to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

on taxation in a two sector endogenous growth model with endogenous labor supply abstract this paper studies the effects of taxation on long run growth in a two sector endogenous growth model with i physical capital as an input in the education sector and ii leisure as an additional argument in the utility function income taxation the same rate applies for capital and labor income reduces the growth rate the same is true if only labor income is taxed however if only capital income is taxed the positive effect of an increase in total non leisure time may dominate the direct negative effect implying that capital taxation increases the long run growth rate

dynamic pricing of perishable assets under competition we study dynamic price competition in an oligopolistic market with a mix of substitutable and complementary perishable assets each firm has a fixed initial stock of items and competes in setting prices to sell them over a finite sales horizon customers sequentially arrive at the market make a purchase choice and then leave immediately with some likelihood of no purchase the purchase likelihood depends on the time of purchase product attributes and current prices the demand structure includes time variant linear and multinomial logit demand models as special cases assuming deterministic customer arrival rates we show that any equilibrium strategy has a simple structure involving a finite set of shadow prices measuring capacity externalities that firms exert on each other equilibrium prices can be solved from a one shot price competition game under the current time demand structure taking into account capacity externalities through the time invariant shadow prices the former reflects the transient demand side at every moment and the latter captures the aggregate supply constraints over the sales horizon this simple structure sheds light on dynamic revenue management problems under competition which helps capture the essence of the problems under demand uncertainty we show that the equilibrium solutions from the deterministic game provide precommitted and contingent heuristic policies that are asymptotic equilibria for its stochastic counterpart when demand and supply are sufficiently large this paper was accepted by yossi aviv operations management

capital taxation and accumulation in a life cycle growth model almost all of the serious economic work on savings decisions within the past decade has relied on some variant of the life cycle hypothesis in which savings arise out of individual choices of an optimum lifetime consumption path this paper reexamines the incidence and welfare consequences of capital income taxes within a realistic life cycle model the results suggest that the elimination of capital income taxation would have very substantial economic effects for example a complete shift to consumption taxation might raise steady state output by as much as 18 percent and consumption by 16 percent the long run welfare gain from such a shift would for plausible parameter values exceed 150 billion annually stated somewhat differently shifting to consumption taxation would raise the lifetime utility of the representative consumer by the equivalent of about six years income in the new steady state these estimates dwarf estimates of the static welfare cost of taxation and significantly exceed even extreme previous estimates of the dynamic loss this study departs from earlier analyses of the effects of taxes on capital income in several respects probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving it is shown below that the common two period formulation of saving decisions yields quite misleading results a more realistic model of life cycle savings demonstrates that for a wide variety of plausible parameter values savings are very interest elastic this implies that shifting away from capital income taxation would significantly increase capital formation making possible long run increases in consumption many studies of the welfare effects of capital income taxation have ignored the general equilibrium effects of increased capital formation in an economy with life cycle savings there is no presumption that the undistorted growth path corresponds to any sort of social optimum as peter diamond has shown life cycle savings can lead to a steady state capital intensity either greater or less than the golden rule level more generally it is clear that there is no reason to believe that a life cycle economy will maximize any particular intertemporal social welfare function a fundamental tenet of welfare evaluation is that preexisting distortions must be considered in evaluating the consequences of tax changes the results presented in this paper take explicit account of the nonoptimal character of the no tax steady state this explains in large part why such a sizeable welfare effect of capital taxes is found in an economy far from the golden rule level of capital intensity there are substantial gains in steady state consumption achievable through increased capital formation section i of the paper examines the aggregate savings function in a continuous time life cycle framework the second section clarifies the differences between wage and consumption taxes an aggregate production function is added to complete the model in the third section the effects of changes in capital taxes on both steady state incidence and welfare are considered within a general equilibrium framework the final section of the paper discusses some implications of the results and suggests areas which appear to warrant further study assistant professor of economics massachusetts institute of technology and research analyst national bureau of economic research i am grateful to alan auerbach martin feldstein laurence kotlikoff to the participants in the nber workshop on business taxation and to the harvard public finance seminar for useful discussions james poterba and james buchal performed the numerical calculations

