experimental tests of core theory and the coase theorem inefficiency and cycling abstract we examine experimentally the bargaining process and the final allocation of payoffs in games that differ in terms of whether the core exists and in the initial allocation of property rights among the players this paper highlights the interaction among property rights transaction costs and the empty core our experimental results indicate that the existence of the core is an important determinant of bargaining generally and the coase theorem in particular they confirm our conjecture that when the core is empty and property rights are ill defined coasean efficiency breaks down among other results our experiments show that the number of inefficient non pareto optimal agreements and bargaining rounds with cycling are significantly greater when the core is empty than when the core exists especially when property rights are ill defined our results suggest an economic role for specific property right arrangements to resolve the empty core

habit formation in consumer preferences evidence from panel data this paper tests for the presence of habit formation using household data a simple model of habit formation implies a condition relating the strength of habits to the evolution of consumption over time when the condition is estimated with food consumption data from the panel study on income dynamics the results yield no evidence of habit formation at the annual frequency this finding is robust to a number of changes in the specification it also holds for several proxies for nondurables and services consumption created by combining psid variables with weights estimated from consumer expenditure survey data

accounting for persistence and volatility of good level real exchange rates the role of sticky information abstract volatile and persistent real exchange rates are observed not only in aggregate series but also in micro price data at the retail level kehoe and midrigan 2007 recently showed that under a standard assumption on nominal price stickiness empirical frequencies of micro price adjustment cannot replicate the time series properties of the law of one price lop deviations we extend their sticky price model by combining good specific price adjustment with information stickiness in the sense of mankiw and reis 2002 our framework allows for multiple cities within a country using a panel of u s canadian city pairs we estimate a dynamic price adjustment process for 165 individual goods under a reasonable assumption on the money growth process we show that the model matches the persistence of the lop deviation for the median good and accounts for the majority of its volatility when information updates occur every 12 months

when do export subsidies have a redistributional role if an export subsidy is efficient that is has a surplus transfer role then there exists an implicit function relating the optimal level of the subsidy to the income target in the agricultural sector if an export subsidy is inefficient no such function exists we show that dependence exists in large export equilibrium not in small export equilibrium and show that these results remain robust to concerns about domestic tax distortions the failure of previous work to produce this result stems from its neglect of the income constraint on producer surplus in the programming problem transferring s cons umersand taxpayersto farmers

some neglected social costs of government spending in farm programs economic welfare analyses of farm programs typically assume that the direct social opportunity cost of subsidy payments is one dollar per dollar of government spending recent literature suggests that the marginal opportunity cost of a dollar of u s federal government spending is more likely to be in the range of 1 20 to 1 50 this implies that the net social costs of farm programs that involve government spending are significantly greater than the typical estimates in addition the normative efficiency ranking of alternative policies is sensitive to the marginal opportunity cost of government spending

efficiency of decoupled farm programs under distortionary taxation when lump sum taxation is not feasible decoupled transfers to farmers which require raising government revenue will entail welfare loss somewhere in the economy assuming the government s objective is to assure a given welfare level for farmers we show that when decoupling is possible free trade is always superior to some tariff protection for a small country even under distortionary taxation as expected for a large country there is scope for an optimal tariff policy that improves the terms of trade however we show a separation between the exercise of market power through an optimal tariff and the interaction of distortionary taxation with transfers to farmers we conclude that decoupling is usually desirable even in a distorted economy in which lump sum taxation is not feasible

how do firms form their expectations new survey evidence author s coibion o gorodnichenko y kumar s abstract 2018 american economic association all rights reserved we survey new zealand firms and document novel facts about their macroeconomic beliefs there is widespread dispersion in beliefs about past and future macroeconomic conditions especially inflation this dispersion in beliefs is consistent with firms incentives to collect and process information using experimental methods we find that firms update their beliefs in a bayesian manner when presented with new information about the economy and that changes in their beliefs affect their decisions inflation is not generally perceived as being important to business decisions so firms devote few resources to collecting and processing information about inflation

present value tests of the current account with durables consumption abstract the present value tests of the intertemporal model of the current account usually assume that all goods are traded and that aggregate consumption decisions can be closely approximated by a random walk process this paper extends these models by explicitly introducing durables and nontraded goods into an intertemporal model of the current account and tests the model using canadian data since aggregate consumption expenditures on durables do not exhibit random walk behavior even when the aggregate consumer has a quadratic utility function the model that includes durables makes predictions that differ from those of the basic approach when nontraded goods are also incorporated into the model the most appropriate income variable becomes output net of nontraded production these implications are examined using present value tests the results suggest that in the annual data introduction of both durables and nontraded goods improves upon the model with traded nondurables only this seems to be due to the combination of durables and nontraded goods as durables alone do not sufficiently refine the basic model

