efficient search on the job and the business cycle the paper develops a model of directed search on the job in which transitions of workers between unemployment and employment and across employers are driven by heterogeneity in the quality of firm worker matches the equilibrium is such that the agents value and policy functions are independent of the endogenous distribution of workers across employment states hence the model can be solved outside of the steady state and used to measure the effect of cyclical productivity shocks on the labor market productivity shocks are found to generate large fluctuations in workers transitions unemployment and vacancies when matches are experience goods but not when matches are inspection goods

the value of hiring through employee referrals using personnel data from nine large firms in three industries call centers trucking and high tech we empirically assess the benefit to firms of hiring through employee referrals compared to nonreferred applicants referred applicants are more likely to be hired and more likely to accept offers even though referrals and nonreferrals have similar skill characteristics referred workers tend to have similar productivity compared to nonreferred workers on most measures but referred workers have lower accident rates in trucking and produce more patents in high tech referred workers are substantially less likely to quit and earn slightly higher wages than nonreferred workers in call centers and trucking the two industries for which we can calculate worker level profits referred workers yield substantially higher profits per worker than nonreferred workers these profit differences are driven by lower turnover and lower recruiting costs for referrals jel codes j24 m51 j30 j63

granger causality and policy effectiveness it is generally recognized that if a set of monetary and fiscal policy variables granger cause1 real economic variables this does not imply that alternative deterministic rules for determining the values of these policy instruments will alter the joint density function of the real variables 2 it has however also been asserted that letting x denote a suitably restricted vector of real economic aggregates g a list of monetary and fiscal policy variables and e the mathematical expectation operator

optimal government policy in a small open economy with rational expectations and uncertain election outcomes many of the major western economies have recently been engaged in monetary disinflation at the expense of considerable short term losses in output and jobs in some of these economies there are opposition parties which promise a greater emphasis on job creation and expansion of public expenditure programs when elected into office the possibility of a more keynesian political party gaining office in the near future might have dra matic consequences for the pre election outcomes of the economy for example if there is a chance that demand will be stimulated in the future the economy will anticipate the possibility of future budget deficits and rising future short term interest rates this implies a rise in current long real rates of interest which combined with the appreciation of the currency can aggravate the recession caused by the monetary disinflation package implemented by the incumbent political party 2 because the election outcome will not be known until all votes have been counted on the morning after the election the economy will jump onto a new trajectory in order to take account of the election news it is clear therefore that future political uncertainty can cause major fluctuations in the current state of the economy however most of the literature on political business cycles e g nordhaus 1975 macrae 1977 van der ploeg 1984b assumes that the private sector is backward looking so that the effects described above do not occur instead this literature assumes that the incumbent political party attempts to secure re election by maximizing the expected number of votes cast in its favour at the forthcoming election and to exploit lags due to adaptive expectations the government can then fool the electorate by judiciously depressing output in the early part of its term in office in order to force down the expected rate of inflation and by engineering a boom without too many adverse inflationary consequences

long term bilateral monopoly the case of an exhaustible resource we construct a model of long term bilateral competition between the supplier of an exhaustible resource and a consuming country capable of producing a perfect substitute for the resource the technology for producing the substitute is known and the strategy of the consuming country is to choose an investment program for installing the substitute we derive equilibrium configurations of investment and extraction for the case of linear demand under three scenarios 1 the resource supplier is a von stackelberg leader 2 the consuming country is a von stackelberg leader and 3 buyers and sellers of the resource engage each other period by period a comparison of these cases reveals incentives for long term commitment on the part of one or both parties and also suggests that there may be gains from strategic intervention into resource markets by governments of consuming nations

methods for robust control robust control allows policymakers to formulate policies that guard against model misspecification the principal tools used to solve robust control problems are state space methods see hansen l p sargent t j 2008 robustness princeton university press giordani p soderlind p 2004 solution of macromodels with hansen sargent robust policies some extensions journal of economic dynamics and control 28 12 2367 2397 in this paper we show that the structural form methods developed by dennis 2007 optimal policy rules in rational expectations models new solution algorithms macroeconomic dynamics 11 1 31 55 to solve control problems with rational expectations can also be applied to robust control problems with the advantage that they bypass the task often onerous of having to express the reference model in state space form in addition we show how to implement two different timing assumptions with distinct implications for the robust policy and the economy we apply our methods to a new keynesian dynamic stochastic general equilibrium model and find that robustness has important effects on policy and the economy

a little bit more evidence on the natural rate hypothesis from the u k abstract the evidence for the neutrality of anticipated changes in monetary policy in the u k over the period 1963q1 1982q1 is examined breaks in the stochastic process generating the money stock are used to identify the model the results are generally unfavourable to the proposition that only unanticipated money matters

models of policy under stochastic replanning this paper considers a policy environment in which policy is not set by a single policymaker but by a sequence of policymaking administrations administration turnover is determined by a simple random process the consequences of administration turnover are traced through for two versions of a linear rational expectations model and numerical simulations of various policy environments are presented this abstract was borrowed from another version of this item

filling a gap in traditional transaction cost economics towards transaction benefits based analysis abstract this paper analyzes dyadic partnership formation between asymmetric buyers and specialized suppliers in the first part of the paper different economics of organization based approaches are evaluated their basic implications concerning the rise of partnerships are derived in the second part a dynamized transaction cost and benefit model is introduced to analyze the most critical elements of a typical partnership decision the final part is based on insights from practice and in depth interviews among 12 specialized suppliers and their four large incumbent partners in the information and telecommunications industry

