the complex evolution of a simple traffic convention the functions and implications of habit this chapter presents an agent based simulation of the emergence of a traffic convention concerning whether to drive on the left or the right of the road the interaction between agents and structures involves causal influences in two directions showing how agents constitute institutions and how institutions can have reconstitutive causal effects on individuals

further evidence on the asymmetric behavior of economic time series over the business cycle evidence has recently been presented by salih neftci to support the hypothesis that recessions in economic activity tend to be steeper and more short lived than recoveries in economic activity that evidence however was confined to the behavior of the unemployment rate in the united states in this paper it is shown that when neftci s methods are applied to analyze the behavior of real gross national product investment and productivity in the united states or when they are used to analyze industrial production abroad the asymmetry hypothesis seems to be less compelling

true indexes and rational habit formation abstract in this paper we discuss the construction of true indexes when tastes change endogenously true indexes take the substitution possibilities of the consumer to a changing economic situation into account when equating the utility level of a particular period to the utility level attained in the base period through an appropriate change in income or the wage level when tastes change endogenously the current decision depends on the past history of consumption but by the same token the future path of consumption will depend on the current choice in a true index these intertemporal links of the current decision have to be taken into account for a particular specification of the habit formation process this is achieved by an appropriate transformation of prices and expenditures a true intertemporal wage index is computed for the period 1946 1967 in the u s because of increasing needs and intertemporal rationality this index is roughly constant and equal to 1 real wages remained constant

are there asymmetries in uk consumption a time series analysis in this paper we use time series techniques in order to test for asymmetric dynamics in uk consumption the notion that fluctuation over the business cycle are asymmetric has been put forward at various times in the last century nevertheless the most common representations of aggregate time series in macroeconomies are usually smooth and sluggish the use of time series methods should be considered as only the first stage of an empirical investigation of asymmetries it is also essential to develop economic models of asymmetric behaviour and to employ tests of asymmetric adjustment at the level structural realtionship

habit formation interdependent preferences and demographic effects in the almost ideal demand system the authors model myopic habit formation interdependence of preferences among consumers and demographic effects as taste shifters in a micro consumer demand model of the almost ideal demand variety the model is estimated for dutch micro data the authors investigate the dynamic properties of the model and find that it behaves very differently from models without interdependence of preferences the implications for micro macro modeling are discussed copyright 1991 by royal economic society

the hidden persuaders institutions and individuals in economic theory in his classic book the hidden persuaders vance packard claimed that large corporations manipulated consumers using advertising techniques john kenneth galbraith and others have repeated a similar view against this gary becker and george stigler have claimed that advertising is essentially informative rather than manipulative in contrast it is argued here that both of these opposed accounts of human agency neglect the more subtle and undesigned processes by which institutions bear upon and mould individuals this paper proposes a concept of reconstitutive downward causation in which institutions act upon individual habits and dispositions the mechanisms involved do not fall foul of past critiques of holism or methodological collectivism this argument involves a rehabilitation of the concept of habit in social science with far reaching implications

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

social networks and new product choice to successfully market new products in a social network it is essential to identify influential individuals whose product recommendations influence the consumption choices of their peers in this study we use spatial econometric methods to determine how individuals revise their preferences for product attributes when exposed to product recommendations from peers and how different individuals who vary in their degree of network connectedness exert influence on the product choices of others we find evidence that consumers look to others for guidance from peers in their preference for subjective taste specific parameters but tend not to respond to peer price choices our spatial methods allow us to empirically determine the influence exerted by individual members on the consumption choices of other members of the social network we find that connected members of the social network are not always the most influential in revising the consumption choices of others our estimates reveal that network proximity explains only 8 8 of influence

budget constraint prices as preference changing parameters of generalized fechner thurstone direct utility functions let v x be any direct utility function characterizing consumer preferences that are reflexive transitive and complete and whose parameters are fixed relative to the usual linear budget constraint p x m here x designates the vector x1 x and is confined to the positive n orthant xi designates quantity of the ith commodity p is the vector p pn of positive commodity prices and m designates total expenditure let x p m designate the system of demand functions derived from v x subject to px m which possess the properties of zero degree homogeneity symmetry and semidefinite negativity let w x 0 designate a direct utility function with a parameter vector 0 dependent on the price vector p that appears in the budget constraint and b that rationalizes the same system of demand functions as v x namely x p m probably many economists who have considered price dependent preferences would conjecture that every such price dependent utility function w x p satisfying a and b is of the rather restricted form

