income dispersion and counter cyclical markups recent advances in measuring cyclical changes in the income distribution raise new questions how might these distributional changes affect the business cycle itself we show how counter cyclical income dispersion can generate counter cyclical markups in the goods market without any preference shocks or price setting frictions in recessions idiosyncratic labor productivity shocks raise income dispersion lower the price elasticity of demand and increase imperfectly competitive firms optimal markups the calibrated model explains not only many cyclical features of markups but also cyclical and long run patterns of standard business cycle aggregates

capital markets and urban unemployment in this paper we investigate conditions under which reductions in distortions in one market improve national welfare despite the presence of distortions in another market the specific distortions we study are a differential between capital rentals and a rigid urban wage we also introduce a diagrammatic technique which may find use in the analysis of other problems

the law of demand and risk aversion this note proposes a necessary and sufficient condition on a utility function to guarantee that it generates a demand function satisfying the law of demand this condition can be interpreted in terms of an agent s attitude towards lotteries in commodity space as an application we show that when an agent has an expected utility function her demand for securities satisfies the law of demand if her coefficient of relative risk aversion does not vary by more than 4

the backward incidence of pollution control a dual approach abstract the backward incidence of pollution control is reexamined using the techniques of duality theory the simple geometry used establishes the results and clarifies them without the complicated mathematical manipulations required in earlier works thereby making the material more attractive for classroom presentation

latin america s declining skill premium a macroeconomic analysis the decline in latin america s skill premium and income inequality during the 2000s was partly driven by an economic expansion that favored low skill intensive service sectors evidence shows inequality becomes countercyclical in the 2000s and unlike previous expansions the boom was concentrated on services while manufacturing lagged behind i build an open economy general equilibrium model that features a low skill intensive nontradable sector the model suggests that favorable shocks to commodity prices and international interest rate spreads such as those that buffeted latin america in the 2000s account for about a fifth of the observed decline in the skill premium jel d31 e32 f41 o15 o54

a folk theorem for one shot bertrand games we show that bounded monopoly profits are essential for the uniqueness of the bertrand paradox zero profit outcome otherwise a folk theorem obtains for one shot homogeneous product bertrand games any positive but finite payoff vector can be achieved in a symmetric mixed strategy nash equilibrium

on behavioral complementarity and its implications we study the behavioral definition of complementary goods if the price of one good increases demand for a complementary good must decrease we obtain its full implications for observable demand behavior its testable implications and for the consumer s underlying preferences we characterize those data sets which can be generated by rational preferences exhibiting complementarities the class of preferences that generate demand complements has leontief and cobb douglas as its as extreme members

twin picks disentangling the determinants of risk taking in household portfolios this paper investigates risk taking in the liquid portfolios held by a large panel of swedish twins we document that the portfolio share invested in risky assets is an increasing and concave function of financial wealth leading to different risk sensitivities across investors human capital which we estimate directly from individual labor income also affects risk taking positively while internal habit and expenditure commitments tend to reduce it our microfindings lend strong support to decreasing relative risk aversion and habit formation preferences furthermore heterogeneous risk sensitivities across investors help reconcile individual preferences with representative agent models

protectionism labor mobility and immiserizing growth in developing economies abstract in a small tariff ridden developing economy with imperfect labor mobility we show that capital accumulation may not immiserize even with foreign rent repatriation employment creation effects can outweigh losses in tariff revenue with perfect immobility immiserization cannot occur without repatriation

independence of irrelevant alternatives and revealed group preferences it is shown that a pareto optimal and continuous single valued choice function defined on the compact convex subsets of the positive orthant of the n dimensional euclidean space maximizes a real valued function if and only if it satisfies the independence of irrelevant alternatives condition if n 2 and the strong axiom of revealed preference otherwise the results can be applied to consumer demand theory to deal with nonlinear budget sets and to bargaining game theory to generalize the nash bargaining solution

inequality and the business cycle evidence from u s survey data we study the effects of macroeconomic shocks on measures of economic inequality obtained from u s survey data to identify aggregate supply aggregate demand and monetary policy shocks we estima