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

resources transactions and rents managing value through interfirm collaborative relationships this paper offers a theoretical explanation for why interfirm collaborations form yet fail and further suggests how firms might manage them for a more positive outcome based on a perspective of value we explain how a more inclusive and integrative perspective one which combines elements from transaction costs and resource based theory provides more robust insight into collaboration formation management and instability in doing so we differentiate rent yielding firm specific assets at the core of the resource based view from the transaction specific assets at the core of transaction cost theory the paper makes a crucial distinction between the potential value attainable through collaborations and its actual realization the crux of our argument is that firms enter into collaborative relationships because these are expected to yield superior value relative to alternate organizational forms in certain situations offering potentially synergistic combinations of complementary resources and capabilities yet such relationships are frequently prone to failure because the partner firms tend not to recognize ex ante the nature and extent of transaction specific investment that is required in the collaborative relationship to attain these synergies in our argument critically the relationship between organizations is seen not simply as a governance structure of a hybrid nature but more importantly as a productive resource for value creation and realization in this light transaction specific investment in what we term relational specificity becomes imperative in the search for value we explain why the transaction costs incurred in the exchange of resources are not independent of the nature of resources to be transacted and similarly why the returns realized from these resources are not independent of the relationship and transaction specific expenditures incurred in effectively combining them and maintaining the combination the interdependence between the two mediated by the quality of the relationship has direct implications for the earning of rents through collaborations these relationship specific expenditures can be of an internally generated nature endogenous to the alliance form itself and need not exceed alternative forms while the associated benefits have the capacity to potentially exceed the alternatives this translates into potentially superior value the paper contributes in three key related ways a the explicit recognition of the relationship as a value bearing asset embedded in a larger and endogenous institutional context namely a system of resource relationships both intraorganizational and inter organizational among partner firms and the collaboration b the recognition of the evolving relationship between production and exchange which at the level of the collaboration is directly dependent on the nature evolution and dynamics of the relationship among the parties to the transaction and c the provision of a nontrust explanation for why firms might knowingly forego opportunities to take advantage of their partners drawing from this the paper occasions a a shift in focus from the form to the process of governance which has direct implications for value creation and realization and b a shift in the primary identity of transaction specific and relationship specific expenditures from cost to investment in future value

the international monetary system an analysis of alternative regimes abstract this is an exercise in the positive economics of alternative monetary regimes the behavior of output and prices is compared using a stochastic specification which allows asymptotic variances to be obtained without difficulty free floating of exchange rates together with national money supply targets is analyzed first with and without the presence of fads in the exchange rate two alternatives for monetary coordination are then considered first is mckinnon s proposal to fix nominal exchange rates and stabilize aggregate monetary growth or average inflation second is williamson s system of target zones for stable real exchange rates complemented by nominal income targets for fiscal policy

education ranking and competition for jobs i study workers incentives to invest in general human capital education in the presence of search induced unemployment workers queue for jobs and firms prefer to hire the most productive applicants because of rent sharing as a result an unemployed worker s ranking relative to other job seekers will influence his job finding rate this creates a rat race where workers invest in education partly in order to achieve a better ranking in equilibrium identical workers may have incentives to diversify in terms of education and the investments in education may exceed the socially optimal level

optimal anti inflation programs in semi industrialized economies orthodox versus heterodox policies abstract the paper characterizes the optimal time consistent anti inflation program in a small open semi industrialized economy when policy makers choose the rate of exchange rate crawl the rate of change of fiscal spending and a wage and price control parameter to minimize deviations of output and inflation the optimal program involves a rapidly decelerating rate of crawl a sharp reduction in spending and a short initial period of wage and price controls the paper also assesses the importance of controls in helping to reduce the output loss associated with fighting inflation

it s about time implications of the period length in an equilibrium search model empirical evidence suggests that transitions between employment states are highly clustered around the first day of each workweek or month i analyze the effect of this phenomenon by presenting an equilibrium search model in which the period length is a parameter determining the degree of clustering infinitesimally short periods result in a continuous time model with bilateral meetings whereas longer time periods introduce the possibility of recall or simultaneity of job offers in this environment i show that the period length has a profound effect on equilibrium outcomes including the unemployment rate unemployment duration and the cross sectional wage distribution

the general equilibrium impacts of unemployment insurance evidence from a large online job board abstract during the great recession u s unemployment benefits were extended by up to 73 weeks theory predicts that extensions increase unemployment by discouraging job search a partial equilibrium effect using data from the large job board careerbuilder com i find that a 10 increase in benefit duration decreased state level job applications by 1 but had no robust effect on job vacancies job seekers thus faced reduced competition for jobs a general equilibrium effect calibration implies that the general equilibrium effect reduces the impact of unemployment insurance on unemployment by 39

job search and unemployment insurance new evidence from time use data article i nfo this paper provides new evidence on job search intensity of the unemployed in the u s modeling job search intensity as time allocated to job search activities the major findings are 1 the average u s unemployed worker devotes about 41 min to job search on weekdays which is substantially more than their european counterparts 2 workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker 3 across the 50 states and d c job search is inversely related to the generosity of unemployment benefits with an elasticity between 1 6 and 2 2 4 job search intensity for those eligible for unemployment insurance ui increases prior to benefit exhaustion and 5 time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for ui