applying organizational routines in analyzing the behavior of organizations abstract the concept of organizational routine can foster our understanding of the behavior of organizations and of organizational change nelson r r winter s g 1982 an evolutionary theory of economic change belknap press harvard university press cambridge march j g simon h a 1958 organizations blackwell oxford 1993 cyert r m march j g 1963 a behavioral theory of the firm blackwell oxford 1992 but since empirical studies employing organizational routines as analytical perspective are still relatively rare how to conduct such an analysis and what are its benefits is not yet fully evident we wish to shed light on how employing routines contributes to understanding the behavior of organizations and to demonstrate the potential of such analysis the empirical analysis of the product development process at an engineering centre shows that using organizational routines presents advantages over alternative analytical approaches the paper also contributes to shed light on how to fruitfully employ an organizational routines perspective in analyzing the behavior of organizations providing the foundation for further empirical work

asymmetric employment cycles in britain evidence and an explanation search and matching models imply that firms employment adjustment costs depend on the tightness of the labor market giving rise to endogenous or nonlinear dynamics in employment this paper sets this argument out in detail estimating a model simultaneously explaining the long run level of employment and the nonlinear dynamics one of the implications of the estimated model is that asymmetric business cycles occur with the downswing in employment being sharper and deeper than the upswing copyright 1992 by royal economic society

a disaggregated analysis of asymmetrical behaviour in the uk housing market potential asymmetrical adjustment in uk house prices is considered the present analysis extends previous research in a number of crucial ways first a seminal examination of asymmetry in regionally disaggregated uk house prices is undertaken secondly data are examined which are further disaggregated according to the age or vintage of the housing stock however the major development concerns the application of a non parametric testing approach to detect cyclical asymmetry in contrast to previously employed tests in the economics literature the triples test employed possesses high power and is not sensitive to outliers it is found that extensive asymmetry is present in uk house prices with cyclical peaks typically being greater in magnitude than corresponding troughs the implications of these findings for the comparison and construction of economic theories of the housing market the specification of econometric models and the construction and implementation of economic policy are noted

dynamic equilibrium energy modeling the canadian balance model we discuss the development and structure of the university of alberta balance model of canadian energy supply and demand the model is a multi time period linear programming formulation of canadian energy supply integrated with a large econometric model of price sensitive energy demands in the canadian economy the model finds an equilibrium set of prices supplies and demands over all time periods using a new dynamic version of the equilibrium seeking algorithm developed for the project independence evaluation system the special aspects of a dynamic model and equilibration are described an example illustrating the convergence properties of the algorithm is given finally the question of whether or not to increase canadian natural gas exports to the united states is examined using the model

is the business cycle characterized by deterministic chaos abstract tests are conducted on u s macroeconomic data for the presence of low dimensional deterministic chaos where deterministic chaos is defined as in grandmont s 1985 walras bowley lecture or in brock 1986 the idea is to test for evidence of endogenous instability causing the business cycle low order autoregressions are hard to reject with our methods evidence of chaos is weak but our tests may be too weak to detect it evidence of nonlinearity is present in employment 1950 i to 1983 iv unemployment 1949 i to 1982 iv monthly post war industrial production and pig iron production 1877 1937

a deeper look at asymmetries in uk consumers expenditure the nonparametric analysis of 100 disaggregates the literature on testing for the presence of cyclical asymmetry in uk consumers expenditure is extended via the application of nonparametric tests to data subject to a higher degree of disaggregation than considered in previous studies the results obtained at an intermediate level of disaggregation depict a positive relationship between the durability of goods and the degree of asymmetry they exhibit at high levels of disaggregation to specific expenditure categories it is found that the aggregate and intermediate evidence of deepness asymmetry is driven by a relatively small number of expenditures with almost no evidence of deepness asymmetry in non durable categories of expenditure prominent among the durable and semi durable good expenditure categories exhibiting significant positive deepness asymmetry are expenditures relating to housing fittings and communication consistent with a degree of lumpiness in expenditure which may be associated with the impact of credit rationing or threshold eff