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

taxation and excess burden a life cycle perspective a lifetime perspective is appropriate in assessing the welfare implications of government tax policies although a number of attempts have been made to ex amine the excess burden of taxation in life cycle models these have tended to ignore the role of human capital accumulation and or the leisure income choice in this paper we do numerical simulations with a model that takes both of these phenomena into account we find that under reasonable assumptions the failure to take into account distortions of human capital decisions produces substantial underestimates of the excess burden of income taxation in addition allowing for the endogeneity of human capital increases the efficiency of a personal consumption tax relative to that of an equal yield income tax this abstract was borrowed from another version of this item

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

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

the transition from payroll to consumption receipts with endogenous human capital abstract the transition from payroll to consumption receipts is simulated in a life cycle growth model featuring adult human capital as in other studies savings are higher under the consumption base however unlike those studies much of the additional savings here take human form human capital production increases for all cohorts in or yet to join the labor market as of the tax change the additional human capital production tends to dampen physical capital accumulation when compared with otherwise identical simulations which hold human capital constant the implications for intergenerational incidence are similar to that found in other examinations of the transition to a consumption base

the paradoxes of the successful state abstract three issues are discussed in this paper first i argue that it is impossible to understand the east asian growth miracle without appreciating the importtant role that government policy played in stimulating private investment second i will summarize some of my work on the determinants of policy effectiveness based on a cross country comparison of export subsidy regimes and show that the usual rules of thumb on what makes for good policy uniformity transparency non selectivity etc are quite useless in predicting which policy regimes perform better in practice third i will provide some evidence that the government s social insurance role creates a complementarity between states and markets these three sets of ideas yield a more balanced and nuanced view of the role of the state in economic development than has recently become commonplace

export subsidies and trade policy the experience of kenya abstract this paper finds that manufacturing firms in kenya have responded poorly to the availability of export subsidies it is argued that this has resulted from the delays and uncertainty surrounding disbursement procedures and from the limited extent to which the subsidy lessened the anti export bias of a policy structure which has emphasized import substitution it is further argued that a budgetary constraint makes it impossible to offset the anti export bias with export subsidies at existing levels of domestic market protection and that what is required is the lowering and standardization of domestic market protection levels which can be most appropriately achieved through a combination of devaluation and trade tax subsidy changes

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

what has been learned about labor supply in the past twenty years the main advance in the study of labor supply in the past 20 years has come in recognizing and interpreting the variety of different labor supply functions that coexist in the empirical literature a crucial theoretical distinction with important empirical payoff is that between labor supply choices at the extensive margin i e labor force participation and employment choices and choices at the intensive margin i e choices about hours of work or weeks of work for workers another important distinction is the one between a descriptive labor supply function and a structural supply function that can be the basis for out of sample policy investigations concerning responses to tax and welfare programs and evaluations of welfare losses a full understanding of the participation hours dichotomy leads to an appreciation of the importance of the problem of selection bias what is the wage to impute to a nonworking person these distinctions are a legacy of the research conducted on labor supply over the past 20 years many important empirical questions have been addressed i how strong are the effects of taxes welfare and transfer programs on labor supply ii how important is intertemporal substitution can life cycle labor supply models explain business cycle labor supply behavior iii has the consensus view of the 1960 s of high labor supply elasticities for married women and low labor supply elasticities for married men held up all of the empirical evidence assembled on labor supply must be called into question in the light of important research on the basic quality of the data conducted by analysts at the university of michigan i discuss this evidence in a concluding section except for my discussion of measurement issues i focus only on the major discoveries about which a general consensus has emerged

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

the use and abuse of export subsidies evidence from colombia 12033 christian helmers and natalia trofimenko we evaluate the impact of firm specific export subsidies on exports in colombia using a two step selection model we predict firm specific subsidy amounts that can be explained by the characteristics that determine firms eligibility for government support and its amount drawing on the accounts of the discretionary allocation of subsidies in developing countries we interpret the discrepancy between the predicted and the observed subsidy amounts as a proxy for a firm s ties to government officials controlling for observable and unobservable firm characteristics as well as persistence in exporting we find that although in general subsidies exhibit a positive impact on export volumes this impact is diminishing in subsidy size and in the degree of a firm s connectedness

the effect of taxation on human capital this study finds a significant negative effect of proportional income taxation on human capital of the few earlier studies to address this issue most suggested a negligible effect of taxation on investment in human capital this earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously

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

taxation and long run growth abstract a number of recent papers have investigated the growth effects of tax reforms in the context of neoclassical growth models with human capital growth effects were found to be large but highly sensitive to parameter choices this paper shows that growth effects are smaller and much less sensitive in models that generate realistic life cycle behavior which requires that households are finitely lived but generations may be altruistically linked and face diminishing point in time returns in human capital accumulation reasonable upper bounds for growth effects in such models are less than one third of some values reported in the literature

policy reforms and growth in computable olg economies we build a computable general equilibrium model with overlapping generations of agents and an endogenous growth specification a la lucas two main issues are addressed i to what extent does endogenous growth play a significant role in the face of policy reforms and ii are the simulation results robust to various calibrations of the production function of human capital in this purpose we simulate four large policy changes and compare the predictions with endogenous growth under various parameter sets to those with exogenous growth if endogenous growth is important when examining the effects of education reform it does not really matter with pension reforms and plays a minor role in the debt repayment scenario these results are very robust to calibration

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

labor income taxation human capital and growth the role of childcare in this paper we examine the effects of labor income taxation on growth in an overlapping generations model in which schooling and childcare play a role in the production of human capital we compare such effects with those obtained in a model in which only schooling matters for skill formation we show that the omission of childcare from the technology of skill formation can bias the results related to the impact of labor income taxation on growth

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

an analytical framework for retailer price and advertising decisions for products with temperature sensitive demand abstractthe demand for weather sensitive products such as beverages ice creams or chocolate varies with changes in temperature yet retailers lack a framework to adapt the marketing mix element

coordinating advertising and pricing in a manufacturer retailer channel abstract cooperative advertising is a practice that a manufacturer pays retailers a portion of the local advertising cost in order to induce sales cooperative advertising plays a significant role in marketing programs of channel members nevertheless most studies to date on cooperative advertising have assumed that the market demand is only influenced by advertising expenditures but not by retail price this paper addresses channel coordination by seeking optimal cooperative advertising strategies and equilibrium pricing in a two member distribution channel we establish and compare two models a non cooperative leader follower game and a cooperative game we develop propositions and insights from the comparison of these models the cooperative model achieves better coordination by generating higher channel wide profits than the non cooperative model with these features a the retailer price is lower to consumers and b the advertising efforts are higher for all channel members we identify the feasible solutions to a bargaining problem where the channel members can determine how to divide the extra profits

dynamic pricing and advertising of perishable products with inventory holding costs abstract we examine a special class of dynamic pricing and advertising models for the sale of perishable goods including marginal unit costs and inventory holding costs the time horizon is assumed to be finite and we allow several model parameters to be dependent on time for the stochastic version of the model we derive closed form expressions of the value function as well as of the optimal pricing and advertising policy in feedback form moreover we show that for small unit shares the model converges to a deterministic version of the problem whose explicit solution is characterized by an overage and an underage case we quantify the close relationship between the open loop solution of the deterministic model and the expected evolution of optimally controlled stochastic sales processes for both models we derive sensitivity results we find that in the case of positive holding costs on average optimal prices increase in time and advertising rates decrease furthermore we analytically verify the excellent quality of optimal feedback policies of deterministic models applied in stochastic models

personalized pricing and advertising an asymmetric equilibrium analysis we study personalized price competition with costly advertising among n quality cost differentiated firms strategies involve mixing over both prices and whether to advertise in equilibrium only the top two firms advertise earning bertrand like profits welfare losses initially rise then fall with the ad cost with losses due to excessive advertising and sales by the wrong firm when firms are symmetric the symmetric equilibrium yields perverse comparative statics and is unstable our key results apply when demand is elastic when ad costs are heterogeneous and with noise in consumer tastes

factor income taxation and growth under asymmetric information abstract this paper studies the growth effects of factor income taxation on capital and labor in an endogenous growth model with overlapping generations capital accumulation in our model takes place through credit financed investments in a market with asymmetric information between lenders and borrowers we show that in the presence of asymmetric information capital income taxation worsens the adverse selection problem in the credit market which in turn introduces an additional adverse effect on growth in so doing our analysis provides a new argument in favor of a lower higher capital labor income taxation in funding public expenditures