foreign direct investment with unemployment and endogenous taxes and tariffs it is well known that high tariffs can induce foreign direct investment or tariff jumping this paper analyzes tariff jumping in the context of a host government which can set specific tariffs and taxes subject to the credibility constraint that the chosen levels be optimal once capital is irreversibly in place the foreign multinational is assumed to choose its location and level of investment strategically taking into account the induced tax and tariff levels in the presence of unemployment the optimal tariff exceeds the optimal tax for any given level of capital investment leading to foreign direct investment

james tobin an appreciation of his contribution to economics jim tobin who died on march 11 2002 at the age of 84 was one of giants of economics of the second half of the twentieth century and the greatest macroeconomist of his generation tobin s influence on macroeconomic theory is so pervasive so much part of our professional acquis that many younger economists often are not even aware that it is his ideas they are elaborating testing criticising refuting or re inventing in this appreciation i consider tobin s scholarly contributions made over a period of more than 50 years tobin received the 1981 nobel memorial prize for his analysis of financial markets and their relations to expenditure decisions employment production and prices i consider his contributions to mean variance portfolio demand and asset pricing theory especially the portfolio separation theorem pitfalls in financial model building portfolio balance and flow of funds models and the credit channel the life cycle model and social security econometric methodology including the tobit estimator and his pioneering work using both time series and cross sectional data to estimate food demand functions economic growth tobin s q the tobin tax the monetary and fiscal policy effectiveness debate first with milton friedman and then with the new classical macroeconomics and real business cycle schools and tobin s approach to methodological questions including microfoundations and aggregation

macroeconomic policy design and control theory a failed partnership my subject is the applicability of control theory to the pressing questions of macroeconomic policy design that face us both domestically and in the international arena i approach the issue with some trepidation conscious that i am a relative amateur in control matters i am also mindful of the dangers of claiming too much in the field of policy design those were nicely stated in a broader context by that eminent biologist sir peter medawar i984 when he wrote

directed search with multiple job applications we develop an equilibrium directed search model of the labor market where workers can simultaneously apply for multiple jobs the main result is that all equilibria exhibit wage dispersion despite the fact that workers and firms are homogeneous wage dispersion is driven by the simultaneity of application choice risk neutral workers apply for both safe and risky jobs the former yield a high probability of a job oer but for low pay and act as a fallback option the latter provide with higher potential payo but are harder to get furthermore the density of posted wages is decreasing consistent with stylized facts unlike most directed search models the equilibria are not constrained ecient

toward a theory of vacancies we attempt to further characterize the search strategies of the employer in the article we discuss how characteristics of the employer or conditions that the employer faces affect the optimal search strategies and the probability of filling a vacancy in each period semiparametric and parametric methods are used to estimate hazard rates of filling vacancies the results suggest that for the given sample of vacancies the general form of the hazard function is nonmonotonic additionally the results suggest that those employers who have advance notice of the vacancy may search longer than those employers who do not

occupational and job mobility in the us we propose a new methodology to measure worker mobility across occupations and jobs in the us building on the limited longitudinal dimension of monthly cps data for the period 1979 2006 we find that about 3 5 of male workers employed in two consecutive months report different three digit occupations this rate is procyclical mildly rising in the 1980s and falling after 1995 we also revise upward current estimates of aggregate job to job mobility since 1994 from 2 7 to 3 2 of employment per month despite extreme similarity of average levels and time series behavior occupational and job mobility are only weakly correlated

transaction cost economics and beyond towards a new economics of the firm in recent years transaction costs economics have come to dominate the discussion of the nature and organization of firms in transaction costs economics and beyond michael driscoll offers a critical exploration of transaction costs he argues that whilst they have much to offer they are still an inadequate basis for a general theory of the firm drawing on theories of organizational behaviour as well as economics he concludes by offering a theory of the firm that allows for both hierarchical and creative decision making

robust control of forward looking models abstract this paper shows how to formulate and compute robust ramsey aka stackelberg plans for linear models with forward looking private agents the leader and the followers share a common approximating model and both have preferences for robust decision rules because both doubt the model since their preferences differ the leader s and followers decision rules are fragile to different misspecifications of the approximating model we define a stackelberg equilibrium with robust decision makers in which the leader and follower have different worst case models despite sharing a common approximating model to compute a stackelberg equilibrium we formulate a bellman equation that is associated with an artificial single agent robust control problem the artificial bellman equation contains a description of implementability constraints that include euler equations that describe the worst case analysis of the followers as an example the paper analyzes a model of a monopoly facing a competitive fringe

governance strategies and transaction costs in a renovated electricity market abstract this study applies a transaction cost economics tce framework to examine how economic agents adopt governance strategies in brazil s recently renovated electricity market in light of a well established tce model four attributes of transactions i e asset specificity uncertainty complexity and frequency are examined for three unregulated transactions between generating firms and final consumers the qualitative analysis of attributes unfolds into a comparative analysis of theory predicted governance strategies versus strategies observed in the marketplace it is argued that williamson s model continues to effectively predict the most efficient governance strategy in the sense of minimizing transaction costs and safeguarding idiosyncratic assets misalignment between theory predictions and observations however suggests that two additional concepts implementability and reputation must be examined alongside with williamson s four attributes of transactions in order to better explain strategic decisions in brazil s electricity market capital availability existence of compatible partners and reputation play crucial roles in explaining those decisions