migration theories and evidence an assessment abstract this paper presents a critical survey of theories of migration their welfare and policy implications and their empirical relevance we also develop some extensions to the theory beginning with the harris and todaro ht model in particular the ht model is extended to examine risk averse behaviour within families where the migration of members of families serves to diversify risk the welfare implications of the individual migration decision and government intervention in the form of employment subsidies are examined recent evidence on international migration is presented it is shown that migration does not flow automatically in response to wage differentials characteristics of migrants and the process of self selection are found to be important determinants of the rate of migration

uniqueness stability and comparative statics in rationalizable walrasian markets this paper studies the extent to which qualitative features of walrasian equilibria are refutable given a finite data set in particular we consider the hypothesis that the observed data are walrasian equilibria in which each price vector is locally stable under t tonnement our main result shows that a finite set of observations of prices individual incomes and aggregate consumption vectors is rationalizable in an economy with smooth characteristics if and only if it is rationalizable in an economy in which each observed price vector is locally unique and stable under ttonnement moreover the equilibrium correspondence is locally monotone in a neighborhood of each observed equilibrium in these economies thus the hypotheses that equilibria are locally stable under t tonnement equilibrium prices are locally unique and equilibrium comparative statics are locally monotone are not refutable with a finite data set

tax on foreign capital income and wage subsidy to the urban sector in the harris todaro model abstract we consider endogenous foreign capital inflow in the different versions of harris todaro model wage subsidies are financed by taxing the foreign capital income which is otherwise repatriated their effects on unemployment and national income are analysed

the welfare cost of business cycles revisited finite lives and cyclical variation in idiosyncratic risk abstract this paper investigates the welfare costs of business cycles in a heterogeneous agent overlapping generations economy which is distinguished by idiosyncratic labor market risk aggregate variation arises both in terms of aggregate productivity shocks and countercyclical variation in the volatility of idiosyncratic shocks based on both aggregate data and microeconomic data from the panel study on income dynamics we find the welfare benefits of eliminating aggregate variation to be large an order of magnitude larger than those originally documented by lucas 1987 the key difference is countercyclical variation in idiosycratic risk which both amplifies the welfare cost of aggregate productivity shocks and imposes a cost of its own the magnitude of these effects increases non linearly in risk aversion our results therefore are consistent with the increasingly popular notion that distributional effects are an important aspect of understanding the welfare cost of business cycles

the aggregate implications of machine replacement theory and evidence the authors study an economy in which producers incur resource costs to replace depreciated machines the process of costly replacement and depreciation creates endogenous fluctuations in productivity employment and output of a single producer the authors explore the spillover effects of machine replacement on other sectors of the economy and provide conditions for synchronized machine replacement by multiple independent producers the implications of their model are generally consistent with observed monthly output employment and productivity fluctuations in automobile plants synchronization of retooling across plants within the auto industry is widespread so that the fluctuations observed at the plant level have aggregate implications copyright 1993 by american economic association

on the microeconomic foundations of linear demand for differentiated products abstract this paper provides a thorough exploration of the microeconomic foundations for the multi variate linear demand function for differentiated products which is widely used in industrial organization the setting is the standard representative consumer with a quasi linear utility function a key finding is that strict concavity of the quadratic utility function is critical for the demand system to be well defined otherwise the true demand function may be quite complex multi valued non linear and income dependent we uncover failures of duality relationships between substitute products and complementary products as well as the incompatibility between high levels of complementarity and concavity the two good case emerges as a special case with strong but non robust properties a key implication is that all conclusions derived in applied economic models via the use of linear demand that does not satisfy the law of demand ought to be regarded with some suspicion

complementarity between import competition and import promotion abstract growth in the import competing output is usually accompanied by a decline in the volume of imports of the product this result may change when we consider intermediate goods we develop a multi sector general equilibrium model to show that larger local output of an intermediate good may also imply larger imports of the same journal of economic literature classification numbers f1 f11 f13

normality of demand in a two goods setting we study the testable implications of normal demand in a two goods setting for a finite dataset on prices and quantities we present the revealed preference conditions for normality of one or both goods our characterization provides an intuitive extension of the well known weak axiom of revealed preference and is easy to use in practice we illustrate the empirical relevance of our theoretical results through an application to the experimental dataset presented in andreoni and miller 2002