sticky information in general equilibrium this paper develops and analyzes a general equilibrium model with sticky information the only rigidity in goods labor and financial markets is that agents are inattentive sporadically updating their information sets when setting prices wages and consumption after presenting the ingredients of such a model the paper develops an algorithm to solve this class of models and uses it to study the model s dynamic properties it then estimates the parameters of the model using u s data on five key macroeconomic time series it finds that information stickiness is present in all markets and is especially pronounced for consumers and workers variance decompositions show that monetary policy and aggregate demand shocks account for most of the variance of inflation output and hours jel e30 e10

the coase theorem and coalitional stability it is the contention of this paper that the coase theorem has yet to be formulated and proved in a rigorous manner the problem addressed is that of strategic coalitional behaviour when more than two agents are involved in the externality it is shown that there are examples for which non efficient allocations are stable in the sense of aumann maschler bargaining sets thereby vitiating the coase theorem hence a proper formulation of the coase theorem must exclude bargaining set stability it is our contention that the coase theorem which asserts that with zero transaction costs and zero income effects the identical pareto efficient allocation of resources will emerge regardless of the initial assignment of property rights has yet to be formulated and proved in a rigorous manner the problem addressed here is that of strategic coalitional behaviour when more than two agents are involved in the externality for the coase theorem to hold in such situations two conditions are important first assuming that the maximum joint payoff can be effected only by the formation of the grand coalition e g by the merger of all parties involved in the externality the grand coalition must be stable second only the grand coalition must be stable for if some other coalition is also stable then the latter may form instead of the grand coalition so that a pareto optimal allocation need not obtain the point of this note is to show that a rigorous statement of the coase theorem must exclude bargaining set notions of coalitional stability because

international capital mobility amongst the major industrialised countries too little or too much this paper examines capital flows among the major industrialized countries with a view to assessing m feldstein and c horioka s 1980 claim that international capital mobility is limited it argues that saving investment correlation tests are inherently flawed and proposes an alternative methodology for testing the degree of international capital mobility it finds that capital flows have been excessive in the sense that they are driven by speculative forces rather than by economic fundamentals copyright 1995 by royal economic society

macroeconomic uncertainty precautionary saving and the current account abstract the relationship between current account developments and changes in the macroeconomic environment is a key issue in open economy macroeconomics this paper extends the standard intertemporal model of the current account to incorporate the effects of macroeconomic uncertainty on external saving behavior it is shown that the greater the uncertainty in national cash flow defined as output less investment less government consumption the greater will be the incentive for precautionary saving and ceteris paribus the larger the current account surplus empirical support for the model is found using post war quarterly data for the united states japan and the united kingdom as well as a long time series 1919 1990 for the united states

the coase theorem and the empty core a comment i would not presume to discuss the value of the theory of the core for economic analysis what i will do is to explain why study of the example which professors aivazian and callen use as the basis of their argument has not led me to modify my views the imagined situation which aivazian and callen analyse is one in which there is a laundry c and two firms a and b which pollute profits would be in total greater if the two polluters a and b closed down it is argued that in the conditions set out in their example c could not induce a and b to cease operations by means of money payments ifa and b were not liable for the harm inflicted on c it is assumed that if each firm operated independently firm a would earn profits of 3 000 per unit of time b 8 000 and c 24 000 however if a pair of these firms made an agreement to change their mode of operation the joint profits would be for a and b 15 000 for a and c 31 000 and for b and c 36 000 since the firm excluded from these agreements would continue to operate independently it is apparent by adding the profit earned by this firm to the joint profit of the two firms in the agreement that the combined profits of all three firms would always remain 39 000 however if a and b could be induced to close down so that c alone continued to operate c s profits would be 40 000 as total profits with two firms party to an agreement and one firm acting independently are always 39 000 and total profits would be 40 000 if c alone operated it would seem possible for c to make payments to a and b out of the additional 1 000 that would accrue which would make a and b better off than if they continued in operation and would still leave something over to increase c s profits aivazian and callen argue however that this would not happen they maintain given the conditions postulated in their example that even if an arrangement was made between a b and c which enabled profits of 40 000 to be earned that position would be unstable

assessing the relative merits of development charges and transferable development rights in an uncertain world traditionally regulatory instruments have been used to achieve planning objectives however emerging market based policy instruments such as transferable development rights a quantity based app