real effects of anticipated and unanticipated money some problems of estimation and hypothesis testing abstract the paper addresses two issues that arise in estimation and testing of the real effects of anticipated and unanticipated money first it is shown that identification of the effects of unanticipated or unperceived monetary growth on real output is possible only if the a priori restriction is imposed that monetary growth does not depend on unanticipated or unperceived output second the existing empirical work of barro and others does not allow for three known channels through which money can affect real variables these are 1 past and present anticipations of future monetary growth the inflation tax channel 2 expectations of monetary growth in a given period conditioned at various preceding dates the fischer phelps taylor effect and 3 past and present revisions in forecasts of future monetary growth the presence of the first of these would mean that alternative open loop monetary growth rules have real effects the presence of the other two implies that monetary feedback rules can have real effects omission of the first channel can lead to biased estimates of the effects of past anticipated monetary growth potentially serious observational equivalence problems are associated with the other two

transaction cost determinants and ownership based entry mode choice a meta analytical review entry mode choice is a critical ingredient of international entry strategies and has been voluminously examined in the field the findings however are very mixed especially with respect to transaction cost related factors in determining the ownership based entry mode choice this study conducted a meta analysis to quantitatively summarize the literature and empirically generalize more conclusive findings based on the 106 effect sizes of 38 empirical studies the meta analysis shows that the findings of the existing studies are moderated to varying degrees by both study setting factors and statistical artifacts although the combined overall effects of transaction cost based determinants are consistent with the predictions of transaction cost economics we extensively discuss the implications of meta analytical results especially moderating effects of location country of origin industry type and statistical artifacts highlight the measurement adequacy equivalence and multidimensionality of transaction cost determinants and present our suggestions to improve theoretical inquiries and empirical verifications on entry mode choice

loss of monetary discretion in a simple dynamic policy game abstract we analyze a simple policy game featuring monetary credibility problems and argue that loss of monetary discretion is not advantageous two elements form the basis of our analysis firstly we endogenize the source of credibility problems and secondly we consider a dynamic framework where credibility problems are not time invariant by doing this we are able to demonstrate that credibility problems are temporary and in steady state the government has removed these through sound policies a binding policy rule will only serve as an obstacle towards this steady state

time consistent control in non linear models abstract the paper shows how to use optimal control to compute optimal time consistent markovian government policies in nonlinear dynamic general equilibrium models it extends cohen and michel s 1988 results for the linear quadratic case the method involves replacing private agents costate variables with flexible functions of current state variables in the government s maximization problem the functions hold in equilibrium to an arbitrarily close approximation they can be found numerically by perturbation or projection methods a stochastic model of optimal public spending illustrates the technique

do contingent rules really dominate fixed rules in the following pages we examine the generality of the proposition buiter i98i that innovation contingent or feedback or closed loop policies are always superior to non innovation contingent or fixed or open loop policies in the design of stabilisation programmes unless i they arbitrarily increase the randomness of current and future policy instruments or ii the authorities either pursue the wrong objectives or else pursue the right objectives in an inept manner what is at stake here is the general presumption that acting on more information is necessarily beneficial to the economic agent in order to tackle the question we bring together two strands of the literature that have so far remained largely separate first the optimum control strand which discusses policy within a framework where the authorities are assumed to be stackelberg leaders and the public stackelberg followers e g buiter i98i miller i984 and in which the proposition under scrutiny has been proved second the recent suggestion by barro and gordon i983 a b that the policy game in the absence of pre commitments may be better approximated by a nash non cooperative equilibrium between the authorities and private agents on the grounds that it is the only incentive compatible notion in this case the solution to the game is constructed in such a way that in equilibrium each agent is maximising his utility given the strategy chosen by the opponent i e each player has chosen his best reply to the other players moves it will be shown here that once a nash equilibrium is assumed contingent policies do not dominate fixed policies in the process it will also become apparent that once innovation contingent responses are allowed for barro and gordon s argument against discretionary policy is strengthened even if the deterministic component of the nash policy is non inflationary its innovationcontingent part is counterproductive in other words even if the authorities aim at stabilising output at and not above the natural rate or equivalently do not derive utility from positive deviations from the natural rate the absence of precommitment entails a welfare loss in section i we briefly discuss the relationship between information and precommitment and rules versus discretion to avoid misunderstanding of the thrust of our analysis in sections ii iv we demonstrate the central proposition in two different classes of models first in models as in buiter i98i wlhere the decision takers are restricted to react to exogenous shocks with a one peried lag second in models e g b friedman i977 and courakis i984 where while still unable to observe directly the behaviour of the ultimate goal variables

optimal feedback rules in an open economy macromodel with rational expectations this paper outlines procedures for deriving optimal time invariant linear feedback rules in continuous time linear stochastic models under rational expectations it also examines the derivation of optimal simple rules of a similar type these procedures are applied to an open economy model under rational expectations and the consequences of uncertainty about stochastic disturbance structures for policy design are considered the results indicate some preference for price level or nominal income rules rather than a monetary rule for the open economy

frictional assignment i efficiency abstract this paper examines the two sided matching problem where the agents on each side of the market are heterogeneous and the matching process is time consuming this is cast in a labor market setting where workers of different skills match with different machine qualities i characterize the efficient allocation and then show that it can be decentralized by a market mechanism the efficient assignment is not always positively assortative despite the fact that machine qualities and skills are complementary in production to decentralize the efficient allocation the market mechanism requires the firms to post wages and commit each machine quality to a particular skill implications on wage inequality are briefly examined journal of economic literature classification numbers j31 e24 j64

