higher education subsidies and heterogeneity a dynamic analysis abstract in this paper we develop a simple dynamic general equilibrium framework to address the effects of increasing higher education subsidies in the us from their already substantial levels on inequality welfare and efficiency we focus on three policies the first is a tax and subsidy scheme that ensures that the parental decision to send a child to college is independent of income such a policy decreases the efficiency of the utilization of education resources while the welfare gain is minimal the second policy maximizes the fraction of college educated labor this results in a large drop in the above mentioned efficiency with little or no welfare gain the third is the provision of merit based aid to the poor as opposed to purely need based aid this policy can increase education efficiency with little decrease in welfare based on these experiments we conclude that the case for further increases in higher education subsidies might have been overstated

investment and market dominance we analyze a model of oligopolistic competition with ongoing investment special cases include incremental investment patent races learning by doing and network externalities we investigate circumstances under which a firm with low costs or high quality will extend its initial lead through investments to this end we derive a new comparative statics result for general games with strategic substitutes which applies to our investment game finally we highlight plausible countervailing effects that arise when investments of leaders are less effective than those of laggards or in dynamic games when firms are sufficiently patient

optimal dynamic marketing mix policies for frequently purchased products and services versus consumer durable goods a generalized analytic approach abstract this paper deals with the qualitative characterization of optimal pricing and advertising policies together with the optimal ratio of the advertising elasticity of demand to its price elasticity over time the problem is studied for frequently purchased products and services fps as well as consumer durable goods cdg in both monopolistic and duopolistic markets demand dynamics cost learning and discounting of future profits are taken into consideration in addition both the open loop and feedback methodologies are pursued to characterize and compare the derived optimal policies the paper uses an analytical approach to characterize the optimal dynamic policies in a general setting as is mathematically tractable followed by the analysis of more specific models to gain additional managerial insights while maintaining a certain degree of generality optimal fps marketing mix policies are shown to be different from their cdg counterparts for both monopolistic and duopolistic markets while the ratio of advertising elasticity to price elasticity appears to have been governed by similar set of rules for fps and cdg the direction of change of such ratio over time looks different from each other managerial implications and directions for future research are also discussed

capacity constraints and voluntary output cutback in dynamic cournot competition abstract this paper considers cournot competition in which duopolists play a quantity setting game with sticky prices and capacity constraints a feedback subgame perfect equilibrium is derived and analyzed with sufficient differentiability the paper shows the existence and the uniqueness of symmetric feedback equilibrium we show that there arises a range of constraints defined by two threshold values in which the firms outputs are below the constraint level in the steady state yet the outputs depend nontrivially on the constraint for outside observers the constraint does not seem to be binding but the constraint is binding in that a marginal change in the level of capacity constraint affects firms steady state outputs the result implies that under this constraint the firms cut back their steady state outputs voluntarily more than stipulated by the constraint we also show that the procedure to construct a constrained solution from an unconstrained solution by truncation may not always be appropriate this paper s analysis utilizes the concept of connectable points associated with the solutions to the auxiliary equation of the hamilton jacobi bellman equation since the concept of connectable points and their characterization does not directly rely upon the linear quadratic structure of this game the method can be modified and applied to other differential games with restrictions on the control space s

production with learning and forgetting in a competitive environment abstract it has been shown that learning by doing enables firms to reduce marginal production costs but that this effect weakens due to organizational forgetting in order to assess the impact of both learning and forgetting on long term competitiveness and a firm s profitability we model an experience accumulation process with depreciation and consider two competing firms that produce fully substitutable products in this model unit production costs decrease with the firm s experience due to the proprietary learning process as well as the spillover of experience from the competing firm firms can either share or hide from each other their information about the state of their respective experience throughout the game we found that in an equilibrium steady state if the organizational forgetting is sufficiently large larger than the spillover rate value then information sharing compared to information hiding results both in less competitiveness and increased profits for firms conversely if the organizational forgetting is small and the spillover opportunities are relatively large then information sharing promotes both long term competitiveness and firm profits accordingly firms are better off in the long term by deliberately limiting expanding their experience accumulation process whenever organizational forgetting is relatively large small a high ability of proprietary learning however can interfere in this relationship so that limiting the firms experience process will always be compatible with higher profitability

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

computational economics and economic theory substitutes or complements abstract this essay examines the idea and potential of a computational approach to theory discusses methodological issues raised by such computational methods and outlines the problems associated with the dissemination of computational methods and the exposition of computational results we argue that the study of a theory need not be confined to proving theorems that current and future computer technologies create new possibilities for theoretical analysis and that by resolving these issues we will create an intellectual atmosphere in which computational methods can make substantial contributions to economic analysis