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

giffen goods and the law of demand the paradoxical aspect of the giffen paradox is the inability of demand theory to explain why giffen goods are apparently so rare the resolution of the paradox arises from the distinction between the shape of market demand curves and the sequence of equilibrium prices that will be observed in markets in which quantity supplied changes the sense in which the giffen case is unlikely to occur is that the probability of identifying a giffen good is less than the probability that such a good exists

risk preferences in multi period consumption models the equity premium puzzle and habit formation utility abstract the relationship between the relative risk aversion measure for the utility function for consumption and that for the value function for wealth is a derived relationship whose properties depend on how consumption and wealth are defined and measured this fact together with information concerning estimates for these two relative risk aversion measures is used to give another perspective on the equity premium puzzle and to explain why it is that the habit formation utility function is effective in eliminating that puzzle a time separable utility function that can serve as an alternative to the assumption of habit formation is also presented

international capital mobility shadow prices and the cost of protection this paper studies the welfare losses from tariff protection in a small open economy when some factors are internationally mobile our principal result is that international fictor mobility must raise the cost of protection more specifically the welfare loss resulting from a uniform increase in tariffs in a competitive small open economy is greater when tariff induced international factor movements take place than when factors are internationally immobile by contrast an exogen1ous inflow of factors in the presence of tariffs may increase or reduce the welfare loss associated with protection depending on whether or not the protected commodities use the foreign owned factors intensively relative to domestically owned factors these results are proven for a very general specification of the economy s technology in particular no restrictions are placed on the degree of vertical integration in production on the sectors into which factors are internationally mobile or on the number of goods and factors our main result holds whether or not an increase in tariff rates leads the economy to specialise in addition we show how our results relate to earlier work on immiserising capital inflows and on negative shadow prices for factors of production thus synthesizing a number of recent results within a common framework the paper is organised as follows in section 2 we explain our framework and derive expressions for the welfare effects of tariffs when all factors are domestically owned and when some factors are foreign owned but not internationally

transformations of the commodity space behavioral heterogeneity and the aggregation problem aggregation in exchange markets is studied by imposing restrictions on distributions of the households characteristics approximate bounds for market demand price elasticities that depend upon specific measures of behavioral heterogeneity are provided increasing behavioral heterogeneity makes aggregate expenditures more independent of prices this has strong consequences for the prevalence in the aggregate of the weak axiom of revealed preference of gross substitutability and on uniqueness and stability of the walrasian exchange equilibrium these strong macroeconomic regularities are obtained essentially through distributional assumptions as no rationality requirements are imposed on individual demand functions other than homogeneity and walras law journal of economic literature classification numbers d11 d41 d50 el 1992 academic press lnc there are still quite a few unpleasant gaps nowadays between macroanalysis and microanalysis of socioeconomic systems a leading instance drawn from social choice theory is arrow s celebrated impossibility theorem 1 which states that any attempt to aggregate individual preferences into a consistent social ordering or a collective choice procedure satisfying a few appealing requirements is bound to fail the impossibility arises however only if one insists that the procedure should work for every possible environment or in other words for all distributions of individual preferences a possible resolution of the problem is therefore to identify broad classes of distributions of preferences for which aggrega the bulk of the research reported in this paper was essentially done at yale university during the fall semester of 1990 i thank all my colleagues for their support and comments especially martin shubik herbert scarf and truman bewley i also had very useful conversations with jorgen weibull mike jerison andreu mas colell christian gouri6roux camille bronsard guy laroque bruno jullien and bernard caillaud i am much indebted to ai klevorick for his comments on an earlier draft but my greatest debt is to werner hildenbrand whose pioneering insights and stubborn insistance have over the years kept quite a few of us struggling beyond the fads of the moment with the aggregation problem our profession is fortunate indeed to have him around

second mover advantage and price leadership in bertrand duopoly we consider the issue of first versus second mover advantage in differentiated product bertrand duopoly with general demand and asymmetric linear costs we generalize existing results for all possible combinations where prices are either strategic substitutes and or complements dispensing with common extraneous and restrictive assumptions we show that a firm with a sufficiently large cost lead over its rival has a first mover advantage for the linear version of the model we invoke a natural endogenous timing scheme coupled with equilibrium selection according to risk dominance the analysis yields as the unique equilibrium outcome sequential play with the low cost firm as leader