intertemporal substitution and the role of monetary policy new classical macroeconomists have asserted that once one ignores the consequences of sustained expected inflation or what is normally referred to as the tobin effect or inflation tax monetary policy is invariably ineffective both in the long and short run this view is not correct it will be shown that inflation tax free monetary policy rules can have strong stabilisation effects in rational expectations models with intertemporal substitution the best way to eliminate possible inflation tax effects of monetary growth is to assume that as in barro s i976 model the long run expected rate of growth of the money supply is zero more generally if one were concerned exclusively with the effectiveness of stabilisation policy in the new classical sense i e the capability of influencing deviations of actual equilibrium output from its full information level it would be sufficient to postulate that money transfers are simply proportional to pre existing money holdings the a priori exclusion of the tobin effect as a pre requisite for the new classical doctrine is clearly stated in lucas i98i

dynamic games and the time inconsistency of optimal policy in open economies it has been argued that the bretton woods system of pegged but adjustable exchange rates set up after world war ii was designed specifically to prevent the manipulation of exchange rates in pursuit of national macroeconomic objectives see r cooper so it is perhaps no coincidence that the ending of pegged rates has led to the re emergence of theories and policies involving such manipulation before the war when inflation was low and unemployment high in the major industrialised nations this involved competitive depreciation as countries tried to gain employment in the late 1970 s and early 1980 s however countries like the uk and the us have embarked on policies of competitive appreciation in order to cut inflation regarded as the first priority sharp movements in exchange rates however constitute a threat to orderly trade and stimulate protectionism as bergsten 1981 argues this abstract was borrowed from another version of this item

the close but adversarial model of supplier relations in the u s auto industry while cooperative buyer supplier relations are an important source of sustainable competitive advantage noncooperative behavior persists widely this paper tests a model incorporating noncooperative behavior within a context of formal commitment using data from the u s auto industry this close but adversarial model appears to be reasonably well supported by the data suggesting that even within professed cooperative buyer supplier relationships adversarial behavior persists in contrast a small but significant minority of the relationships were found to be characterized by high levels of trust as well as informal commitment the results suggest specific strategies for developing cooperative supplier relations 1998 john wiley sons ltd

sorting versus screening search frictions and competing mechanisms in a market where sellers compete by posting trading mechanisms we allow for a general search technology and show that its features crucially affect the equilibrium mechanism price posting prevails when meetings are rival i e when a meeting by one buyer reduces another buyer s meeting probability under price posting buyers reveal their type by sorting ex ante only if the meeting technology is sufficiently non rival price posting is not an equilibrium multiple buyer types then visit the same sellers who screen ex post through auctions

efficiency of simultaneous search this paper presents an equilibrium labor search model in which workers can simultaneously apply to multiple firms to increase their search intensity they observe firms wage postings before choosing where to apply owing to coordination frictions a firm may not receive any applications otherwise it is able to hire unless all its applicants have better offers it is shown that the equilibrium converges to the efficient walrasian outcome as application costs vanish even for nonnegligible application costs the entry of firms the search intensity and the number of filled vacancies are constrained efficient wage dispersion is essential for constrained efficiency

crossroads the organization of economic activity transaction costs firm capabilities and the nature of governance in a recent 1993 paper in organization science hennart discussed the underlying logic based on transaction cost and agency theory for explaining the choice between firms and markets and the reason why most transactions have both firm like and market like properties relying on williamson s comparative institutional approach which studies economic organization from a transaction cost minimizing point of view under the assumption of opportunism the argument was made that transaction cost tc logic provides a complete theory of the organization of economic activity in this paper i argue that with its purely incentive based logic governed by assumptions of opportunism tc economics is fundamentally incapable of being a complete theory of economic organization the notion of the firm as a bundle of transactions or contracts is an inadequate and shallow basis for a theory of the firm since it basically ignores the essential notion of the firm as a bundle of knowledge and the underlying processes there

incentives in competitive search equilibrium this paper proposes a labor market model with job search frictions where workers have private information on match quality and eort firms use wage contracts to motivate workers in addition wages are also used to attract employees we de ne and characterize competitive search equilibrium in this context and show that it satis es a simple modi ed hosios rule the model is used to address the shimer puzzle related to the low volatility of the unemployment rate relative to the volatility of output observed in the data we nd that private information may increase the responsiveness of the unemployment rate to changes in productivity and in particular to changes in

optimal monetary policy rules in a rational expectations model of the phillips curve using a rational expectations model based on a phillips curve with persistence in inflation we derive optimal monetary policy rules under both commitment and discretion we assume that the central bank targets the natural rate of output so there is no incentive generating an average inflation bias with commitment inflation has less persistence but more conditional variability whereas output has more persistence and less conditional variability than with discretion as the commitment strategy stabilizes the systematic component of inflation it is less responsive to random shocks to inflation

output the stock market and interest rates this paper develops a simple model of the determination of output the stock market and the term structure of interest rates the model is an extension of the is lm model and borrows from it the assumption that output is determined by aggregate demand and that the price level can only adjust over time to its equilibrium value however whereas the is lm emphasizes the interaction between the interest rate and output this model emphasizes the interaction between asset values and output asset values rather than the interest rate are the main determinants of aggregate demand and output current and anticipated output and income are in turn the main determinants of asset values it is this interaction that the model intends to capture its goal is to characterize the joint response of asset values and output to changes in the environment such as changes or announcement of changes in monetary and fiscal policy as the above brief description makes clear anticipations are central to the story the assumption made in this paper will be one of rational expectations the paper is organized as follows section i describes the model and sections ii iv characterize the behavior of the economy under the extreme but convenient assumption that prices are fixed forever sections v and vi extend the analysis to the case where prices adjust over time to their equilibrium value