public funding of higher education abstract recent criticism from different sides has expressed the view that with scarce resources there is little justification for massive public funding of higher education central to the debate is the conjecture that colleges and universities use their resources inefficiently and focus insufficiently on their mission to expand students human potential our aim in this paper is to examine the theoretical premises of this conjecture in a small open economy and uncover the conditions under which public investment in higher education is efficient and desirable we analyze non stationary equilibria of an olg economy characterized by perfect capital mobility intergenerational transfers and a hierarchical education system the government uses income tax revenues to finance basic education and support higher education that generates skilled labor given this the following issues are considered a the impact of education and international markets on the equilibrium number of low skilled and skilled workers in each generation b the economic efficiency of public subsidies to higher education in generating skilled human capital c the endogenous support for a government s educational policies found in a political equilibrium

capital accumulation games of infinite duration abstract consider a market in which firms accumulate capital according to the nerlove arrow capital accumulation equation each player chooses a path of investment and thus an induced path of capital to maximize his total discounted profits which depend on his own capital and the capital stocks of his rivals existence is proved for such a nonzero sum infinite horizon differential game and conditions under which the game converges to a particular stationary point regardless of the initial conditions are shown thus the game possesses the property of conditional global asymptotic stability

is increased public schooling really a policy for equality abstract empirical findings suggest different causes for higher educational attainment among children of high income earners either that poor parents are credit constrained or that parental human capital per se is important in the educational process my theoretical results show how these two diverging results can be brought together parental and public investments complement each other in the educational process because higher educated parents take advantage of increased productivity educational equality between rich and poor children is not necessarily promoted by further investments in public schooling moreover i show that educational investments in low skilled parents have spill over effects on their children and therefore have an unambiguously positive impact on equality

pricing competition with inventory considerations in a hazard rate prone market of durables abstract this paper addresses bertrand type pricing competition between two firms producing partially differentiated durables over a finite planning horizon the demand for durables characterized by increasing returns of scale to a price reduction is led by the hazard rate while the effect of inventories on pricing of non durables is widely recognized the management and marketing literature typically overlooks this effect in regard to horizontally competing firms for durables in this paper we show that the pricing trajectory of durables may significantly alter when inventory dynamics are accounted for in particular the price may hike upwards before dropping gradually grow or even stay at the same level over the entire product life while it would only decline if inventories and related costs are disregarded furthermore the well known optimal pricing strategy of following the pattern of sales does not necessarily confirm even for symmetric equilibria when the competing firms have either an inventory surplus or shortage

dynamic advertising and pricing in an oligopology a nash equilibrium approach a general dynamic oligopolistic price advertising model is formulated and open loop nash solutions are derived as a main result a generalisation of the well known dorfman steiner theorem to heterogenous oligopoly markets is presented furthermore a detailed discussion of long run equilibrium solutions is given for an important special case of the general model formulation it is shown that the optimal advertising policies are constant over time and constitute degenerated feedback solutions

drugs guns and targeted competition abstract we consider a dynamic competition game involving three players in which each player can vary the extent of his competition on a per rival basis we call such competition targeted we show that if the players are myopic then the weaker players eventually lose the game to their strongest rival if instead the players are sufficiently far sighted then all three players converge in their power and stay in the game we develop our model in application to drug wars but the approach of targeted competition can be applied to competition between firms or political parties or to warfare

open loop and feedback models of dynamic oligopoly abstract a simple method of estimating the degree of oligopoly power in dynamic markets using either open loop or feedback subgame perfect strategies is developed new theoretical results are presented for families of oligopoly models differences between discrete time and continuoustime models and open loop and feedback models are demonstrated the effects of increasing the number of firms or adjustment costs are examined

joint stochastic dynamic pricing and advertising with time dependent demand abstract this paper examines the sale of a finite number of items in a class of stochastic dynamic pricing and advertising models with time dependent demand elasticities we prove structural properties of the optimal expected profits with respect to time inventory level price impact advertising impact and different model parameters such as discount rate marginal unit costs and holding costs we find that the value of an additional item opportunity costs is decreasing in the unit costs the discount rate the holding cost rate and the number of items left to sell we also derive structural properties of optimal joint pricing and advertising strategies this way we obtain general qualitative insights in the complex interplay and the mutual dependence of optimal pricing and advertising decisions among other properties we show that a higher advertising impact leads to higher optimal prices and lower advertising rates which in turn implies a lower speed of sale the results obtained help practitioners to respond to changes in market conditions by adjusting price and advertising accordingly our results allow speeding up numerical computations of decisions as the set of possible actions can be reduced significantly our analysis implies general results for pure pricing as well as pure advertising models with time dependent demand elasticities

technological leadership and persistence of monopoly under endogenous entry static versus dynamic analysis abstract we build a dynamic oligopoly model with endogenous entry in which a particular firm leader invests in an innovation process facing the subsequent entry of other firms followers we identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre emptive r d investment strategic predation eventually resulting in the elimination of all followers compared to a static model the dynamic one provides new insights into the leader s intertemporal investment choice its optimal decision making and the dynamics of the market structure over time we also contrast the leader s investment decisions with those of the social planner