asymmetries and nonlinearities in italian macroeconomic fluctuations this paper reports the results of an empirical investigation of business cycle asymmetries in the italian economy macroeconomic time series both annual post unity and quarterly post world war ii are subjected to nonlinearity and asymmetry tests the dynamics of recessions and expansions are then modelled with threshold autoregressive and markov switching models the paper shows that allowing for two regimes is sufficient to account for the finding of neglected nonlinearity the results indicate that business cycle asymmetries can provide both an intuitive economic interpretation and a parsimonious representation of nonlinearities in macroeconomic time series

the welfare economics of land use planning abstract this paper presents an empirical methodology for the evaluation of the benefits and costs of land use planning the technique is applied in the context of the town and country planning system of the uk and examines the gross and net benefits of land use regulation and their distribution across income groups the results show that the welfare and distributional impacts can be large

are business cycles asymmetric a correction neftci 1984 proposed a nonparametric test procedure for determining whether business cycles are asymmetric in the sense that contractions are steeper than expansions he found evidence of this type of asymmetry in postwar quarterly u s unemployment variables this comment identifies a probable error in neftci s empirical work that reverses the significance of his results for the unemployment rate and it suggests that this test may have low power and be sensitive to measurement error

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

investigation of production sales and inventory relationships using multicointegration and non symmetric error correction models the accumulated sum of a stationary series is called integrated if a linear combination of some of the integrated series is stationary it is said to be cointegrated this paper presents empirical results on inventories to consider the possibility of a deeper form of cointegration called multicointegration which is introduced in granger and lee 1989 a vector integrated series is multicointegrated if the accumulated sum of its stationary cointegrated linear combination is again cointegrated with itself inventory which is the accumulated sum of production minus sales is probably cointegrated with production and sales the empirical results generally support the presence of multicointegration of production and sales in many u s industries and industrial aggregates the results also favour the non symmetric error correction model providing evidence that the strength of attraction is different on both sides of the attractor a modified s s rule for inventory control is investigated in the context of a non symmetric error correction model and the results generally do not support the s s rule sufficient evidence is found to conclude that multicointegration is a useful concept in the area of inventory determination

microeconomics norms and rationality a divergence of views among microeconomists in general and game theorists in particular regarding the explanatory objectives of microeconomic theory has become apparent in recent years this divergence concerns most fundamentally the question whether institutions legal or customary rules or social norms are to be classified among the endogenous as opposed to the exogenous variables in the framework of microeconomic analysis the majority of economists are probably agnostic or ambivalent on this question not having confronted or not having had to confront the issue in their own work many have sidestepped it by treating institutions as immutable or by restricting their analyses to a given rule regime but rules do vary and change and among those who are concerned with studying variation in institutions two diverging views are increasingly identifiable sometimes coexisting even within the writings of the same author the first sees game theory and microeconomic theory in general as an analytical device useful for considering the comparative incentive features of and corresponding outcomes associated with different institutional regimes regimes that might be changed in one s capacity as a policymaker or that have varied in fact as the result of differential historical development in different regions the second position accepts this statement of the objectives of microeconomic theory vis avis institutions for the short run but takes it as the ultimate task of

money as a medium of exchange in an economy with artificially intelligent agents abstract we study the exchange economies of kiyotaki and wright 1989 in which agents must use a commodity or fiat money as a medium of exchange if trade is to occur our agents are artificially intelligent and are modeled as using classifier systems to make decisions in the assignment of credit within the classifier systems we introduce some innovations designed to study sequential decision problems in a multi agent environment for most economies that we have simulated trading and consumption patterns converge to a stationary nash equilibrium even if agents start with random rules in economies with multiple equilibria the only equilibrium that emerges in our simulations is the one in which goods with low storage costs play the role of medium of exchange i e the fundamental equilibrium of kiyotaki and wright

dhsy revisited the role of asymmetries davidson et al s data set is used to demonstrate the existence of a significant asymmetry in the adjustment of consumption towards equilibrium the granger lee and escribano pfann methods of partitioning the error correction term are compared and it is shown that the latter produces better results in this case it is concluded that adjustment is faster under conditions of recession than it is during boom periods