holdups and efficiency with search frictions a natural holdup problem arises in a market with search frictions firms have to make a range of investments before finding their employees and larger investments translate into higher wages in particular when wages are determined by ex post bargaining the equilibrium is always inefficient recognizing that capital intensive production relations have to pay higher wages firms reduce their investments this can only be prevented by removing all the bargaining power from the workers but this in turn depresses wages below their social product and creates excessive entry of firms in contrast to this benchmark we show that efficiency is achieved when firms post wages and workers can direct their search toward more attractive offers this efficiency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage offers we show that the underlying reason for efficiency is not wage posting per se but the ability of workers to direct their search toward more capital intensive jobs

fiscal and monetary policy co ordination a differential game approach in this paper the interaction between the treasury and the central bank is examined in the case of both cooperative and non cooperative behaviour differential games are used in the framework of a continuous time econometric model of the italian economy the nash and the stackelberg non cooperative equilibrium solutions are computed and the case for cooperation is analysed by considering the nash and the kalai smorodinsky bargaining models it is shown that in the italian case the government has a stronger bargaining position than the central bank a comparison is then made between the different solutions to show that the drawbacks that emerge from non cooperation are not simply those depending on the players payoffs other features are in fact considered which constitute a further argument for policy co ordination

rules commitment and the search for stable money a review essay political economists have always criticized existing monetary institutions and struggled to articulate a vision of an ideal monetary system the volume under review the search for stable money essays on monetary reform edited by james a dorn and anna j schwartz university of chicago press 1987 stands firmly in this tradition it addresses the shortcomings of modern monetary institutions and debates the merits of various alternative arrangements the volume consists of nineteen essays and a number of short comments among the contributors are three nobel prize winners buchanan friedman and hayekthough buchanan simply comments on bernholz generally speaking the essayists disapprove of the virtually unlimited discretion invested in the federal reserve they argue that discretion leads to unnecessarily high and variable rates of inflation the essayists also agree that the solution ought to take the form of a change in the political rules which would have the effect of limiting government control over the monetary system beyond this there is no consensus the contributors consider money growth rules the gold standard a proposal for a compensated dollar and competitive currency systems but often find one another s proposals as objectionable as the status quo the essays in this volume are about five years old with the exception of the introductory piece by james dorn each was originally published elsewhere most originally appeared in the cato journal in 1983 sometimes the age of the essays shows careful analysis of federal reserve policy in 1981 82 was no doubt of topical interest when the essays were written but is less so now

optimally derived fixed rules and indicators abstract monetary targets have come to be regarded as inadequate for the conduct of short term monetary policy both among theoreticians and practitioners of policy in this paper two approaches are put forward analysed and evaluated for improving the performance of monetary targets according to the first approach simple rules for monetary targets are derived within an optimisation framework these rules related to ultimate targets are simple so that they can be announced and are flexible so that they are subject to revision when the economy drifts away from its course due to unexpected shocks the second approach is based on indicators and complements monetary targets with exchange rate targets through a simple feedback law for determining interest rate policy the advantage of this feedback law is that it provides the mechanism through which policy is to be revised in response to shocks if such a feedback law is announced private economic agents have the means of distinguishing discretionary and arbitrary changes of policy from those which are needed to bring the economy back to the announced and committed course this approach is used to analyse and extend the suggestions in the house of commons report on international monetary arrangements the common ground between the two approaches is an optimisation framework with respect to the parameters of either the fixed simple rules or the simple feedback laws this is discussed in section 1 the approach of deriving simple fixed rules is illustrated in a monetarist model in which there is a link between private sector expectations and the credible announcement of monetary targets the model is explained in section 2 and simple fixed rules are discussed in section 3 the performance of simple rules for monetary targets is evaluated in terms of a minimax strategy with model uncertainty between the monetarist model and a keynesian model without the assumption of announcement effects this is discussed in section 4 optimal feedback laws are derived and analysed in section 5 the parameter sensitivity of these feedback laws with respect to the model and the objective function as well as their behaviour under shocks is also examined

the assignment of workers to jobs in an economy with coordination frictions this paper studies the assignment of heterogeneous workers to heterogeneous jobs owing to the anonymity of a large labor market workers use mixed strategies when applying for jobs this randomness generates coordination frictions two workers may apply for a particular job whereas an identical job gets no applications the model generates assortative matching with a positive but imperfect correlation between matched workers and firms types it predicts that a worker s wage is increasing in her job s productivity and a firm s profit is increasing in its employees productivity the model also yields a version of the welfare theorems

debt contingent inflation contracts and targets abstract this paper analyzes fiscal and monetary policy interaction in a simple policy game with debt and output shocks seigniorage provides revenue for the government but results in an inflation bias we analyze three mechanisms designed to eliminate some or all of the biases in monetary policy an inflation performance contract inflation target both contingent on the stock of debt and a zero inflation rule the performance contract and inflation target result in higher interest rate remove all biases in monetary policy and achieve the pre commitment policy hence they are equivalent the first two solutions also yield a higher expected welfare than a zero inflation policy

