiency of innovation investments in a durable goods monopoly when a potential entrant threatens to innovate as well we show that the durability of the good endows the monopolist with the power to discourage rival innovation since current sales alter the demand for a new generation of the good the equilibrium is therefore determined not only by competitive pressure due to time inconsistency but also by the incumbent s concern for maintaining the technological leadership we demonstrate that entry deterrence followed by no innovation always implies underinvestment in innovation

trade in used equipment with heterogeneous firms this paper examines the pattern of trade in used asset markets where firms have differing factor prices and utilization rates of capital goods depreciation is modeled as an increase in down time as machines age and a measure of comparative advantage is derived that will explain the pattern of trade when there are two types of firms it is shown that with heterogeneous firms the price of used machines will reflect the characteristics of firms as well as the productivity of used machines and the implications of this result for the study of depreciation are discussed finally the relationship between firm characteristics and choice between purchasing new and used truck tractors is presented as an illustration of the predictions of the model

adverse selection in durable goods markets we present a dynamic model of adverse selection to examine the interactions between new and used goods markets we find that the used market never shuts down the volume of trade can be large and distortions are lower than previously thought new cars prices can be higher under adverse selection than in its absence an extension to several brands that differ in reliability leads to testable predictions of the effects of adverse selection unreliable brands have steeper price declines and lower volumes of trade we contrast these predictions with those of a model where brands physically depreciate at different rates

new or used investment with credit constraints abstract used capital is cheap up front but requires higher maintenance payments later on we argue that the timing of these investment cash outflows makes used capital attractive to financially constrained firms since it is cheap when evaluated using their discount factor in contrast it may be expensive from the vantage point of an unconstrained agent we provide an overlapping generations model and determine the price of used capital in equilibrium agents with less internal funds are more credit constrained invest in used capital and start smaller firms empirically we find that the fraction of investment in used capital is substantially higher for small firms and varies significantly with measures of financial constraints

gains from trade in used goods evidence from automobiles abstract i investigate the welfare effects of trade liberalization by exploiting a natural policy experiment in the economy of cyprus a 1993 law relaxed import restrictions on used vehicles and enabled the importation of second hand japanese automobiles into the country this led to a dramatic shift of consumer purchases from new to used cars and a substantial expansion of the overall market welfare gains computed from a structural demand system average 2000 per purchaser per year over a four year period after the policy change the findings are suggestive of the potential for substantial gains from liberalizing trade in used goods

cross border travellers and parallel trade implications for asian economies this paper explores the impact of parallel trade in an export market by cross border travellers on welfare of the home country in a model with heterogeneous consumers perceptions we show that such parallel trade when it is organised trading always hurts the home country welfare however when parallel trade is unorganised trading it might benefit the home country welfare provided that the size of the export market is relatively small along these lines we suggest optimal policy responses in the home country to parallel trade by cross border travellers the results of the paper yield insightful policy implications for asian economies

competitive advantage through take back of used products abstract motivated by a recent antitrust ruling against hill rom one of the two dominant american suppliers of hospital beds we develop a stylized model to investigate the consequences of used product take back on firms industry and customers our findings suggest that by taking back and reselling refurbished products a manufacturer can increase both profit margins and sales to the detriment of a non interfering competitor in our model customers are always better off under product take back but it depends on the degree of competition whether firms use the benefits of take back primarily to increase their margins or to pass them on to the customers by lowering their prices the first firm to offer take back in some cases can deter its competitors from following this profitable strategy especially if it has an existing advantage in terms of lower production cost or higher market share contrary to the claim of hill rom s competitor we find a legitimate business justification for hill rom s reduction of new product prices

price and quality discrimination in durable goods monopoly with resale trading abstract we examine a durable goods monopolist s optimal dynamic price and product quality strategy when buyers are rational and can trade used durables among themselves in contrast to the usual credibility problem of the durable goods monopolist intertemporal quality discrimination introduces a time inconsistency problem of not raising prices against high valuation consumers who delay purchase for quality upgrades resale trading ameliorates this time inconsistency problem and allows the monopolist to effectively price discriminate especially when the buyers are patient the monopolist s optimal price and quality offers in the new good market exhibit complex dynamic patterns and new good prices can fall as product quality improves even in the absence of entry threats or learning economies initial quality distortions are followed by steady state quality allocations that are always efficient for the high valuation buyers but sometimes also for the marginal consumer types both the resale trading frequency and the price discount for secondhand goods are driven by the pace of strategic quality obsolescence in the new good market

durability market structure and new used goods models focuses on the relationship between market structure and monopoly power durability models new used goods model durability and monopoly in the new used model interdependence between market structure and durability ebsco