distributional effects of public education in an economy with public pensions we study how the allocation of government expenditures between two major outlays education and pay as you go social security affects human capital distribution in an economy with heterogeneous agents we consider an overlapping generations economy where the government maintains both programs and allocates tax revenues to finance them in our model human capital is one of the factors of production it is itself produced as a combined result of public inputs and private inputs parents decisions to invest time and material resources in education of their children are motivated by altruism heterogeneous in its strength across the population which leads to heterogeneity of incomes we investigate the effect of an increase in public funding for education on the human capital distribution we show that in this framework contrary to some earlier results increased spending on public education may lead to higher inequality our results depend crucially on the interaction of education funding with the social security budget and on the elasticity of substitution in the learning technology

the law of one price a case study we use retail transaction prices for a multinational retailer to examine the extent and permanence of violations of the law of one price for identical products we find typical deviations of 20 50 percent with some evidence for convergence over time such differences might be due to differences in local costs if so relative prices of similar products round versus square mirrors should be equal across countries in fact relative prices vary significantly across very similar goods within a product group the finding suggests that differences in local distribution costs local taxes and probably tariffs do not explain the price pattern leaving strategic pricing or other factors resulting in varying markups as alternative explanations jel classification f41 l11

public education occupational choice and the growth inequality relationship this article develops a dynamic general equilibrium model in which the occupational structure of the economy drives a wedge between the social and private returns to schooling for some workers i study the impacts of alternative allocations of public resources between basic and higher levels of education on enrollments income distribution and growth in particular i illustrate how the growth inequality relationship depends on the tension between two forces 1 the trickle down effects of expenditures on higher education and 2 the positive impacts on secondary enrollments generated by high quality basic education and reduced parental inequality

the allocation of public funds in a hierarchical educational system abstract this paper studies the dynamic effects of allocating public funds between basic and advanced education holding the size of total public education funds fixed i identify the effects of their composition on aggregate efficiency and in equality first since basic education is a prerequisite for attending advanced education there exists a lower bound on funding it allocation policies below this lower bound are strictly pareto dominated whether a corresponding lower bound on funding advanced education exists or not depends on the development stage of the economy and the size of total public funds secondly while an allocation policy favoring basic education generates the usual redistribution from top to bottom one favoring advanced education may result in reverse redistribution from bottom to top last through the inter generational link short run allocation policies may have long run effects a simple rule of thumb is that for an economy in its early development stage focusing on basic education for sufficiently long duration is the only way out of polarization and low aggregate efficiency contrary to the actual policies pursued by many of the less developed economies

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

nonlinear strategies in dynamic duopolistic competition with sticky prices abstract we discuss nonlinear strategies in an infinite horizon duopoly game with sticky prices where firms maximize their discounted sum of profit we construct a stationary feedback equilibrium without guessing value functions and feedback strategies that solve the hamilton jacobi equation for this purpose we study the auxiliary equation that is derived from the hamilton jacobi equation we show that the domain of the state space plays an crucial role in characterizing feedback equilibria and discuss several implications of this observation in particular we find that when the upper bound of the state space is not very high previously unknown feedback equilibria emerge

marketing and investment policies of duopolists in a growing industry abstract this article deals with the analysis of the investment price and advertising policies of two firms competing over time the problem is stated as a differential game where each firm tries to maximize its net present value the open loop equilibrium of the game defines the policies to be implemented by the competitors over the horizon the results show how the combination of competition and growth has a relevant influence on the policies of the firms

strategic investment and conjectural variations abstract this paper analyzes investment decisions under the alternative assumptions of competitive collusive open loop non cooperative and feedback non cooperative behavior steady state capital stocks prices and outputs are obtained and compared the paper shows that one of the linear feedback equilibrium decision rule coefficients is a dynamic version of a contemporaneous conjectural variation the same decision rule coefficients are shown to imply a particular value for the contemporaneous conjecture the implied conjecture embodies subgame perfection and approaches the competitive value as the number of firms in the industry increases

endogenous strategic business cycles this paper examines an overlapping generations version of the shapley shubik market game we show existence of equilibria for the simple one commodity model and analyze the dynamics of the equilibrium trajectories generated in the model because of the non linearities generated by strategic interaction of agents in the model we find that complex and chaotic equilibrium dynamics are possible in this model for a much broader range of preferences than those for which grandmont econometrica53 no 5 1995 995 1045 found complicated dynamics in the perfectly competitive version of this model these results then provide an alternative to the usual technology based explanation for the historical fact that business cycles became an important economic phenomenon only with the onset of industrialization journal of economic literatureclassification numbers c72 c73 d51 l16

time consistent protection with learning by doing abstract can a government induce efficiency gains in his domestic industry by protecting it against foreign competition would such trade protection be time consistent the present paper builds a dynamic equilibrium model that accounts for learning by doing effects that link firms strategies over time the model shows that the existence of dynamic economies of scale suffices to overcome the traditional government s lack of commitment of its tariff policy this paper compares the infinite horizon markov perfect equilibrium of this game with the dynamic equilibrium under commitment as well as the static nash equilibrium equilibrium strategies are derived in closed form by solving a linear quadratic differential game optimal trade policy involves higher tariff levels than in the static setup in order to account for future gains in efficiency under reasonable assumptions the unique stable mpe is characterized by a domestic price and tariff that decrease as experience accumulates thus supporting the future liberalization of trade as an equilibrium feature of this dynamic game