inferior good and giffen behavior for investing and borrowing 1971 shows that the risky asset is a normal good its demand is increasing with income or wealth if the arrow pratt measure of absolute risk aversion is decreasing arrow also proves that a sufficient condition for the income elasticity of demand for the risk free asset to be greater than one is that relative risk aversion is increasing aura diamond and geanakoplos 2002 point out that these two results together imply that both assets are normal goods however if one relaxes either the assumption that the risk free asset is held long or that preferences exhibit increasing relative risk aversion we show that the risk free asset can be an inferior good moreover it can even be a giffen good where cor responding to an own price increase the asset s positive income effect swamps the negative substitution effect resulting in increased demand what is particularly sur prising is that both inferior and giffen good behavior can be exhibited for members of the widely popular hara hyperbolic absolute risk aversion family of utility functions 1 this is in contrast to much of the classic demand theory literature where very special forms of utility need to be constructed to produce giffen behavior see for instance doi iwasa and shimomura 2009 we consider two examples of hara utility functions of the form w x x a where 1 x denotes consumption and absolute risk aversion is decreasing for the case where a 0 this utility satisfies the arrow requirement of increasing relative risk aversion but when the risk aversion parameter is sufficiently large the risk free asset will always be an inferior good over some income range where it is held short for a 0 where relative risk aversion is decreasing we show that the risk free asset will always be a giffen good for some combination of prices and income moreover distinct regions in the price income space are identified where the risk free asset exhibits normal good inferior good and giffen behavior in fact the only member of the hara class for which the risk free and risky assets are both always normal goods is the very special constant relative risk aversion crra form 2 we also provide a non hara example for which relative

wage subsidies and distortionary taxes in a mobile capital harris todaro model in prescribing policy to eliminate or mitigate the effects of labour market distortions some form of wage subsidy is usually among the highest ranking options rarely is the source of revenues for these subsidies treated as an explicit issue this omission has special significance for the harris todaro h t model of the labour market since the policy most frequently recommended whether capital is sector specific or intersectorally mobile is an across the board wage subsidy 2 this effectively eliminates the possibility of taxing one subset of sectors rather than subsidizing its complement an option often favoured by those theorists who concern themselves with revenue considerations the next section of this paper sets forth the model of a small open h t economy with mobile capital that is the basis for this analysis section ii re examines three wage subsidies on manufacturing wages on agricultural wages or on both sectors assuming that resources for the subsidies are raised by an across the board tax on profits this is in the tradition of cordenfindlay and we replicate their results though stating them in more precise form so that we might have a standard for later comparison the subsequent sections examine the effects of these subsidies on unemployment and resource allocation if they are financed by a tax on profits in the manufacturing sector section iii or by import tariffs section iv owing to the second best nature of the h t model it will be demonstrated that taxes normally considered distortionary in their own right can be superior to an across the board tax if revenues are constrained and can be very useful instruments if it is the variety of policy tools that is limited section v concludes with a ranking of the various subsidy tax packages

possibility or impossibility of paradoxes in the small country harris todaro framework a unifying analysis abstract in this paper we argue that the harris todaro ht framework sometimes satisfies an envelope property which makes it work like a full employment heckscher ohlin samuelson hos model then the ht structure produces very similar results as one gets in the standard hos framework differences arise because the envelope condition may break down we show how several celebrated results in the ht structure can have this reinterpretation

capital markets urban unemployment and land abstract this paper shows that the remarkable result by khan and naqvi that a reduction in the capital rental differential always improves welfare despite the presence of a rigid urban wage can be obtained only for the 2 2 harris todaro model in an extended harris todaro framework incorporating a third specific factor a decrease in a distortion may not necessarily be welfare improving

aggregation without separability a generalized composite commodity theorem this paper provides general conditions for aggregating commodities without separable utility these conditions impose weaker and more empirically plausible restrictions on price movements than the currently existing alternative to separability the hicks leontief composite commodity theorem the idea is to allow departures from hicks leontief that take the form of well behaved error terms utility functions that permit generalized composite commodity aggregation include the aids model the translog all homothetic utility functions and any utility function when demands are aggregated to two groups of goods implications of empirical nonstationarity of relative prices for aggregation and demand estimation are considered copyright 1996 by american economic association