detrending stylized facts and the business cycle the stylized facts of macroeconomic time series can be presented by fitting structural time series models within this framework we analyse the consequences of the widely used detrending technique popularised by hodrick and prescott 1980 it is shown that mechanical detrending based on the hodrick prescott filter can lead investigators to report spurious cyclical behaviour and this point is illustrated with empirical examples structural time series models also allow investigators to deal explicitly with seasonal and irregular movements that may distort estimated cyclical components finally the structural framework provides a basis for exposing the limitations of arima methodology and models based on a deterministic trend with a single break

hierarchical choice in economics abstract the paper examines the relevance for economic issues of choice which is not characterized by unlimited substitutability after showing that hierarchical choice is common in other social sciences like psychology the paper proceeds with an examination of such choice and of its different categories subsequently the implications for hierarchical choice for specific economic issues are analysed in particular there is discussion and literature review of demand theory engel curves the theory of the firm and social choice theory finally some suggestions for the application to other economic problems are considered

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

are economic time series asymmetric over the business cycle it has long been argued that major cyclical variables such as the unemployment rate display an asymmetric behavior over various phases of the business cycle the paper provides a statistical test for this hypothesis using the framework of finite state markov processes i implement a test to see if the behavior of the unemployment rate is characterized by sudden jumps and slower drops it is argued that the framework provided in the paper can also be used to test other sample path properties of economic time series

the emergence of economic organization abstract a model of decentralized markets is studied in which transactors follow simple adaptive rules transactions are coordinated by specialist trading firms that bear the costs of market disequilibrium starting from an initially autarkic situation in which none of the institutions that support exchange exist computer simulation shows that for a wide range of parameter values a fully developed market economy will emerge spontaneously moreover in virtually every case where a market economy develops one of the commodities traded will emerge as a universal medium of exchange being traded by every firm and changing hands in every act of exchange

a theory of a generally acceptable medium of exchange and barter abstract this paper develops a model that accounts both for the existence of money defined as a generally acceptable medium of exchange and for the survival of some barter exchange in economies in which money exists in contrast to jones 1976 seminal article in which individuals are restricted to fix trading strategies before entering the market the present model assumes that individuals have conditional trading strategies that allow them to effect exchange according to the types of trades they encounter in the market the analysis shows how decentralized market forces generate money and lead to a unique level of monetization

legal restrictions and monetary evolution abstract the legal restrictions school of monetary theory hypothesizes that the use of ordinary currency would die out if legal tender laws were abolished instead interest bearing instruments would be used in transactions this paper refutes the claim as far as it applies to money as a medium of exchange the network externality or coordination convention properties of a medium of exchange imply that the strategy of holding interest bearing instruments is not necessarily individually dominant there is a critical mass of users that has to be assembled before a switch can occur

identifying interdependent behaviour in an empirical model of labour supply in this paper we test a particular form of interdependent behavior namely the hypothesis that individuals choices of hours of work are influenced by the average hours of work in a social reference group there are problems to empirically disentangle the effects of interdependent behavior and preference variation across groups we show that panel data or data from several points in time are needed in the empirical analysis we combine cross section data from 1973 1980 and 1990 our results support the hypothesis of interdependent behavior the implication is that conventional tax policy predictions in which preference interdependencies are neglected will tend to underestimate the effect of a tax reform on hours of work our point estimates suggest that conventional calculations would capture only about a third of the actual change in hours of work

statistical properties of uk house prices an analysis of disaggregated vintages the statistical properties of uk house prices are considered at a disaggregated level where disaggregation occurs according to the age or vintage of the housing given the frequency of transactions in the housing market and the sophistication of the estate agent system it might be expected that the series would share long run relationships and be subject to common short run shocks it is found via conventional techniques that both the long run and short run relationships are less pronounced than might be expected however by extending recent research concerning the testing of common features commonality in the short run cycles of the house price series is uncovered albeit with a partial lag despite this the cycles are shown to differ in terms of their asymmetric behaviour