the closed loop effect and the profitability of horizontal mergers we study the profitability of horizontal mergers in a dynamic competition context with sticky prices it is shown that when firms use open loop strategies a merger is profitable only if the share of the market that merges is significant enough in the case where firms use closed loop strategies we provide a method to conduct analytically the study of the profitability of horizontal mergers we first prove the existence of an equilibrium of the game when a subset of firms merges when firms use feedback strategies mergers are profitable even when the share of the market that

a differential oligopoly game for optimal production planning and water savings abstract a production planning single decision problem is extended to a production planning and water saving dual decision problem a differential oligopoly game in which product prices are sticky and water right trading occurs is used to study this problem unlike previous studies appeared in the literature the decisions in this study are affected simultaneously by both the product and the water right prices static open loop closed loop and feedback equilibria are analyzed to show optimal production plans and water saving decisions the impact of oligopoly competition on the social welfare is finally analyzed different optimal solutions as the values of the parameters change are also simulated numerically the results show that the firms optimal production plans and water saving decisions are strongly influenced by the water efficiency initial water right allocations and water right reservation prices

optimal pricing and advertising in a durable good duopoly abstract this paper analyzes dynamic advertising and pricing policies in a durable good duopoly the proposed infinite horizon model while general enough to capture dynamic price and advertising interactions in a competitive setting also permits closed form solutions we use differential game theory to analyze two different demand specifications linear demand and isoelastic demand for symmetric and asymmetric competitors we find that the optimal price is constant and does not vary with cumulative sales while the optimal advertising is decreasing with cumulative sales comparative statics for the results are presented

a dynamic game model of strategic capacity investment in the cruise line industry abstract in this paper the cruise line industry is characterized as an oligopoly where a finite number of cruise lines compete to maximize their profits over a fixed planning horizon the oligopolistic competition is modeled as a n person nonzero sum noncooperative dynamic game the noncooperative nash equilibrium capacity investment strategies of cruise lines are theoretically analyzed under the open loop information structure the necessary conditions for an open loop nash equilibrium solution are derived using a pontryagin type maximum principle and the sufficient conditions are also established the economic interpretation of the optimality conditions is given so as to demonstrate the difference between the static and dynamic oligopoly problems the dynamic oligopolistic competition of three cruise lines in a hypothetical setting is also numerically analyzed by using the iterative algorithm numerical results provide a number of important managerial guidelines for cruise capacity investment decisions the paper concludes with a discussion on future research directions

stochastic dynamic pricing and advertising in isoelastic oligopoly models abstract in this paper we analyze stochastic dynamic pricing and advertising differential games in special oligopoly markets with constant price and advertising elasticity we consider the sale of perishable as well as durable goods and include adoption effects in the demand based on a unique stochastic feedback nash equilibrium we derive closed form solution formulas of the value functions and the optimal feedback policies of all competing firms efficient simulation techniques are used to evaluate optimally controlled sales processes over time this way the evolution of optimal controls as well as the firms profit distributions are analyzed moreover we are able to compare feedback solutions of the stochastic model with its deterministic counterpart we show that the market power of the competing firms is exactly the same as in the deterministic version of the model further we discover two fundamental effects that determine the relation between both models first the volatility in demand results in a decline of expected profits compared to the deterministic model second we find that saturation effects in demand have an opposite character we show that the second effect can be strong enough to either exactly balance or even overcompensate the first one as a result we are able to identify cases in which feedback solutions of the deterministic model provide useful approximations of solutions of the stochastic model

human capital and growth abstract this paper describes a growth model with the property that human capital accumulation can account for all observed growth the model is shown to be consistent with evidence on individual productivities as measured by census earnings data the central hypothesis is that we learn more when we interact with more productive people

comparative dynamics in a productive asset oligopoly abstract we build a subgame perfect nash equilibrium of a common property productive asset oligopoly and analyze separately the impact of a change in the implicit growth rate of the asset and a change in the number of firms exploiting the asset we show that the steady state level of asset can be a decreasing function of the asset s implicit growth rate this phenomenon arises when the initial stock of asset is below a certain threshold in the short run we show that firms exploitation rate can be a decreasing function of the implicit growth rate we study the impact of a change in the number of firms that share access to the asset reducing the number of firms can result in the long run in higher industry production in the short run it can result in an increase of the industry s exploitation and a decrease of the level of the asset s stock

why environmentalists resist trade liberalization we build a two country differential game model of polluting oligopoly to consider the effects of trade liberalization as in static models the opening of trade promotes competition but expands global pollution characterizing open loop and feedback strategies we derive a sufficient condition for losses from trade this losses from trade proposition could provide a rationale for persistent resistance to globalization by environmentalists