applications and interviews firms recruiting decisions in a frictional labour market i develop a directed search model to study the recruitment decisions of firms competing for workers who ex post differ in two dimensions 1 their match productivity and 2 their probability of accepting a job offer endogenously determined by their choice of application portfolio to attract these workers firms post a recruiting intensity and a hiring standard in addition to terms of trade a higher recruiting intensity is costly but allows the firm to select more applicants for an interview which reveals their productivity the hiring standard solves the tradeoff between immediate hiring and waiting for a potentially better match in the future i characterize equilibrium and find that various outcomes including uniqueness of equilibrium and the cyclicality of recruiting intensity crucially depend on firms recruiting cost and workers search cost calibration of the model to the u s labour market indicates a continuum of equilibria given selection of a particular equilibrium hiring standards are countercyclical while recruiting intensity is procyclical the calibrated model creates more amplification than a standard model without intensive margins and gives rise to procyclical match efficiency when viewed through the lens of a cobb douglas matching function

pricing and matching with frictions suppose that n buyers each want one unit and m sellers each have one or more units of a good sellers post prices and then buyers choose sellers in symmetric equilibrium similar sellers all post one price and buyers randomize hence more or fewer buyers may arrive than a seller can accommodate we call this frictions we solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow the matching function displays decreasing returns but converges to constant returns we argue that the standard matching function in the literature is misspecified and discuss implications for the beveridge curve

search costs and efficiency do unemployed workers search enough many labor market policies affect the marginal benefits and costs of job search the impact and desirability of such policies depend on the distribution of search costs in this paper we provide an equilibrium framework for identifying the distribution of search costs and we apply it to the dutch labor market in our model the wage distribution job search intensities and firm entry are simultaneously determined in market equilibrium given the distribution of search intensities which we directly observe we calibrate the search cost distribution and the flow value of non market time these values are then used to derive the socially optimal firm entry rates and distribution of job search intensities from a social point of view some unemployed workers search too little due to a hold up problem while other unemployed workers search too much due to coordination frictions and rent seeking behavior our results indicate that jointly increasing unemployment benefits and the sanctions for unemployed workers who do not search at all can be welfare improving

the international transmission of policy announcement effects abstract this paper extends recent work on the effects of fiscal and monetary policy in two country models by considering an additional channel through which the effects of policy announcements may be transmitted the term structure of interest rates previous work suggests that policy announcements have no impact on worldwide aggregates and merely cause a redistribution of demand and output between the domestic and important impact effects on worlwide aggregates which necessarily introduces ambiguities concerning the effects of policy announcements on foreign output and employment

monetary nominal income and exchange rate targets in a small open economy abstract in this paper i examine the properties of monetary nominal income and exchange rate targets as stabilization policies in an open economy perfect capital mobility and a wide variety of transitory random shocks is assumed nominal wages are assumed to have been set in advance of the realization of the shocks none of these rules is in general sufficient to minimize the welfare cost of aggregate fluctations and none necessarily dominates all others under the assumption that monetary control is subject to random errors optimal policy implies reactions to all observable shocks and is characterized by heavy exchange market intervention

the establishment level behavior of vacancies and hiring this paper is the first to study vacancies hires and vacancy yields at the establishment level in the job openings and labor turnover survey a large sample of u s employers to interpret the data we develop a simple model that identifies the flow of new vacancies and the job filling rate for vacant positions the job filling rate moves counter to aggregate employment but rises steeply with employer growth rates in the cross section it falls with employer size rises with worker turnover rates and varies by a factor of four across major industry groups we also develop evidence that the employer level hiring technology exhibits constant returns and that at the employer level and that employers rely heavily on other instruments in addition to vacancies as they vary hires we also develop evidence that effective recruiting intensity per vacancy varies over time accounting for about 41 of movements in aggregate hires in the 2007 to 2009 period our evidence and analysis provide useful inputs for assessing developing and calibrating theoretical models of search matching and hiring in the labor market

the dynamics of government abstract we model income redistribution with dynamic distortions as determined by rational voting without commitment among individuals of different types and income realizations we find that redistribution is too persistent relative to that chosen by a planner with commitment the difference is larger the lower is the political influence of young agents the lower is the altruistic concern for future generations and the lower is risk aversion furthermore there tends to be too much redistribution in the political equilibrium finally smooth preference aggregation as under probabilistic voting produces less persistence and does not admit multiple equilibria which occur under majority voting aggregation

international policy design and the sustainability of policy bargains events of the past decade and the persistence of the worldwide recession have underlined the interdependence of the major economics competitive devaluations first illustrated the dangers of unilateral decisions and politicians have regularly called for concerted policies since the bonn economic summit in 1978 economic theory has shown that coordinated policies can bring gains but the question of whether those gains will be significant and how they will be distributed remains unanswered remarkably few empirical results on how interdependence should affect policy design or even on the signs of spillovers between economies have been produced this paper estimates the costs of uncoordinated policies to the us and eec economies and also the potential gains and risks in cooperation it focuses particularly on the process of determining rational policy bargains and whether in an international context such bargains are likely to be sustainable

competence and contract in the theory of the firm abstract the coase williamson response to the question why do firms exist is based on the idea that transaction costs in viable firms are lower than they would be if production was coordinated through the market the explanatory focus of this argument is on the diminution of costs related to transactions between given individuals however this ignores the possibility of activities which are in principle non contractible including aspects of the process of production further the reliance on comparative statics in transaction cost theory downplays the distinctive kind and rate of human learning that takes place within firms this paper argues that work on organizational learning and cultural transmission reinforces a competence based explanation of the existence and relative efficiencies of firms and this approach can also provide answers to the original question posed by coase accordingly the development of a research program involving a conjoint evaluation of both competence based and transaction cost approaches is proposed