does school quality matter returns to education and the characteristics of public schools in the united states this paper estimates the effects of school quality measured by the pupil teacher ratio average term length and relative teacher pay on the rate of return to education for men born between 1920 and 1949 using earnings data from the 1980 census we find that men who were educated in states with higher quality schools have a higher return to additional years of schooling rates of return are also higher for individuals from states with better educated teachers and with a higher fraction of female teachers holding constant school quality measures however we find no evidence that parental income or education affects average state level rates of return

empirical age earnings profiles the human capital earnings function in which earnings are expressed as a quadratic in potential experience is probably the most widely accepted empirical specification in economics in spite of its widespread acceptance the human capital earnings function provides a very poor approximation of the true empirical relationship between earnings and experience the standard formulation understates early career earnings growth by about 30 50 and overstates midcareer growth by 20 50 however simple alternative specifications that fit the data are available

the role of intergenerational transfers in aggregate capital accumulation this paper uses historical u s data to directly estimate the contribution of intergenerational transfers to aggregate capital accumulation the evidence presented indicates that intergenerational transfers account for the vast majority of aggregate u s capital formation only a negligible fraction of actual capital accumulation can be traced to life cycle or hump savings a major difference between this study and previous investigations of this issue is the use of more accurate longitudinal age earnings and age consumption profiles these profiles are simply too flat to generate substantial life cycle savings this paper suggests the importance of and need for substantially greater research and data collection on intergenerational transfers life cycle models of savings that emphasize savings for retirement as the dominant form of capital accumulation should give way to models that illuminate the determinants of intergenerational transfers

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

taxation and the intergenerational transmission of human capital abstract how do taxes affect human capital accumulation this question has been studied extensively in the context of two model classes overlapping generations olg and infinite horizon ih models these embody very different assumptions about the intergenerational transmission of physical and human capital olg models typically abstract from intergenerational linkages while ih models implicitly assume that new agents inherit human and physical capital from their parents this paper investigates how such differences in intercohort persistence affect the responsiveness of human capital to taxation a model is developed that nests olg and ih models as special cases analytical expressions for the steady state tax elasticities of human capital are derived for versions of the model with varying degrees of persistence the main finding is that higher persistence increases the responsiveness of human capital to both wage and capital income taxes as a result ih models generate larger tax elasticities than do olg models with incomplete persistence even if cohorts are altruistically linked in a calibrated version of the model moving from no persistence to complete persistence increases the tax elasticity of human capital by a factor between two and three

taxation and growth with overlapping generations abstract this paper examines the growth effects of wage and interest income taxation in an endogenous growth model which is characterized by diminishing point in time returns in human capital producing technology and overlapping generations of two period lived individuals we show that the greater the long term learning time of individuals the more individuals inherit human capital from the previous generation we demonstrate that a flat rate wage tax stimulates economic growth while interest income taxation does not necessarily foster such growth intergenerational redistribution induces individuals to change both physical and human capital accumulation affecting the growth rate through changes in factor prices

a game theoretic approach to coordinate pricing and vertical co op advertising in manufacturer retailer supply chains vertical cooperative co op advertising is a marketing strategy in which the retailer runs local advertising and the manufacturer pays for a portion of its entire costs this paper considers vertical co op advertising along with pricing decisions in a supply chain this consists of one manufacturer and one retailer where demand is influenced by both price and advertisement four game theoretic models are established in order to study the effect of supply chain power balance on the optimal decisions of supply chain members comparisons and insights are developed these embrace three non cooperative games including nash stackelberg manufacturer and stackelberg retailer and one cooperative game in the latter case both the manufacturer and the retailer reach the highest profit level subsequently the feasibility of bargaining game is discussed in a bid to determine a scheme to share the extra joint profit

education borrowing constraints and growth abstract this paper studies the effects of educational borrowing constraints on economic growth and welfare we consider a three period lived overlapping generations model in which individuals finance their educational expenditures by borrowing we show that if the elasticity of human capital to educational expenditure is great enough the relationship between the tightness of the constraints and the growth rate is inverted u shaped when the constraints are binding moreover when the constraints cease to be binding the growth rate is constant we also show that a relaxation of the constraints cannot be pareto improving even if the growth rate rises