dynamic duopoly with adjustment costs a differential game approach abstract this paper develops a differential game model of duopoly in which firms incur costs associated with how fast they change their level of output the analysis solves for a subgame perfect equilibrium to the model in which the steady state level of output lies strictly between the static cournot and perfect competition solutions furthermore we demonstrate that the limit game in which the speed of adjustment parameter approaches zero does not tend toward the static cournot equilibrium

stock options and the strategic use of managerial incentives in cournot based oligopoly models there is an incentive for firms to pursue overly aggressive behavior resulting in prices and profits below those of the cournot equilibrium compensating managers in proportion to a combination of profits and sales provides one mechanism through which aggressive behavior emerges however when the profit component of managerial compensation comes in the form of stock options the aggressive behavior is restrained or even eliminated in equilibrium this result relies only on the nonlinearity of the stock option generalizations to other forms of compensation are discussed copyright 1993 by american economic association

dynamic oligopoly in the rice export market a linear quadratic dynamic oligopoly model is used to estimate the competitiveness of the rice export market the model nests various market structures using either open loop or feedback strategies the estimated feedback model implies a less competitive market structure than the estimated open loop model the rice export market is oligopolistic but it is closer to competitive than collusive copyright 1989 by mit press

the effects of compulsory schooling on growth income distribution and welfare abstract in this paper we consider an olg model with productive capital and human capital affecting the quality of labor in each generation parents invest in their children s education but disregard its external effect on the aggregate production function government intervention in providing compulsory schooling increases economic growth along the equilibrium path while the intragenerational income distribution becomes more equal also in the long run the majority of individuals in each generation are better off due to compulsory schooling

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

unilateral production restrictions in a dynamic duopoly abstract this paper examines a dynamic game of exploitation of a productive asset by a duopoly a closed loop nash equilibrium of the game is constructed and used to analyze the effects of a unilateral production restriction surprisingly such unilateral action may result in a decrease of the long run asset s stock we also exhibit production restrictions that can result simultaneously in an increase of the asset s stock and the long run profits of the firm that is being imposed the production restriction moreover a unilateral decrease of the production of one firm can induce its rival to also decrease its production

public schooling college subsidies and growth abstract how does the mix of public education expenditures across primary and secondary k 12 education and post secondary college education influence economic growth to address this i build an overlapping generations endogenous growth model human capital is accumulated through compulsory k 12 education and through optional college education government uses tax revenue to provide quality in k 12 schooling and to subsidize college tuition when total expenditures are small all funds should provide k 12 quality when expenditures are above a critical value a positive share should subsidize tuition the share should increase with total expenditures and with the degree of complementarity of human capital accumulated through the two types of education also increased education spending is more likely to increase growth when a larger share subsidizes tuition

strategic incentives in dynamic duopoly abstract we compare steady states of open loop and locally stable markov perfect equilibria mpe in a general symmetric differential game duopoly model with costs of adjustment strategic incentives at the mpe depend on whether an increase in the state variable of a firm hurts or helps the rival and on whether at the mpe there is intertemporal strategic substitutability or complementarity a full characterization is provided in the linear quadratic case then with price competition and costly production adjustment static strategic complementarity turns into intertemporal strategic substitutability and the mpe steady state outcome is more competitive than static bertrand competition

markov puppy dogs and related animals abstract it is shown that steady state markov perfect equilibria of discrete time infinite horizon quadratic adjustment cost games differ from equilibria of their infinitely repeated counterpart games with zero adjustment costs even though no adjustment costs are paid in the steady state in contrast to continuous time games the limit of these equilibria as adjustment costs approach zero is the same as the equilibria of their static counterpart games a classification scheme is presented and it is shown that the taxonomy is identical to that of analogous two stage games such as those analyzed by fudenberg and tirole american economic review papers and proceedings 1984 74 361 366 this classification is useful in that it implies that steady state equilibria need not be explicitly calculated to analyze qualitatively the effects of adjustment costs in strategic environments it is also argued that estimated conjectural variations parameters may capture a well defined property of strategic interaction in a dynamic game

education social security and growth abstract we study the role of government s allocation of tax revenues between two outlays public investment in education a transfer to the young generation and social security benefits to the older generation in an overlapping generations economy with pay as you go social security and altruistically motivated transfers from parents to children we analyze how the allocation of the tax revenues between the two outlays affects growth and welfare in competitive equilibria a we obtain comparative dynamics results for nonstationary equilibria subject to a change in the allocation profile b for stationary equilibria we show that for a given allocation profile of the tax revenues educational subsidies can either increase the growth rate or decrease it depending on the parameters of the model preferences production function and the tax rate c if government seeks to allocate funds in a way that maximizes the growth rate we demonstrate that under some plausible conditions it is not optimal to maintain pay as you go social security however if parents preferences combine strong concern for their retirement with significant degree of altruism towards their children then pay as you go social security system does enhance growth and welfare

intergenerational persistence of earnings the role of early and college education recent empirical evidence from the united states indicates a high degree of persistence in earnings across generations designing effective public policies to increase social mobility requires identifying and measuring the major sources of persistence and inequality in earnings we provide a quantitative model of intergenerational human capital transmission that focuses on three sources innate ability early education and college education we find that approximately one half of the intergenerational correlation in earnings is accounted for by parental investment in education in particular early education we show that these results have important implications for education policy