the plucking model of business fluctuations revisited the recent surge of renewed interest in business cycles in general and real business cycles in particular brought to mind a plucking model of business fluctuations that i suggested some twenty five years ago but that has since sunk into complete oblivion 1 i was led to the model in the course of investigating the direction of influence between money and income did the common cyclical fluctuations in money and income reflect primarily the influence of money on income or of income on money one of the five kinds of evidence that i examined was the serial correlation of amplitudes of cycle phases 2 as i wrote is the magnitude of an expansion related systematically to the magnitude of the succeeding contraction does a boom tend on the average to be followed by a large contraction p 271 to find out i calculated rank difference correlations between measures of the amplitudes of expansions and successive contractions in three different series for the period 1879 to 1961 the three series were rate of change of the stock of money a physical index of general business and clearing debits as an indicator of dollar value change in general business similarly i asked the same question except starting with a contraction in the given series and correlating its amplitude with the amplitude of the succeeding expansion 3 the results were striking for all three series the correlation was trivial between the amplitude of an expansion and the amplitude of the succeeding contraction on the other hand for both the rate of change of the money stock and the physical index of general business the correlation was high and statistically significant between the amplitude of a contraction and the amplitude of the succeeding expansion for clearing debits this correlation too was low i concluded there appears to be no systematic connection between the size of an expansion and of the succeeding contraction whether size is measured by physical volume or by dollar value pp 272 73 on the other hand a large contraction in output tends to be followed on the average by a large business expansion a mild contraction by a mild expansion p 273 though that is not so for the dollar value of the expansion and contraction i went on this phenomenon if it should be confirmed by a fuller analysis of data for the united states and other countries would have important implications for the analysis of business cycles in general not solely for our monetary studies for one thing it would cast grave doubt on those theories that see as the source of a deep depression the excesses of the prior expansion the mises cycle theory is a clear example 4 for another it would raise serious questions about both the analytical models in terms of which most of us have come to approach the analysis of cycles and the statistical methods we use to analyze them our analytical models generally involve a conception of a self generating cycle in which each phase gives rise to the next and which may be kept going by a sequence of random shocks each giving rise to a series of damped perturbations the corresponding physical analogy is of an electrical network in which responses are described by sine waves the asymmetric serial correlation patter suggests that this analogy may be misleading that a better one is what can be termed a plucking model consider an elastic string stretched taut between two points on the underside of a rigid horizontal board and glued lightly to the board let the string be plucked at a number of points chosen more or less at random with a force that varies at random and then held down at the lowest point reached the result will be to produce a succession of apparent cycles in the string whose amplitudes depend on the force used in plucking the string the cycles are symmetrical about their troughs each contraction is of the same amplitude as the succeeding expansion

the emergence of property rights enforcement in early trade a behavioral model without reputational effects abstract the present article focuses on the conditions that allow governments to increase property rights protection because they expect enough income from such action we develop a behavioral explanation according to which the answer lies in the growth in the importance size and wealth of merchant guilds in the medieval era in western europe as well as a somewhat surprising effect of volatile price structures we add to prior research by showing that even uncoordinated embargo pressures among multiple guilds could get medieval rulers to offer high levels of property rights protection

a discrete choice model with social interactions with an application to high school teen behavior we develop an empirical discrete choice interaction model with a finite number of agents we characterize its equilibrium properties in particular the correspondence between interaction strength number of agents and the set of equilibria and propose to estimate the model by means of simulation methods in an empirical application we analyze the individual behavior of high school teenagers in almost 500 school classes from 70 schools in our baseline model endogenous social interaction effects are strong for behavior closely related to school truancy somewhat weaker for behavior partly related to school smoking cell phone ownership and moped ownership and absent for behavior far away from school asking parents permission for purchases intra gender interactions are generally much stronger than cross gender interactions in a model with school specific fixed effects social interaction effects are insignificant with the exception of intra gender interactions for truancy copyright c 2007 john wiley sons ltd