when does coordination pay abstract in a continuous time model of two symmetric open economies with a floating exchange rate we find that the pay off to macroeconomic policy coordination depends systematically on how heterogeneous is their inflation experience while monetary policy coordination improves welfare in handling a common rate of underlying inflation it exacerbates the time consistency problem arising when there are differences as is illustrated diagrammatically since the principle of certainty equivalence applies to time consistent policy in linear quadratic models we are also able to give a stochastic interpretation of the deterministic results

equilibrium coordination with discretionary policy making discretionary policymakers cannot manage private sector expectations and cannot coor dinate the actions of future policymakers as a consequence coordination failures can occur and multiple equilibria can arise in this paper we employ notions of self enforceability and learnability to motivate and identify equilibria of particular interest in discretionary policy problems exhibiting multiple equilibria central among these criteria are whether an equilib rium is robust to the formation of coalitions and whether it is learnable by private agents and jointly learnable by private agents and the policymaker unless the pareto preferred equilibrium is learnable by private agents we find little reason to expect coordination on that equilibrium

the superiority of contingent rules over fixed rules in models with rational expectations the paper investigates the robustness of the proposition that in stochastic models contingent or feddback rules dominate fiped or openloop rules four arguments in favour of fixed rules are considere 1 the presence of an incompetent op malevolent policy maker 2 a trade off between flexibility and simplicity or credibility 3 the new classical proposition that only unanticipated stabilization policy has real effects 4 the time inconsistency of optimal plans in non causal models that is models in which the current state of the economy depends on expectations of future states the main conclusion is that the rational expectations revolution represented by arguments 3 and 4 does not affect the potential superiority of time inconsistent closed loop policies over time inconsistent open loop policies the case against conditionality in the design of policy must therefore rest on argument 1 or 2 which predate the new classical macroeconomics

international macroeconomic policy coordination when policymakers do not agree on the true model the authors relax the assumption of the literature on international coordination that policymakers know the true model t wo countries will still be able to agree on a cooperative policy pack age that each believes will improve the objective function relative t o the nash noncooperative solution however the bargaining solution may move the target variables in the wrong direction these points ar e illustrated with monetary and fiscal multipliers taken from simulat ions of ten leading econometric models out of 1 000 possible combina tions of models that could represent u s beliefs non u s beliefs and the true model monetary coordination improves u s welfare in on ly 546 cases copyright 1988 by american economic association

macroeconomic policy evaluation and optimal control theory a critical review of some recent developments abstract this survey addresses the recent literature on the application of optimal control theory and game theory to macroeconomic policy evaluation and design this literature focuses on strategic interactions between governments and private agents engaged in dynamic non cooperative games and emphasizes such issues as precommitment credibility and reputation as important and endemic aspects of optimal policy design a dominant theme is the problem of dynamic inconsistency and the inferiority of an equilibrium in single stage full information games without commitment this may be alleviated in repeated games involving reputation effects and threat strategies designed to coerce rivals into pursuing particular strategies and to sustain a sequential equilibrium the type and characteristics of a sequential equilibrium also depend importantly upon the information structure conditioning players beliefs under uncertainty included here are separating and pooling equilibria involving notions of learning signalling and information revelation additional dimensions exist in stochastic systems which introduce other forms of uncertainty optimal control and game theory have also been applied to international macroeconomic policy design with emphasis on the potential costs and benefits of non cooperative and cooperative behaviour between countries and problems of international policy coordination

the welfare case for the european monetary system abstract this paper argues that the european monetary system can be interpreted as a cooperative game yielding benefits to its members a simple model is set up in which it is shown that the ems solution is superior to nash if the menber countries differ this superiority to nash may require an occasional realignment it will also then require that there be no sterilization of foreign exchange interventions since otherwise the system would collpase the ems is interpreted in this paper as an arrangement manner and not o bretton woods type of arrangement when there is a leader follower relationship inside

rules or discretion in public sector decision making rules and discretion in public sector decision making are compared in a macroeconomic setting where there is a potential role for an active stabilization policy when the policymaker has private information about nominal shocks the credibility of announcements about the state of nature is shown to depend critically on both the policymaker s preferences over output and inflation and on the institutional setting rules or discretion the issue of rules versus discretion is found to depend on the flexibility lost under a rule relative to the timeinconsistency problem arising under discretion

the lot of the unemployed a time use perspective this paper provides new evidence on time use and subjective well being of employed and unemployed individuals in 14 countries we devote particular attention to characterizing and modeling job search intensity measured by the amount of time devoted to searching for a new job job search intensity varies considerably across countries and is higher in countries that have higher wage dispersion we also examine the relationship between unemployment benefits and job search

credibility and the value of information transmission in a model of monetary policy and inflation abstract in this paper we solve for the optimal stackelberg policy in a model of credibility and monetary policy developed by cukierman and meltzer 1986 unlike the nash solution provided by cukierman and meltzer the dynamic optimization problem facing the monetary authority in this case is not of a linear quadratic form and certainty equivalence does not apply the learning behavior of the private sector regarding the policymaker s preferences becomes intimately linked with the choice of the optimal policy and cannot be separated as in the certainty equivalent case once the dual effect of the optimal stackelberg policy is recognized the monetary authority has an additional channel of influence to consider beyond that taken into account by suboptimal certainty equivalent nash policy rules unlike nash behavior the stackelberg solution implies no inflationary bias while being still weakly time consistent this makes the stackelberg solution credible with only stagewise precommitment of the policymaker in the absence of such a precommitment learning behavior of the private sector does not sufficiently inhibit the incentive of the monetary authority to cheat in this model despite the fact that this learning is explicitly recognized in the stackelberg solution