a differential oligopoly game with differentiated goods and sticky prices we investigate a dynamic oligopoly game where goods are differentiated and prices are sticky we study the open loop and the closed loop memoryless nash equilibrium and show that the latter equilibrium entails a larger level of steady state production as compared to the former both equilibria entail a larger level of production in steady state than the static game we also study the effects of price stickiness and product differentiation upon the steady state equilibrium allocation and profits the per firm equilibrium output is increasing in both product differentiation and price stickiness while profits are increasing in both product differentiation and the speed of price adjustment the steady state social welfare monotonically increases in the speed of price adjustment and the overproduction entailed by dynamic competition has beneficial effect from a social standpoint

arbitrage equilibria in large games with many commodities abstract can identical goods sell at different prices in identical markets when people are perfectly mobile we provide a formal account of strategic behaviour in large games with many commodities and exhibit how it drives price dispersion at equilibrium interactions between agents are modelled using a shapley shubik market game we demonstrate the failure of the law of one price in this setup through a robust counterexample the proposed model and our findings constitute an alternative and plausible explanation to some anomalies which routinely appear in a wide array of fields ranging from banking business economics to international and labour economics

duopoly can be more anti competitive than monopoly abstract we prove two results on feedback equilibria under dynamic renewable resource duopoly the linear feedback output is smallest which sharply contrasts to the existing literature where it is largest moreover prices in two feedback equilibria are higher than under monopoly

efficiency inducing taxation for polluting oligopolists abstract we show that there exists a time independent tax rule that guides polluting oligopolists to achieve the socially optimum production path the optimal tax is dependent on the current pollution stock and it may be negative when the pollution stock is low a surprising result is that the optimal tax rule may give firms a subsidy for an initial time interval even though under laissez faire their output always exceeds the socially optimal output this subsidy however induces firms to produce less than they would under laissez faire

the closed loop motive for voluntary export restraints this paper examines the effects of voluntary export restraints in a dynamic game model of duopolistic competition it is shown that the imposition of a voluntary export restraint at the free trade level of imports increases the market price and the profits of all firms in the industry if free trade is identified as the closed loop subgame perfect cournot equilibrium of the game hence the authors conclude that the predictions of static cournot competition do not carry over to the dynamic case

non walrasian equilibria and the law of one price abstract we present a market game which features multiple posts for each commodity we use this framework to illustrate the idea that in non walrasian markets where individual activities influence market clearing prices there are equilibria where commodities are exchanged simultaneously in two posts at different prices thus defying the law of one price such equilibria are compatible with an apparent arbitrage possibility which dissipates whenever individuals try to take advantage of it

the evolution of consistent conjectures in this paper we model the evolution of conjectures in an economy consisting of a large number of firms which meet in duopolies the duopoly game is modelled by the conjectural variation cv model an evolutionary process leads to more profitable conjectures becoming more common payoff monotonic dynamics under this class of selection dynamics convergence occurs to a small set of serially undominated strategies containing the consistent conjecture this set can be made arbitrarily small by appropriate choice of the strategy set if the game is dominance solvable then the dynamics converge globally to the unique attractor

explicit solutions of optimization models and differential games with nonsmooth asymmetric reference price effects models in marketing with asymmetric reference effects lead to nonsmooth optimization problems and differential games which cannot be solved using standard methods in this study we introduce a new method for calculating explicitly optimal strategies open loop equilibria and closed loop equilibria of such nonsmooth problems application of this method to the case of asymmetric reference price effects with loss aversive consumers leads to the following conclusions 1 when the planning horizon is infinite after an introductory stage the optimal price stabilizes at a steady state price which is slightly below the optimal price in the absence of reference price effects 2 the optimal strategy is the same as in the symmetric case but with the loss parameter determined by the initial reference price 3 competition does not change the qualitative behavior of the optimal strategy 4 adopting an appropriate constant price strategy results in a minute decline in profits

minding the gap between schools and universities abstract during the 2000s decade governments in south america reallocated per student public expenditures from tertiary to basic education potentially alleviating the economic gap between students in public schools and public universities to investigate the welfare and macroeconomic effects of such types of policies we build and calibrate a general equilibrium model using brazilian data from the beginning of the 2000s we find that the optimal utilitarian policy allocates per student public expenditures equally across education stages benefits almost the entirety of households delivers significant welfare gains to the poorest families and cuts back income inequality we also use our framework to investigate economic differences between brazil and the united states and find that differences in the supply of vacancies in public universities is the education policy aspect that alone has the highest explanatory power over aggregate earnings and college attendance differences between the two countries

feedback equilibria in a dynamic renewable resource oligopoly pre emption voracity and exhaustion abstract we revisit a recent literature on productive asset exploitation describing a differential oligopoly game of resource extraction under static linear feedback and nonlinear feedback strategies where we explicitly allow for the possibility of resource exhaustion we show that i feedback rules entail resource exhaustion for a finite number of firms and ii feedback strategies are more aggressive than static ones as long as the resource stock is large enough in accordance with the acquired view based on the traditional pre emption argument associated with feedback information