dynamic advertising and pricing with constant demand elasticities in this paper we analyze a stochastic dynamic advertising and pricing model with isoelastic demand the state space is discrete time is continuous and the planing horizon is allowed to be finite or infinite a dynamic version of the dorfman steiner identity will be derived explicit expressions of the optimal advertising and pricing policies of the value function and of the optimal advertising expenditures will be given the general results will be used to analyze the case of impatient customers furthermore particular time inhomogeneous models and homogeneous ones with and without discounting will be examined we will study the social efficiency of a monopolist s optimal policies and the consequences of specific subsidies from a buyer s perspective our analysis reveals that waiting when looking at immediate expected prices is never profitable should two or more units be available but we will also prove that the sequence of average sales prices is monotone decreasing moreover the techniques applied to solve the discrete stochastic advertising and pricing problem will be used to solve a related deterministic control problem with continuous state space

an oligopoly model of dynamic advertising competition abstract an oligopoly model is presented that allows the determination of feedback nash equilibrium advertising strategies for an oligopoly analyses of symmetric and asymmetric oligopolies with the model show that unit contribution and advertising effectiveness have positive effects on a competitor s own advertising and steady state sales while discount rate and decay rate have negative effects an asymmetric analysis further shows that unit contribution and advertising effectiveness affect positively and discount rate and decay rate negatively a competitor s rivals advertising but have effects in opposite directions regarding rivals steady state sales the symmetric and asymmetric analyses also show that steady state sales per competitor decline with the number of competitors in the oligopoly while total oligopoly steady state sales increase the model is applied empirically to the triopolistic competition involving anheuser busch sabmiller and molson coors in the beer industry

modeling the impact of product quality on dynamic pricing and advertising policies abstract the marketing mix of price quality and advertising quality relationship is well studied less understood is the price advertising quality relationship this article fills the gap investigating the interplay between price advertising and quality in an optimal control model our results generalize the condition of dorfman steiner in a dynamic context also they point to the impact of greater product quality on the dynamic policies of pricing and advertising furthermore a phase diagram analysis shows that quality develops monotonically in time and converges to a unique steady state we also show that quality investment could either decrease or increase over time but this depends on its effectiveness our results spot the profitable opportunities of a firm managing a more complex marketing mix

a differential game model of the marketing operations interface in the development of their dynamic strategies the marketing and operations functions within a firm have differing objectives and conflict between the two functions is common the strategic interdependence involving marketing and operations decisions is modeled as a noncooperative differential game demand is assumed to be a function of price and advertising goodwill and marketing controls price and advertising to maximize its discounted stream of revenue net of advertising costs backlogging is allowed and operations controls production to minimize its discounted stream of production and backlog costs a feedback nash equilibrium is derived for the game which allows a solution of the system of differential equations for goodwill and backlog and is analyzed to study the nature of the dynamic strategies for price advertising and production

transitional dynamics and economic growth in the neoclassical model neoclassical transitional dynamics are a central element of standard macroeconomic theory quantitative experiments with the fixed savings rate models of the 1960s showed lengthy transitions thus potentially rationalizing sustained differences in growth rates across countries the authors investigate quantitative transitional dynamics in various neoclassical models with intertemporally optimizing households lengthy transitions occur only with very low intertemporal substitution generally when one tries to explain sustained economic growth with transitional dynamics there are extremely counterfactual implications these result from the fact that implied marginal products are extraordinarily high in the early stages of development copyright 1993 by american economic association

inflation and growth pecuniary transactions costs and qualitative equivalence this paper develops a pecuniary transactions costs tc approach to reexamine the principal relationships and results concerning inflation and growth in a model with a general tc function and an endogenous labor leisure choice we consider four special cases by distinguishing among money as 1 a consumption good 2 a production good 3 an investment good and 4 a consumption good as well as an investment good under some weaker conditions as in related studies a reversed tobin effect obtains for all cases a high monetary growth rate leads to lower steady state capital labor consumption and real money balances these findings suggest that a pecuniary tc model is qualitatively equivalent to alternative models in the literature