the locational choice for free trade zones rural versus urban options abstract urban and rural areas are compared as appropriate locations for a free trade zone within a developing country suffering from urban unemployment if domestic capital is mobile between the two regions then the rural area is shown to be preferable to the urban area and sufficient conditions for this conclusion are presented this conclusion may be reversed however if capital is sector specific the condition for this reversal is also discussed

foreign capital and protectionism in terms of a simple model it is shown that the growth in the export processing zone through an influx of foreign owned capital reduces welfare for an economy importing capital intensive goods and following a protectionary policy similarly it follows that growth in the export processing zone should benefit economies importing labor intensive goods

the uncompensated law of demand a revealed preference approach abstract milleron and malinvaud 1974 mityushin and polterovich 1978 and others provide conditions under which the uncompensated law of demand uld holds these conditions are based on properties of the consumer s unobservable utility function in this paper we introduce the new idea of a giffen commodity vector and show how in terms of it and the derivative of a consumer s inverse demand a new necessary and sufficient condition for the uld may be obtained as both the giffen vector and a consumer s inverse demand are observable this allows us to obtain a revealed preference style necessary and sufficient condition for the uld without relying on conditions based on unobservables such as differential or curvature properties of a consumer s utility function

implementation cycles investment and growth we develop a model of intrinsic cycles driven by the decentralized behavior of entrepreneurs and firms making continuous divisible improvements in their productivity we show that when the introduction of productivity improvements is endogenous implementation cycles arise even in the presence of reversible investment and consumption smoothing the implied cyclical equilibrium is unique within its class and shares several features in common with actual business cycles in particular its predictions are qualitatively consistent with the joint behavior of the investment rate and tobin s q during u s recessions

nonparametric engel curves and revealed preference this paper applies revealed preference theory to the nonparametric statistical analysis of consumer demand knowledge of expansion paths is shown to improve the power of nonparametric tests of revealed preference the tightest bounds on indifference surfaces and welfare measures are derived using an algorithm for which revealed preference conditions are shown to guarantee convergence nonparametric engel curves are used to estimate expansion paths and provide a stochastic structure within which to examine the consistency of household level data and revealed preference theory an application is made to a long time series of repeated cross sections from the family expenditure survey for britain the consistency of these data with revealed preference theory is examined for periods of consistency with revealed preference tight bounds are placed on true cost of living indices

anomalous behavior in a traveler s dilemma the notion of a nash equilibrium has joined supply and demand as one of the two or three techniques that economists instinctively try to use first in the analysis of economic interactions moreover the nash equilibrium and closely related game theoretic concepts are being widely applied in other social sciences and even in biology where evolutionary stability often selects a subset of the nash equilibria many people are uneasy about the stark predictions of the nash equilibrium in some contexts where the extreme rationality assumptions seem implausible kaushik basu s 1994 traveler s dilemma is a particularly convincing example of a case where the unrelenting logic of game theory is at odds with intuitive notions about human behavior the story associated with the dilemma is that two travelers purchase identical antiques while on a tropical vacation their luggage is lost on the return trip and the airline asks them to make independent claims for compensation in anticipation of excessive claims the airline representative announces

a note on the stability of the harris todaro model with capital mobility the present note derives the exact stability condition for the harris todaro model with intersectoral capital mobility where land is explicitly included as a third scarce factor in agriculture while the previous study by neary states the difficulty of deriving a clear cut result in such a case this note demonstrates that if capital and land are never technologically substitutes in the agriculture production neary s condition that the urban sector is more capital abundant than the rural sector becomes a sufficient condition for local stability in an important article in this journal neary 1981 considered the stability of the harris todaro model with intersectoral capital mobility among other things neary showed that when relative commodity prices are fixed and capital and labour are subject to constant returns to scale in agriculture an unspecialized equilibrium is dynamically stable if and only if the urban sector is capital abundant relative to the rural sector however in the original work by harris and todaro 1970 the fixed availability of land is included in the agriculture production function hence strictly speaking the stability condition quoted above is not for the original harris todaro model with intersectoral capital mobility on this point neary concluded that the introduction of a third scarcefactor land in agriculture greatly complicates the analysis and makes it impossible to derive simple and clear cut results the present note argues that a definite result can be derived if the normality property of factors of production which was utilized by rader 1968 and suzuki 1985 is assumed