tariffs and quotas under dynamic duopolistic competition abstract this paper analyzes tariffs and quotas in a differential game model of duopolistic competition for a homogeneous good equal import tariffs and quotas are compared with respect to resulting domestic prices the open loop and closed loop subgame perfect equilibria are derived the open loop game leads to domestic price equivalence however the closed loop game does not unless firms are myopic or the number of domestic firms becomes large thus we prove that the equivalence for static cournot competition does not carry over to the dynamic case

brand loyalty and market equilibrium two concepts of brand loyalty are defined inertial brand loyalty resulting from time lags in awareness and cost based brand loyalty resulting from intertemporal utility effects their market level implications are formally derived in a continuous time model it is found that inertial brand loyalty leads to equilibria with price dispersion while cost based brand loyalty also may allow single price equilibria in all cases as brand loyalty vanishes so does the difference between the average trading price and the price which obtains with no brand loyalty consistent with empirical results the theory predicts that the relationship between market share and performance is positive in cross sectional studies but flat in time series studies the theory is also consistent with the view that market share is an asset in itself after developing the theory several strategic implications are drawn in the end some questions for further theoretical and empirical research are raised

sticky prices in a dynamic oligopoly an investigation of s s thresholds abstract the strategic implications of costly price adjustment are investigated empirically i assume that managers are engaged in a state space game and ask if the dynamic considerations that arise when they condition their choices on the state cause prices to be more or less rigid than when players use more myopic pricing rules the answer to this question depends on a parametric specification of the problem that lends itself to empirical assessment the micro panel data used to investigate this issue consist of weekly prices sales costs and promotional activity for three brands of saltine crackers sold by four chains of grocery stores in a small us town i find that in this market strategic behavior exacerbates price rigidity the thresholds are wider and the time between changes is longer than would be observed in a more myopic setting

fixed rules and decision rules time consistency and subgame perfection the paper investigates the relationship between time consistency and subgame perfection we show that despite some suggestions in the literature the two are not equivalent subgame perfection is a stronger refinement the paper also discusses the classes of games in which time consistency and subgame perfection are equivalent

prisoner s dilemma on behavioral choices in the presence of sticky prices farsightedness vs myopia abstract when making decisions in a dynamic environment myopic supply chain members tend to ignore the future effects of their decisions on the evolution of state dynamics by contrast far sighted decision makers consider about the impacts of current decisions on both current profits and future profits in order to study how behavioral choices affect the operation decisions and profits of supply chain members we develop a differential game with sticky prices where one manufacturer purchases components from one supplier and makes final products for end customers the supplier decides on its wholesale price while the manufacturer sets its production quantity either of supply chain members has two behavioral choices myopia and farsightedness we derive and compare equilibrium solutions under four different behavioral combinations our analysis shows that there always exists a prisoner s dilemma caused by behavioral choices farsightedness is a dominant strategy for either the supplier or the manufacturer but both to act myopically makes both of them better off furthermore comparing with other scenarios the whole supply chain obtains the highest profit when both players are myopic in addition we introduce a revenue sharing contract with static wholesale price to mitigate the adverse impacts of the prisoner s dilemma

competitive dynamic advertising a modification of the case game abstract in this paper we consider a modified version of the advertising differential game of case 1979 we derive non cooperative nash equilibria for open loop controls as well as for feedback strategies we consider finite and infinite planning horizons the feedback equilibrium is shown to be robust against stochastic disturbances of the state equation

mixed oligopoly with consistent conjectures abstract in this paper we consider a model of mixed oligopoly with conjectural variations equilibrium cve the agents conjectures concern the price variations depending upon their production output s increase or decrease we establish existence and uniqueness results for the conjectural variations equilibrium called an exterior equilibrium for any set of feasible conjectures to introduce the notion of an interior equilibrium we develop a consistency criterion for the conjectures referred to as influence coefficients and prove the existence theorem for the interior equilibrium understood as a cve with consistent conjectures to prepare the base for the extension of our results to the case of non differentiable demand functions we also investigate the behavior of the consistent conjectures in dependence upon a parameter representing the demand function s derivative with respect to the market price

dynamic oligopoly with capacity adjustment costs abstract the literature on strategic investment emphasized the case of completely irreversible investment this paper considers an oligopoly model in which investment is reversible and capacity is subject to adjustment costs an n player linear quadratic differential game is analyzed existence and characterization results for perfect equilibrium feedback strategies are provided feedback strategies provide incentives for each player to invest strategically so as to preempt subsequent expansion by rivals a larger set of perfect equilibria is constructed by using memory dependent trigger strategies equilibria of this type are shown to support joint value maximization for some initial states and asymmetric steady states