savings and wealth in models with altruistic bequests during recent years much attention has been given to the role of bequests in explaining various aspects of economic behavior for example authors have studied the impact of bequests on physical wealth accumulation laurence kotlikoff and lawrence summers 1981 the interest elasticity of savings owen evans 1983 tax reform laurence seidman 1984 and the distribution of wealth alan blinder 1976a more recently economists have begun to distinguish between human and physical bequests gary becker and nigel tomes 1986 acknowledging the presence of bequest in human form is important in analyzing each of the issues mentioned above outlays on children affect the shape of the family s labor supply and expenditure profiles upon which the level of aggregate savings crucially depends if these outlays are interest sensitive substitutes for physical bequests they will also influence the interest elasticity of savings in the area of tax reform the neutrality of the consumption tax depends on the ability of the government to identify human capital bequests from general consumption raymond batina 1987 if this is not possible the portfolio choice of investment in human versus physical capital may be distorted at the margin finally the unequal transmission of wealth across generations may be explained by the lack of physical bequests and the inefficiently low levels of human bequests made by wealthconstrained households becker and tomes 1986 to distinguish clearly the behavior of constrained households from unconstrained households who make sizeable physical bequests both types of bequests must be recognized this paper introduces a model that makes explicit examination of these issues possible it extends lord s 1989 multiperiod model of life cycle savings and adult human capital investment by adding altruistically motivated human and physical bequests 2 the model is calibrated using microeconomic data on earnings time and goods expenditures on children s human capital and physical bequests we then use the model to examine the contribution of bequests to wealth accumulation and the level of savings this topic is the source of an important but yet unresolved debate between franco modigliani 1988 and kotlikoff 1988 kotlikoff maintains that u s wealth accumulation is primarily the consequence of bequests as opposed to life cycle savings for retirement one type of evidence cited by kotlikoff comes from simulation results demonstrating the failure of realistically calibrated life cycle models to generate sufficiently high saving rates and wealth income ratios alan auerbach and kotlikoff 1987 we show however that if a pure life cycle

optimal joint dynamic pricing advertising and inventory control model for perishable items with psychic stock effect abstract in this study a joint pricing advertising and inventory control problem will be investigated for a firm selling perishable products with psychic stock effect the proposed problem is analyzed in the deterministic multi period setting in which demand at each period depends on not only the amount of inventory displayed and advertising goodwill affected by the firm s current and past advertising efforts but also selling price and freshness index the objective is to determine the optimal pricing advertising and psychic stock strategies maximizing the discount total profit over the infinite planning horizon our theoretical results prove that the firm would adopt a static pricing strategy and then demonstrate that the optimal paths of the advertising goodwill and psychic stock can be determined uniquely we also show that the convergence of the advertising goodwill towards its equilibrium is from above or below depending on the relative location of the initial stock of advertising goodwill with respect to the unique equilibrium stock of advertising goodwill moreover a set of structural properties is developed to explore the relationships among the optimal decisions finally the concluding remarks and suggestions will be provided for future studies

redistribution and education subsidies are siamese twins abstract we develop models of optimal linear and non linear income taxation with endogenous human capital formation to explore optimal education subsidies optimal subsidies on education ensure efficiency in human capital accumulation and thus play an important role in alleviating the tax distortions on learning induced by redistributive policies if the government cannot verify all investments in human capital education policy offsets some but not all tax induced distortions on learning non pecuniary educational costs benefits may increase decrease subsidies on education especially if they are complementary to work effort

optimal pricing and advertising policies for new product oligopoly models in this paper our previous work on monopoly and oligopoly new product models is extended by the addition of pricing as well as advertising control variables these models contain bass s demand growth model and the vidale wolfe and ozga advertising models as well as the production learning curve model and an exponential demand function the problem of characterizing an optimal pricing and advertising policy over time is an important question in the field of marketing as well as in the areas of business policy and competitive economics these questions are particularly important during the introductory period of a new product when the effects of the learning curve phenomenon and market saturation are most pronounced we consider first the monopoly case with linear advertising cost exponential demand and three different pricing rules the optimal variable pricing the instantaneous marginal pricing and the optimal constant pricing rules several theoretical results are established for these rules including the facts that the instantaneous marginal pricing rule is a myopic version of the optimal pricing rule and the optimal constant pricing rule is a weighted average over time of the instantaneous marginal pricing rule another surprising result is that after the market is at least half saturated a pulse of advertising must be preceded by a significant drop in price numerical solutions of a number of examples are discussed oligopolistic models are analyzed as nonzero sum differential games in the rest of the paper the state and adjoint equations are easy to write down but impossible to solve in closed form hence we describe how to reformulate these models as discrete differential games and give a numerical algorithm for finding open loop nash solutions the latter was used to solve three triopoly models in each case it was found that optimal prices and advertising rates start high and steadily decline