capital mobility in the world economy an alternative test abstract this paper proposes a new measure and test of international capital mobility in order to investigate capital flows we utilize a small open economy version of campbell and mankiw s nber macroeconomic annual 1989 185 216 permanent income model our capital mobility measure focuses on the correlation between the country s consumption and net output instead of the correlation between domestic saving and domestic investment proposed by feldstein and horioka economic journal 90 1980 314 329 the model is estimated for 11 oecd countries the results suggest that the null hypothesis of perfect capital mobility cannot be rejected for more than a half of these countries on the other hand some kind of capital mobility constraints are detected for several countries including the united states and japan

rationalizing agricultural export subsidies comment alston carter and smith acs claim an export subsidy can be an efficient mechanism for redistributing income to producers and is always so in a small country unable to influence the world price when raising government revenue causes deadweight losses this claim is surprising in view of the general result in trade theory that domestic distortions are more efficient transfer mechanisms than border distor

why is consumption so smooth for thirty years it has been accepted that consumption is smooth because permanent income is smoother than measured income this paper considers the evidence for the contrary position that permanent income is in fact less smooth than measured income so that the smoothness of consumption cannot be straightforwardly explained by permanent income theory the paper argues that in postwar u s quarterly data consumption is smooth because it responds with a lag to changes in income

when do export subsidies have a redistributional role reply our differences are three the first arises from the belief that a nonzero value for the optimally chosen policy instrument implies that the instrument is efficient for redistribution alston smith and vercammen p 543 paragraph 3 consider the two equations 1 o f p3 and 2 f 3 r h a p3 representing the solution to the problem of maximizing weighted marshallian surplus using simultaneously a per unit border intervention 9 and a per unit domestic intervention wr in the solution parameter ot denotes the weight applied to producer surplus parameter p denotes the weight applied to government revenues consumer surplus is implicitly weighted one and the country in question is small in the sense that it is unable to affect world price by any of its domestic adjustments see the appendix details of the forms of the functions f p and h ot p are easily derived but what matters in the context of alston smith and vercammen s comment is redistributivep referencest hatf avorp roducers are consistent with higher values alpha and whereas the optimal domestic intervention 7r has both alpha and beta effects the optimal border intervention r has only a beta effect it does not have a redistributional role garth holloway is reader in agricultural economics and statistics department of agricultural and food economics school of agriculture policy and development university of reading the author is very grateful to xavier irz bhavani shankar chittur srinivasan colin thirtle and richard tiffin for their comments and their wisdom and to mario mazzochi marinos tsigas and cal turvey for their scholarship including help in tracking down a fairly complete collection of the papers that cite alston and hurd they are not responsible for any errors or omissions note in equation 1 that the border intervention is positive whenever a distortion exists because 8 0 implies 3 1 8 1 and thus f p 0 see appendix using alston smith and vercammen s definition the instrument is now efficient and therefore has a redistributive role but now suppose that the distortion is removed so that 3 1 8 1 8 0 and consequently the border intervention is zero according to alston smith and vercammen the instrument is now inefficient and has no redistributive role the reader will note that this thought experiment has said nothing about supporting farm incomes and so has nothing whatsoever to do with efficient redistribution of course the definition is false it follows that a domestic distortion arising from the excess burden argument 3 1 8 8 0 does not make an export subsidy efficient the export subsidy having only a beta effect does not have a redistributional role the second disagreement emerges from the comment that holloway uses an idiosyncratic definition of the relevant objective function of the government alston smith and vercammen p 543 paragraph 2 the objective function that generates equations 1 and 2 see the appendix is the same as the objective function used by gardner 1995 when he first questioned alston carter and smith s claim that a domestic distortion can make a border intervention efficient in transferring surplus from consumers and taxpayers to farmers the objective function used by gardner 1995 is the same objective function used in the contributions that precede it and thus defines the literature on the debate about borderversus domestic intervention streeten yeh paarlberg 1984 1985 orden gardner 1985 the objective function in the latter literature is the same as the one implied in another literature that originates from wallace and includes most notably gardner 1983 but also alston and hurd amer j agr econ 86 2 may 2004 549 552 copyright 2004 american agricultural economics association this content downloaded on tue 15 jan 2013 07 58 41 am all use subject to jstor terms and conditions 550 may 2004 amer j agr econ the objective function in holloway is this same objective function it is of course marshallian surplus 1 the third disagreement concerns scholarship the comment does not seem to be cognizant of several important papers especially bhagwati and ramaswami and bhagwati both of which precede corden 1974 1997 but also lipsey and lancaster and moschini and sckokai one important aspect of alston and hurd and one extremely important result in holloway this oversight has some unfortunate repercussions first it misdirects to the wrong origins of intellectual property second it misleads about the appropriateness of some welfare calculations third it prevents alston smith and vercammen from linking a finding in holloway pp 242 43 with an old theorem lipsey and lancaster that settles the controversy alston carter and smith 1993 1995 gardner 1995 and presently alston smith and vercammen about the efficiency of border intervention in the presence of domestic distortions