stability of the mobile capital harris todaro model some further results a necessary and sufficient condition for stability is derived for the mobile capital harris todaro model of rural to urban migration in developing countries when land is a scarce factor in agriculture the stability condition when land is ignored that the urban sector comprising manufacturing industry and the urban unemployed be more capital abundant is no longer either necessary or sufficient for stability nevertheless this condition always enhances stability and it is sufficient though not necessary for stability in many circumstances e g when land is separable in production from labour and capital intuitive explanations of these conditions are provided excerpt

risk ambiguity and giffen assets abstract we provide necessary and sufficient conditions for the demand for financial assets to satisfy the law of demand prices and quantity demanded move in opposite directions when preferences take the expected utility multiplier preferences choquet expected utility and the maxmin expected utility forms for the first three models the law of demand holds when the variation in the coefficient of relative risk aversion stays within a specified bound ensuring the law of demand holds in the maxmin expected utility model requires constant relative risk aversion

welfare consequence of capital inflow for a small tariff protected economy abstract capital inflow is generally immiserizing when the capital intensive import competing sector is tariff protected and profits are repatriated in full in this paper we construct a model with increasing returns embedded in a monopolistically competitive market to show that capital inflow might lead to higher factor income and interestingly enough growth of import competing sector might lead to still higher imports thus two distinct possible channels are identified through which welfare might improve

wage dispersion over the business cycle abstract in this paper i provide robust evidence that fluctuations in wage dispersion are independent of the business cycle while residual wage dispersion i e dispersion of wages within narrowly defined demographic and skill groups of workers increases during booms and lessens during recessions moreover i show that the procyclical fluctuations in residual wage dispersion are mainly generated by cyclical changes in the upper half of the residual wage distribution

earnings inequality and the business cycle abstract economists have long viewed recessions as contributing to increasing inequality however this conclusion is largely based on data from a period in which inequality was increasing over time this paper examines the connection between long run trends and cyclical variation in earnings inequality we develop a model in which cyclical and trend inequality are related and find that in our model recessions tend to amplify long run trends i e they involve more rapidly increasing inequality when long run inequality is increasing and more rapidly decreasing inequality when long run inequality is decreasing in support of this prediction we present evidence that during the first half of the 20th century when earnings inequality was generally declining earnings disparities indeed appeared to fall more rapidly in downturns at least among workers at the top of the earnings distribution

the cycle of earnings inequality evidence from spanish social security data we use detailed information on labor earnings and employment from social security records to document the evolution of male daily earnings inequality in spain from 1988 to 2010 we find that inequality was strongly countercyclical it increased around the 1993 recession experienced a substantial decrease during the 1997 2007 expansion and then a sharp increase during the recent recession this evolution went in parallel with the cyclicality of employment in the lower middle part of the wage distribution our findings highlight the importance of the housing boom and bust in this evolution suggesting that demand shocks in the construction sector had large effects on aggregate labor market outcomes

does inequality lead to a financial crisis abstract the recent global crisis has sparked interest in the relationship between income inequality credit booms and financial crises rajan 2010 and kumhof and ranciere 2011 propose that rising inequality led to a credit boom and eventually to a financial crisis in the us in the first decade of the 21st century as it did in the 1920s data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships credit booms heighten the probability of a banking crisis but we find no evidence that a rise in top income shares leads to credit booms instead low interest rates and economic expansions are the only two robust determinants of credit booms in our data set anecdotal evidence from us experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality credit crisis nexus rather it points back to a familiar boom bust pattern of declines in interest rates strong growth rising credit asset price booms and crises

revealed preference analysis of characteristics models characteristics models have been found to be useful in many areas of economics however their empirical implementation tends to rely heavily on functional form assumptions in this paper we develop a revealed preference approach to characteristics models we derive the necessary and su cient empirical conditions under which data on the market behaviour of heterogeneous price taking consumers are nonparametrically consistent with the consumer characteristics model where these conditions hold we show how information may be recovered on individual consumer s marginal valuations of product attributes in some cases marginal valuations are point identi ed and in other cases we can only recover bounds where the conditions fail we highlight the role which the introduction of unobserved product attributes can play in rationalising the data we implement these ideas using consumer panel data on the danish milk market