quality standards for used durables an indirect subsidy abstract we construct a theoretical framework to study the impact of quality standards for used durable goods on trade ows pro ts and consumer welfare we show that asymmetric quality standards generate trade in used goods from high to low standard countries while at the same time reducing trade in new goods producers in the exporting country bene t from this change while consumers lose in the importing country consumers are better off but domestic industry is hurt these ndings suggest that quality standards on used goods may be a powerful policy tool whose use should be monitored by the wto

emergence and persistence of inefficient states we present a theory of the emergence and persistence of inefficient states based on patronage politics the society consists of rich and poor the rich are initially in power but expect to transition to democracy which will choose redistributive policies taxation requires the employment of bureaucrats by choosing an inefficient state structure the rich may be able to use patronage and capture democratic politics so reducing the amount of redistribution in democracy moreover the inefficient state creates its own constituency and tends to persist over time intuitively an inefficient state structure creates more rents for bureaucrats than would an efficient one when the poor come to power in democracy they will reform the structure of the state to make it more efficient so that higher taxes can be collected at lower cost and with lower rents for bureaucrats anticipating this when the society starts out with an inefficient organization of the state bureaucrats support the rich who set lower taxes but also provide rents to bureaucrats we obtain that the rich bureaucrats coalition may also expand the size of bureaucracy excessively so as to generate enough political support the model shows that an equilibrium with an inefficient state is more likely to arise when there is greater income inequality when bureaucratic rents take intermediate values and when individuals are sufficiently forward looking jel p16 h11 h26 h41

volatility and development why is gdp growth so much more volatile in poor countries than in rich ones we identify four possible reasons i poor countries specialize in more volatile sectors ii poor countries specialize in fewer sectors iii poor countries experience more frequent and more severe aggregate shocks e g from macroeconomic policy and iv poor countries macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in we show how to decompose volatility into these four sources quantify their contribution to aggregate volatility and study how they relate to the stage of development we document the following regularities first as countries develop their productive structure moves from more volatile to less volatile sectors second the level of specialization declines with development at early stages and slowly increases at later stages of development third the volatility of country specific macroeconomic shocks falls with development fourth the covariance between sector specific and country specific shocks does not vary systematically with the level of development we argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work

deriving zero coupon rates alternatives to orthodoxy the bootstrapping method for deriving zero coupon rates from par yield curves implicitly assumes a specific forecast of prospective interest rate changes in the event that market conditions reflect this standard methodology but at the same time individual practitioners reject the implicit forecast contrarian opportunities will be present additionally to the extent that zero coupon discount rates are based on unacceptable assumptions any subsequent present valuation calculation using these rates would be suspect we propose two methodologies whereby any explicit interest rate forecast may be used for determining zero coupon interest rates backsliding calculates zero coupon returns by assuming interim interest cash flows are always rolled over into the longest maturity coupon bearing instruments available frontsliding requires rolling these cash flows over into the shortest maturity vehicles the choice of methodology should be driven by rate forecasts as well as whether the objective is for f

on durable goods markets with entry and adverse selection we investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time the model is a dynamic version of akerlof 1970 identical cohorts of durable goods whose quality is known only to potential sellers enter the market over time we show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry market failure is reflected in the length of waiting time before trade the model also provides an explanation of market fluctuations jel classification d82 a propos des marches de biens durables quand il y a entree de nouveaux commercants et selection adverse les auteurs analysent la nature du commerce et du triage engendres par le mecanisme dynamique des prix dans un marche concurrentiel de biens durables quand il y a selection adverse et entree exogene de nouveaux commercants dans le temps ce modele est une version dynamique du modele d akerlof 1970 des cohortes identiques de biens durables dont la qualite est connue seulement des vendeurs potentiels arrivent sur le marche dans le temps il semble qu il y ait plus de commerce actif que ce qui est prevu par un modele statique en particulier on montre qu il existe un equilibre cyclique ou tous les biens sont transiges a l interieur d un nombre fini de periodes apres leur arrivage et que a chaque phase du cycle l eventail de qualite des biens transiges s accroit les commercants qui transigent des produits de plus haute qualite attendent plus longtemps et l imperfection du marche se traduit par la longueur de temps d attente avant la transaction le modele fournit aussi une explication des fluctuations du marche

the self perpetuation of biased beliefs to overcome strong prior beliefs strong evidence to the contrary is needed if a person is predisposed to choosing a certain action the advice from an advisor who sets a low threshold for recommending the alternative action is not of much use the preference for like minded advisors who supply coarse information implies that the advice a person receives is likely to reinforce his existing priors this effect can lead to polarisation of opinion and the emergence of self serving beliefs the learning process is prolonged and the induced short run bias can become perpetual if information is costly