efficient redistribution through commodity markets efficiency in redistribution is measured in terms of deadweight loss generated per dollar of economic surplus transferred between consumers and producers of a commodity by means of market intervention the implications of supply and demand elasticities for efficiency in redistribution are examined with special attention to the comparison of production control and deficiency payment programs the results may be used to aid in the evaluation of commodity programs and as a basis for consideration of the hypothesis that observed policies are efficient given the political power of interest groups

current account dynamics under information rigidity and imperfect capital mobility abstract the current account in developed countries is highly persistent and volatile in comparison to their output growth the standard intertemporal current account model with rational expectations re fails to explain the observed current account and consumption dynamics the re model extended with imperfect capital mobility by shibata and shintani 1998 can account for the consumption dynamics but only at the cost of the explanatory power for the volatility of the current account this paper replaces re in the intertemporal current account model with sticky information si in which consumers are inattentive to shocks to their income the si model can better explain a persistent and volatile current account than the re model but it overpredicts the persistence of changes in consumption the si model extended with imperfect capital mobility explains both the current account and consumption provided that sufficiently high degrees of information rigidity and imperfect capital mobility are considered

rationalizing agricultural export subsidies export subsidies are an important form of agricultural policy especially for large traders such as the united states and the european community a number of small countries also use export subsidies in effect e g saudi arabian wheat or canadian dairy products in that the domestic price is set well above world levels and surplus production is dumped onto the world market a number of recent contributions to trade theory have argued that export subsidies can be welfare enhancing for the subsidizing country and by implication that the policy choice is consistent with the hypothesis that a benevolent government is pursuing pareto efficiency in the present paper we examine these arguments and present an alternative explanation of export subsidies utilizing the concept of efficient redistribution becker gardner 1983 in standard trade models arguments in favor of global export subsidies arise from failure to exploit market power in another good itoh and kiyono feenstra itoh and kiyono use a threegood model to show that subsidies on marginal goods defined as goods not exported at all or exported in small quantities can increase welfare in the subsidizing country a subsidy on marginal goods causes their production to increase and the supply of nonmarginal goods to decrease thereby raising the price of the nonmarginal goods and increasing the exporter s terms of trade feenstra also employs a threegood model and demonstrates that it is possible for the pattern of substitutability and complementarity across goods to allow subsidies to increase welfare the necessary condition is that the subsidized export be a stronger substitute for another exported good or a stronger complement for an imported good in the subsidizing country than abroad the export subsidy increases welfare by improving the terms of trade in the other imported or exported good the distortion in feenstra s model is the failure to exploit market power in the second or third market as an alternative to global export subsidies abbott paarlberg and sharples aps have examined targeted export subsidies and found that in some circumstances they can be welfare improving dutton later showed the aps result arises because they first constrain the export tax to the rest of the world to be zero so that it becomes theoretically possible for the best export tax to the targeted country to be negative the aps result hinges on differences in import demand elasticities and the exporting country s use of market power in order to price discrim

testing a present value model of the current account evidence from us and canadian time series abstract this paper presents a simple model of current account determination based upon the permanent income hypothesis of private consumption behavior under rational expectations the model employs a representative national agent who is forward looking and can borrow and lend at a constant world interest rate a present value relationship for the current account is derived and its implications are tested on post war data for the united states and canada testing is done using the framework developed by campbell and shiller 1987 which allows the forcing variables in the model to be difference rather than trend stationary our empirical results indicate the most stringent restrictions of the present value model are strongly rejected by the us and canadian data however less formal procedures suggest the consumption smoothing model has some ability to track the dynamic behavior of the us current account jel f32

present value tests of an intertemporal model of the current account abstract this paper first demonstrates that in a simple intertemporal open economy model the current account is equal to the expected decline of the present discounted value of net output of a country net output is defined as gross domestic product less the sum of investment plus government spending it then uses econometric methods for present value models to analyze the current account for four countries in two of these countries the model does a satisfactory job of explaining the current account

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

fundamental nonconvexities in arrovian markets and a coasian solution to the problem of externalities abstract d starrett j econ theory 4 1972 180 199 argues that the presence of externalities implies fundamental nonconvexities which cause arrow markets to fail while this is true we argue this failure is due to the structure of the arrovian markets that starrett uses and not to the presence of externalities as such we provide an extension of a general equilibrium public goods model in which property rights are explicitly treated nonconvexities are not fundamental in this framework we define a notion of coasian equilibrium for this economy and show first and second welfare theorems in this context the first welfare theorem is a type of coase theorem journal of economic literature classification numbers d62 h41