dynamic demand and noncompetitive intertemporal output adjustments abstract this paper integrates dynamics on the demand and on the supply side which are characteristic for many goods in particular fuels due to costly adjustments furthermore firms often pursue a quantity strategy and decide on output adjustments additional capacities etc instead of fixing prices e g opec moved from posting prices to adjusting output in 1986 this paper provides a corresponding framework surprisingly ignored in the literature and derives intertemporal market equilibria cooperative and noncooperative in open loop and in markov strategies the equilibrium in markov strategies is different mostly opposite to the much discussed sticky price models the qualitative properties are non trivial and some of them are even surprising e g increased demand sluggishness can raise supply

public versus private investment and growth in a hierarchical education system abstract the paper studies the interaction between public and private spending in a two stage education framework k 12 and tertiary education and their effects on economic growth we find that an increase in the overall education public spending crowds out the total level of private contributions and increases the share of resources that households devote to k 12 education for a given public budget a higher share of k 12 public funding induces higher private education spending overall of which a larger share goes towards higher education the model broadly matches data on education finance in the oecd countries the calibrated parameter values suggest that at both stages public and private inputs are good yet imperfect substitutes with a higher degree of complementarity in basic education we show that the growth maximizing share of public spending devoted to k 12 should be high irrespective of the size of the public budget using the calibrated model to compare the structure of education funding in the eu and the us we find that to maximize growth high tax countries should use more of their public resources in tertiary education relative to low tax countries this suggests that us efforts to improve k 12 education and the reform of higher education in europe are consistent with the objective of increased economic growth

on the markovian efficiency of bertrand and cournot equilibria we characterize and compare closed loop feedback price and quantity strategies within a full fledged dynamic model of oligopolistic competition in which production requires exploitation of a renewable productive asset unlike previous papers on the strategic exploitation of productive assets we allow for imperfect product substitutability which enables us to deal with price competition we show that the traditional result that the bertrand equilibrium is more efficient than the cournot equilibrium does not necessarily hold in a markovian environment either in the short run or at the stationary equilibrium or using the discounted sum of welfare as a criterion for relative efficiency

large shareholders monitoring and ownership dynamics toward pure managerial firms abstract we study ownership dynamics when the manager and the large shareholder both risk neutral simultaneously choose effort and monitoring level respectively to serve their non congruent interests we show that there is a wedge between the valuation of shares by atomistic shareholders and the large shareholder s valuation at the markov perfect equilibrium the large shareholder divests her shares if the incongruence of their interests is mild divestment is drastic all her shares are sold immediately if their interests diverge sharply the divestment is gradual in order to prevent a sharp fall in share price in the limit the firm becomes purely managerial

competition in a duopoly with sticky price and advertising abstract this paper develops a differential duopolistic game where price is sticky and firms can invest in market enlarging promotional activities which have a public good nature one finding indicates that advertising and not output as in fershtman and kamien econometrica 55 1987 1151 1164 is responsible for the higher stationary price found in the open loop equilibrium relative to the linear feedback one that is free riding is more intense when firms play linear markov feedback strategies however the collusive outcome can be approximated and opportunism eliminated if firms can engage in preplay negotiations where they select a nonlinear markov perfect strategy for output and advertising achieving the collusive outcome requires as in the folk theorem for infinitely repeated games the discount rate to be sufficiently small

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

could myopic pricing be a strategic choice in marketing channels a game theoretic analysis abstract we identify the conditions under which a myopic pricing behavior could be a profit enhancing tool in the distribution channel a channel member is myopic when he ignores the evolution of the retail prices when actual and past retail prices affect consumers purchasing decisions a differential game is formulated where channel members control transfer and retail prices we start by examining a bilateral monopoly and then introduce competition at the manufacturing level the competing manufacturers play a la nash and can be both myopic both farsighted or one myopic while the other is farsighted we show that for a bilateral monopoly myopia enhances total channel profit when the effect of the reference price is small enough this remains true under competition at the manufacturing level when products are differentiated enough

oligopoly exploitation of a private property productive asset abstract in this paper we build a closed loop nash equilibrium of a private property productive asset oligopoly we compare and contrast private with common property in terms of exploitation rates and social welfare and provide a comparative dynamic analysis with respect to the number of firms in the industry contrary to previous studies on oligopolistic exploitation of productive assets before exploitation begins the resource is parcelled out each firm privately owns and manages the assigned parcel over the entire planning horizon compared with the common property regime we find a new set of results both in the short and in the long run as for social welfare we provide conditions on the implicit growth rate and the initial asset stock under which the socially optimal allocation of the resource implies a natural monopoly

international aspects of pollution control pollution is a by product of production is only gradually dissolved by the environment and crosses national borders the market outcome ignores the adverse effects of pollution and thus yields higher levels of output and pollution than would prevail under a supranational social planner which does care about pollution in practice governments often do not cooperate and this leads to outcomes of pollution and production in between the market outcomes and the outcomes under supra national social planning absence of precommitment leads to lower emission charges less cleaning up activities and more pollution appropriate levels of emission charges under the various outcomes are a result of this analysis attention is also paid to investment in clean technology the debate between optimists who believe that higher production is compatible with sound environmental policy and pessimists can be analysed in this way