health status and health dynamics in an empirical model of expected longevity expected longevity is an important factor influencing older individuals decisions such as consumption savings purchase of life insurance and annuities claiming of social security benefits and labor supply it has also been shown to be a good predictor of actual longevity which in turn is highly correlated with health status a relatively new literature on health investments under uncertainty which builds upon the seminal work by grossman grossman m 1972 on the concept of health capital and demand for health journal of political economy 80 223 255 has directly linked longevity with characteristics behaviors and decisions by utility maximizing agents our empirical model can be understood within that theoretical framework as estimating a production function of longevity using longitudinal data from the health and retirement study we directly incorporate health dynamics in explaining the variation in expected longevities and compare two alternative measures of health dynamics the self reported health change and the computed health change based on self reports of health status in 38 of the reports in our sample computed health changes are inconsistent with the direct report on health changes over time and another 15 of the sample can suffer from information losses if computed changes are used to assess changes in actual health these potentially serious problems raise doubts regarding the use and interpretation of the computed health changes and even the lagged measures of self reported health as controls for health dynamics in a variety of empirical settings our empirical results controlling for both subjective and objective measures of health status and unobserved heterogeneity in reporting suggest that self reported health changes are a preferred measure of health dynamics

social interactions and habit formation in a model of female labour supply this paper investigates the influence of habit formation and preference interdependence on labour supply behaviour of married females a novelty of the paper is that we incorporate direct survey information on reference groups of individuals in a neoclassical labour supply model for that purpose we first estimate a latent variables model relating the direct information to the true but unobserved reference groups one of the most interesting features of the model is that the presence of young children becomes an insignificant factor in the hours equation while it remains a significant factor in the participation decision in addition the labour supply curve is much flatter in a model with habit formation and preference interdependence than in a model without it both habit formation and preference interdependence contribute significantly to the explanation of female labour supply 1998 elsevier science s a all rights reserved

emergence of money as a medium of exchange an experimental study findings are reported from an experiment that implements a search theoretic model of money as a medium of exchange the question is whether subjects learn to adopt the same commodities as media of exchange that the model predicts will be used in equilibrium it is reported that subjects have a strong tendency to play fundamental rather than speculative strategies even in environments where speculative strategies yield higher payoffs some possible motivations for subjects behavior are examined and it is concluded that subjects are mainly motivated by past payoff experience as opposed to the marketability considerations that the theory emphasizes

rational habit formation abstract this paper discusses consumer demand under rational habit formation if consumer tastes change endogenously through habit stocks depending on past consumption the rational consumer will make allowance of the future habit forming effects of current consumption a model with rational habit formation is made formally equivalent to an intertemporal consumer model without habit formation by redefining the cost of consumption and wealth the cost of consumption is obtained by adding the cost of future induced consumption to the rental price of the commodity the extended wealth concept is obtained by subtracting the cost of the initial stocks of habits and the cost of future physically necessary consumption from wealth the paper also investigates the implication of rational habit formation for constructing one period cost of living indices

the approach of institutional economics this paper assesses the old institutional economics it emphasizes the importance of key old institutionalist themes concerning the necessity of habits and rules and the role of institutions a problem in the alternative theoretical program of the new institutionalism is the untenability of its assumption of an original institution free market or state of nature even optimizing behavior requires the prior existence of habits and rules although it still lacks a complete and systematic theory the evolutionary approach of the old institutionalists tackles the problem of the interactive relationship of actor to structure without analytical reduction to one or the other

computing market equilibria with price regulations using mathematical programming one approach to modeling and solving for economic equilibria relies on mathematical programming these models solve for competitive equilibria however policy analysis often requires measuring the impacts of government price regulations that differ from the competitive equilibrium in this paper we provide a unified framework for computing market equilibrium in mathematical programming models in the presence of government price regulations the iterative procedure that we use is essentially a gauss seidel algorithmic strategy the paper concludes by showing how to represent tax rebate programs average cost pricing and price ceilings