balance of payments adjustment in low income developing countries the experiences of kenya and tanzania in the 1970s abstract in the wake of the oil price shock of the mid 1970s the two low income economies of kenya and tanzania adopted growth oriented adjustment strategies the oil shock also coincided with drought which affected tanzania much more adversely by the end of the 1970s the glaring failures in the two countries adjustment performance was in relation to balance of payments and in particular to export growth pricing policies in agriculture were actively applied in the two countries the results of these policies continue to underline the importance of a farmer rewarding price policy but also indicate a strong possibility of crop substitution problems in low income economies special measures were applied to promote manufactured exports subsidies in kenya and primary export processing in tanzania but they were a conspicuous failure policy lessons from these experiences are briefly indicated

a simulation analysis of alternative pricing strategies for dynamic environments the implicit assumption of the classical economic model of price determination is that the firm maximizes short run profits however one of the key implications of strategy research of the past decade is that short run profit maximization is not an appropriate criterion for many market situations instead market share has been proposed as the key to long term profitability see e g buzzell gale and sultan 1974 abell and hammond 1979 this proposition has had a strong impact on both marketing practice and research hopkins 1981 reports that 88 of industrial firms surveyed spell out market share goals in detail the emphasis on market share in practice has been reflected in the theoretical side also where numerous market share forecasting and maximizing models have been published long term profitability has also become a research interest in its own right more than a dozen papers have appeared in major journals since 1975 the impetus to this activity has been the recognition of the existence of intertemporal effects in the environment for example on the demand side a consumer s purchasing in a given time period may preclude purchasing in the future because of the durability of the good or personal inventory loading on the supply side added current production early in new product introduction may reduce the cost of future proresearchers of the strategic implications of the well known demand e g adoption and diffusion and supply e g experience effects dynamics have typically sought analytical solutions their success in this has been achieved partly by limiting the richness of the dynamics considered this paper describes a simulation modeling capability simstrat which trades off analytical solutions for richer more realistic representations of supply and demand we present the model and then the results of our initial investigations using simstrat when joined with new computer graphics capabilities the model is successful in identifying conditions conducive to skimand penetration pricing strategies

recent developments in dynamic advertising research a variety of continuous time differential functions have been developed to investigate dynamic advertising problems in business and economics fields since major dynamic models appearing before 1995 have been reviewed by a few survey papers we provide a comprehensive review of the dynamic advertising models published after 1995 which are classified into six categories i nerlove arrow model and its extensions ii vidale wolfe model and its extensions iii lanchester model and its extensions iv the diffusion models v dynamic advertising competition models with other attributes and vi empirical studies for dynamic advertising problems for each category we first briefly summarize major relevant before 1995 models and then discuss major after 1995 models in details we find that the dynamic models reviewed in this paper have been extensively used to analyze various advertising problems in the monopoly duopoly oligopoly and supply chain systems our review reveals that the diffusion models have not been used to analyze advertising problems in supply chain operations which may be a research direction in the future moreover we learn from our review that very few publications regarding dynamic advertising problems have considered the supply chain competition we also find that very few researchers have used the diffusion model to investigate the dynamic advertising problems with product quality as a decision variable and the pricing decision has not been incorporated into any extant lanchester model the paper ends with a summary of our review and suggestions on possible research directions in the future

monopolist pricing with dynamic demand and production cost this paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream the interdependency of cost and demand on cumulative production makes the problem inherently dynamic cost is assumed to be declining with cumulative production learning curve effect while demand is a function of price and cumulative sales representing word of mouth and saturation effects the paper addresses this problem in a general framework that includes several previous results as special cases and provides new insights in other situations while the learning curve and word of mouth effect cause prices to be lower than the price that maximizes immediate revenues the saturation factor has the opposite effect the price path over time is affected by these factors and the interest rate we characterize the price path under several different situations and interpret the results for policy guidelines