tariffs foreign capital and national welfare with sector specific factors abstract this paper examines the effect on national welfare of an endogenously determined inflow of foreign capital in the context of a well known model with sector specific inputs both for the case of unrestricted international trade and investment and in the presence of a tariff the second best problem of the optimal tax on foreign investment for a given tariff level is also investigated by application of the concept of shadow prices for primary factors in distorted open economies the results obtained are then related to analogous propositions derived previously for the standard heckscher ohlin model

protection and the gainful effects of foreign capital abstract an increased foreign capital inflow into a protected sector is generally immiserizing we show that if the protected sector produces an intermediate input positive welfare effects may emerge a striking result is that it might lead to an increased import demand for the intermediate input which is a substitute for the product of the import competing sector

a new look at the classical bertrand duopoly abstract the paper provides necessary and sufficient conditions for the uniqueness of pure strategy nash equilibrium in the standard bertrand duopoly with a homogeneous product the main condition is elementary easy to interpret and nests all known sufficient conditions in the literature

foreign capital inflows and welfare in an economy with imperfect competition abstract this paper examines the resource allocational and welfare effects of exogenous inflows of foreign capital in a general equilibrium model with oligopolistic competition and unemployment although the welfare impact for the short run is ambiguous and dependent upon the strength of excess profits and scale economies relative to unemployment in manufacturing in the long run additional inflows of foreign capital always improve national welfare with capital mobility hence attracting foreign capital remains a sound policy for economies characterized by imperfect competition scale economies and regional unemployment

the monotonicity of individual and market demand this paper studies the monotonicity of individual and market demand with the aid of the indirect utility function we identify sufficient and in a sense necessary conditions on an agent s indirect utility which will guarantee that he has a monotonic demand function our conditions also point to a natural way of extending the result of hildenbrand 1983 hildenbrand showed that market demand is monontonic if the income distribution has a downward sloping density even though individual agents demand function might violate monotonicity using the indirect utility function we introduce a measure of violations of individual monotonicity that allows us to identify a larger class of density functions that will generate a monotonic market demand

savings and portfolio choice in a two period two asset model we extend arrow s analysis of portfolio choice in a one period model to savings and portfolio choice in a two period model this abstract was borrowed from another version of this item

small income effects a marshallian theory of consumer surplus and downward sloping demand we formalize the marshallian idea that when the proportion of income spent on any commodity is small then the income effects are small if n is the number of goods we show under certain assumptions on preferences and prices that the order of magnitude of the norm of the income derivative of demand is 1 n as a corollary we get that for the case of a single price change the percentage error in approximating the hicksian deadweight loss by its marshallian counterpart goes to zero at least at the rate 1 n and that demand is downward sloping for n large enough

on the harris todaro model with intersectoral capital mobility n b professor neary was based at trinity college dublin when this article was first published the full text of the article is not available in ora at this time citation neary j p 1981 on the harris todaro model with intersectoral capital mobility economica 48 191 219 234

safe port in a storm the impact of labor market conditions on community college enrollments the paper examines the impact of the business cycle on enrollments and finances at individual community colleges between the late 1960s and the mid 1980s we find that 1 percent increases in the unemployment rates of recent high school graduates and of all adults are associated with rises in full time attendance of about 0 5 percent and 4 percent respectively part time enrollment exhibits similar anticyclical patterns this link carries over in large part to degrees obtained in contrast state and local appropriations per student are procyclical we interpret this funding pattern as a failure to integrate education policy sufficiently closely with labor market policy

technological progress mobility and economic growth this paper analyzes the relationship between technological progress wage inequality intergenerational earnings mobility and economic growth in periods of major technological inventions a decline in the relative importance of initial conditions raises inequality enhances mobility and generates a larger concentration of high ability individuals in technologically advanced sectors stimulating future technological progress and growth however once technologies become more accessible mobility is diminished and inequality decreases but becomes more persistent the reduction in the concentration of ability in technologically advanced sectors diminishes the likelihood of technological breakthroughs and slows future growth user friendliness therefore becomes unfriendly to future economic growth copyright 1997 by american economic association