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

shifting boundaries in economics the institutional cognitive strand and the future of institutional economics this paper aims at contributing to the debate on the future of institutional economics and of the field as a whole by starting from the literature that discusses the relationship between old original institutional economics and new institutional economics it suggests that the process of reunifying oie and nie and evolutionary economics prompted by part of the literature could be improved by the contribution of the cognitive institutional economics the paper follows a two stage pathway first it frames the debate on the relationships between nie and the oie and it concentrates on a subset of the literature that shows that nie s recent developments complicate the distinction between nie and oie and it explores the possibility that nie and oie may merge so that an amalgam of nie oie and evolutionary economics becomes the next economic paradigm secondly the paper argues that a step forward in the direction outlined by the literature has been made by cie which is a research stream that developed from cross fertilization among nie oie and the hayekian contributions to the analysis of institutions in the concluding remarks the possible emergence of a single institutional paradigm is discussed in the light of the literature about change in economics

on convergence of the pies algorithm for computing equilibria equilibria in market models with continuous market supply functions can be obtained by computing fixed points with an activity analysis representation of production fixed point algorithms would converge slowly further since the market model here is of a partial equilibrium nature the market demand function may not exhibit the integratability condition precluding the formulation of the market equilibrium problem as an economic surplus maximization problem we examine an iterative algorithm the pies method for locating equilibria in markets whose production is described by optimization over a finite set of activities and whose econometric demand function does not possess the integrability property convergence properties of the algorithm along with existence and uniqueness of market equilibrium are summarized

nonresponse in panel data the impact on estimates of a life cycle consumption function if missing observations in a panel data set are not missing at random many widely applied estimators may be inconsistent in this paper we examine empirically several ways to reveal the nature and severity of the selectivity problem due to nonresponse as well as a number of methods to estimate the resulting models using a life cycle consumption function and data from the expenditure index panel from the netherlands we discuss simple procedures that can be used to assess whether observations are missing at random and we consider more complicated estimation procedures that can be used to obtain consistent or efficient estimates in case of selectivity of attrition bias finally some attention is paid to the differences in identification consistency and efficiency between inferences from a single wave of the panel a balanced sub panel and an unbalanced panel

pure competition regulated and stackelberg equilibria application to the energy system of quebec abstract we present a general methodology to study the electricity market of a country or region under various pricing mechanisms the approach is based on modifications of a large scale techno economic model and is applied to a realistic model for the province of quebec mathematical programming and a new decomposition procedure are used to simulate different electricity pricing schemes and their effects on the producer s and consumers decisions three types of pricing are analyzed each one corresponding to a different equilibrium marginal cost pricing leading to a pure competition equilibrium an affine function of the marginal cost leading to a regulated equilibrium and monopolistic pricing chosen by the producer to minimize its costs while knowing the optimal consumers reaction to the proposed price of electricity stackelberg type equilibrium the three equilibria are described and justified and a large scale application to the province of quebec is presented and discussed in some detail

is investment time irreversible some empirical evidence for disaggregated uk manufacturing data it has long been suggested that investment may be time irreversible and consideration of the option value of waiting to invest has aroused renewed interest in this issue this study tests for time irreversibility in uk investment according to disaggregation by type of investment expenditure and across manufacturing sector groupings the test results reported indicate that the irreversibility of investment patterns varies not only from industry to industry but also according to the type of capital being purchased with significant time irreversibility detected in gross fixed capital formation and aggregate vehicles expenditure and industrial sector groupings comprising fuels and oil refining engineering and vehicles and textiles and leather however only in the first and last of these series is time irreversibility attributable to non linearities in the underlying data generating process and consistent with threshold effects which may be associated with s s type models of investment dynamics

business cycle asymmetry a deeper look this paper distinguishes two types of asymmetry in business cycles deepness and steepness deepness is defined as the characteristic that troughs are further below trend than peaks are above most previous research has focused exclusively on steepness which refers to cycles in which contractions are steeper than expansions a test for deepness is proposed and applied to u s post war quarterly unemployment real gnp and industrial production evidence of deepness is found for unemployment and industrial production while the evidence for real gnp is weaker previous evidence of steepness in unemployment is confirmed