export restrictions urban unemployment and the location of processing activities abstract in a general equilibrium model with processing and urban unemployment we demonstrate that export restrictions enhance welfare only when processing is labor intensive and located rurally when processing is capital intensive or located in the urban region welfare necessarily falls

the uncompensated law of demand in an exchange economy abstract recently in these letters franks and bryant 2017 provided new necessary and sufficient conditions for the uncompensated law of demand uld when consumer income is exogenous and not price dependent we now consider price dependent incomes and provide new necessary and sufficient conditions for the uld to hold for a consumer in an exchange economy like franks and bryant 2017 these conditions avoid unobservables such as preferences or utility and hence are revealed preference in character our theorem 1 establishes that consumers in an exchange economy satisfy the uld if and only if they consume exactly and only their initial endowment interestingly unless a consumer lives in a state of personal autarky there will always be a price variation for which their behaviour violates the uld

cost of business cycles with indivisibilities and liquidity constraints it is almost universally agreed that individuals face incomplete insurance markets and cannot perfectly insure against the idiosyncratic risk in this paper simple general equilibrium models with incomplete insurance markets are examined in order to assess the impact of imperfect insurance on the magnitude of the welfare costs of business cycles two versions of incomplete insurance markets are considered and certain statistical properties of the equilibrium stochastic processes in these environments are compared with those of a perfect insurance economy

giffen behavior and subsistence consumption this paper provides the first real world evidence of giffen behavior i e upward sloping demand subsidizing the prices of dietary staples for extremely poor households in two provinces of china we find strong evidence of giffen behavior for rice in hunan and weaker evidence for wheat in gansu the data provide new insight into the consumption behavior of the poor who act as though maximizing utility subject to subsistence concerns we find that their elasticity of demand depends significantly and nonlinearly on the severity of their poverty understanding this heterogeneity is important for the effective design of welfare programs for the poor jel d12 012

on the harris todaro model with intersectoral migration of labour aspects of labor migration in developing countries are examined using the approach developed by j r harris and m p todaro in particular the author attempts to model the process of labor turnover between the urban unemployed and urban firms and between the rural sector and the urban unemployed the model includes a dynamic system of wage rates and urban unemployment rates annotation

inverse demand and anti giffen goods consider the standard model of household theory and assume two goods one of them a giffen good it is well known that the uncompensated direct demand for the giffen good has a positive slope however contrary to common intuition this note shows that the uncompensated inverse demand for the giffen good has a negative slope and it is the uncompensated inverse demand for the other good which is upward sloping positively sloped inverse demand curves tend to arise for vastly superior goods which can therefore be called anti giffen goods

job displacement risk and the cost of business cycles this paper analyzes the welfare costs of business cycles when workers face uninsurable job displacement risk that has a cyclical component using a simple general equilibrium model with incomplete markets this paper shows the following result for sufficiently high degree of risk aversion at least one cyclical variations in the long term earnings losses of displaced workers can generate arbitrarily large cost of business cycles even if the second moments of the distribution of individual income changes are constant over the cycle thus the previous literature which has either disregarded long term earnings losses of displaced workers or dealt with them only indirectly using second moment analysis might have severely under estimated the welfare cost of business cycles in addition to the theoretical analysis this paper also conducts a quantitative study of the cost of business cycles using empirical evidence on the long term earnings losses of u s workers the quantitative analysis suggests that cyclical variations in job displacement risk generate sizable cost of business cycles

urban unemployment international capital mobility and development policy abstract we introduce international capital mobility into the harris todaro model and examine the effectiveness of some policy tools the main message is such that a wage subsidy in manufacturing and a tariff are no longer effective to improve welfare while a wage subsidy in agriculture remains valid under the assumption of international capital mobility this is in sharp contrast to the result obtained for the original harris todaro model

a strictly concave non spliced giffen compatible utility function we propose a new bivariate utility function for the analysis of giffen behavior the function is strictly concave and twice continuously differentiable with marginal utilities that are strictly positive the function is defined by a single equation rather than by two or more spliced functional forms we contend that in the search for giffen compatible utility functions it is helpful to consider explicitly the elasticities of the consumer s marginal rate of substitution with respect to the quantities of the two goods