international evidence on friedman s theory of the business cycle i introduction milton friedman 1969 1993 discusses two empirical business cycle regularities he finds in u s data and conjectures that they may exist in other countries data first friedman argues that u s data on real output show an important ceiling effect growth rates are on average below the ceiling rate but tend back to the ceiling rate second he finds an asymmetry in business cycles the size of a contraction importantly influences the size of the following expansion with major expansions tending to follow major contractions the size of an expansion however has no stable relationship to the size of the following contraction friedman offers theoretical reasons for the existence of these regularities the ceiling effect arises from aggregate supply constraints on the level of real output as for asymmetry aggregate demand disturbances primarily from monetary shocks in friedman s view can reduce output below the ceiling but the economy s equilibrating forces and possibly expansionary monetary policy in reaction to the recession push the economy back to the ceiling with the size of an expansion thus related to the size of the preceding contraction the next contractionary aggregate demand disturbance is unrelated in friedman s view to the size of the previous expansion meaning that the size of a contraction is unrelated to the size of the preceding expansion both the regularities and his theoretical discussion have important implications for business cycle analysis the empirical asymmetry friedman suggests joins other asymmetries discussed in recent literature for example hamilton 1989 neftci 1984 sichel 1993 this paper follows friedman s 1993 suggestion to examine whether foreign data show the regularities he finds in u s data friedman s model includes regime shifts at times the economy is on the potential output ceiling where aggregate supply determines the evolution of the economy at other times aggregate demand disturbances force the economy below the ceiling with movements below the ceiling determined by aggregate demand such regime shifting models are inherently nonlinear in important ways and pose serious challenges both for theoretical and empirical models for example in calibrating real business cycle models it would be important to be able to generate friedman s ceiling and asymmetry effects if in fact the data support these real business cycle models with continuous market clearing would then have to have a mechanism that does not rely as does friedman s on sluggish price adjustment and deviations of output from its equilibrium level further those keynesian macroeconometric models where output is essentially demand determined must somehow generate friedman s ceiling and asymmetry effects if the ceiling and asymmetry effects that friedman finds in u s data hold up across countries their importance lies in the restrictions they impose on what is likely to be observed in the future and what patterns business models must be able to generate the effects hold little promise of allowing discrimination among classes of models friedman s plucking model is a ceiling model like john hicks s 1950 model of the trade cycle it is possible to construct keynesian type ceiling models where disturbances to consumption and investment demand cause contractions with the size of the following expansion depending on the size of the contraction and the size of these demand disturbances uncorrelated across cycles it is also possible to construct monetarist models where the monetary authority s expansionary errors are correlated with its following contractionary errors with the size of an expansion then having predictive power about the size of the next contraction thus ceiling and asymmetry regularities do not allow discrimination between keynesian and monetarist ceiling models friedman s 1993 views contrast strongly with the real business cycle models of the past decade as in long and plosser 1983 and king plosser and rebelo 1988 among many the regularities friedman finds conflict with simple real business cycle models but we conjecture that if the regularities hold across countries real business cycle models could be constructed that produced data on real output with these regularities

asymmetric effects of positive and negative money supply shocks this paper examines whether positive and negative money supply shocks have symmetric effects on output the results are consistent with the hypothesis that positive money supply shocks do not have an effect on output while negative money supply shocks do have an effect on output this finding is independent of whether or not expected money is assumed to affect output the results reported in this paper imply that the fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply

an almost ideal demand system incorporating habits an analysis of expenditures on food and aggregate commodity groups breusch t s and a r pagan the lagrange multiplier test and its applications to model specification in econometrics the review of economic studies 47 jan 1980 239 254 eden benjamin the insurance buying gambler economic inquiry 18 july 1980 504 508 henderson charles f estimation of variance and covariance components biometrics 9 june 1953 226 252 hill daniel h deborah a ott lester d taylor and james m walker incentive payments in time of day electricity pricing experiments the arizona experiment this review 65 feb 1983 59 65 maddala g s and t d mount a comparative study of alternative estimators for variance components models used in econometric applications journal of the american statisticalassociation 68 june 1973 324 328 selby e b and w beranek sweepstakes contests analysis strategies and survey american economic review 71 mar 1981 189 195 spence michael and richard zeckhauser the effect of the timing of consumption decisions and the resolution of lotteries on the choice of lotteries econometrica 40 mar 1972 401 403 wallace thomas d and ashiq hussain the use of error components models in combining cross section with time series data econometrica 37 jan 1969 55 72 winett richard a and michael t nietzel behavioral ecology contingency management of consumer energy use american journal of community psychology 3 june 1975 123 133