money taxes and efficiency when sunspots matter abstract this paper examines the impact monetary redistribution policies have on the amount of sunspot induced volatility in an economy a dynamic model of segmented asset markets is presented in which the tax transfer policy determines in a continuous way the influence sunspots can have on the general price level and on consumption if the policy leads to a transfer of resources across segmentation lines there exist equilibria in which sunspots affect consumption the primary result is that there is an efficiency cost of taxation larger transfers lead to larger fluctuations in consumption the paper also shows that in many cases improvements in asset markets that decrease consumption volatility simultaneously increase price level volatility journal of economic literature classification numbers d84 e31 e44 h21

does fiscal policy matter tax transfer and spend in a macro abm with capital and credit we investigate compare and contrast the emerging properties of a macroeconomic agent based model along the lines of assenza et al 2015 journal of economic dynamics and control 50 5 28 when the government experiments with different policy configurations i tax and transfer ii tax transfer and spend and iii the implementation of a fiscal rule such as a stylized stability and growth pact in some of the scenarios considered a remarkable property can be detected which we label the balanced budget emerging property the scale of activity in the aggregate gdp employment and unemployment rate is such that a balanced budget emerges spontaneously the strong implication of this property is that the fiscal authority is able to target gdp and the unemployment rate a result reminiscent of the blinder solow framework it is worth noting however that there are many departures from the rule which we have detected by carrying out the sensitivity analysis

does market incompleteness matter this paper argues that incompleteness of intertemporal financial markets has little effect on welfare prices or consumption in an economy with a single consumption good provided that traders are long lived and patient a riskless bond is traded shocks are transitory and there is no aggregate risk in an economy with aggregate risk a similar conclusion holds provided traders share the same crra utility function and the right assets are traded examples demonstrate that these conclusions need not hold if the wrong assets are traded or if the economy has multiple consumption goods

fiscal policy and business cycle characteristics in a heterogeneous agent macro model abstract this paper explores the macroeconomic implications of changing fiscal policy in a heterogeneous interacting agent hia model the key contributions to the existing hia complex adaptive trivial system cats literature include the addition of a progressive income tax structure an expanded role for redistribution and a stylized reactive government sector in certain specifications deficit financed tax cuts are shown to effectively shorten recessions while deficit financed spending stimulus is able to lengthen recoveries alternative specifications provide ambiguous support for generalizing the effectiveness of these policy treatments robustness checks support the general findings that increased redistribution towards the unemployed results in higher unemployment rates greater inequality and shorter contractions

consumption and bubbles abstract we show that an unbounded number of consumption dates is necessary to support an asset pricing bubble we work in a continuous time model where the number of trade dates is infinite but the number of consumption dates is flexible and can be chosen to be uniformly bounded finite almost surely or infinite market clearing together with monotone preferences for consumption limits the properties of bubbles and provides restrictions on wealth constraints in the special case of a uniformly bounded number of consumption dates assets in positive net supply cannot have asset pricing bubbles and wealth constraints cannot allow limited arbitrage

the u s patent system in transition policy innovation and the innovation process abstract this paper surveys the major changes in patent policy and practice that have occured in the last two decades in the u s and reviews the existing analyses by the economists that attempt to measure the impacts these changes have had on the processes of technological change it also reviews the broader theoretical and empirical literature that bears on the expected effects of changes in patent policy despite the significance of the policy changes and the wide availability of detailed data relating to patenting robust conclusions regarding the empirical consequences for technological innovation of changes in patent policy are few possible reasons for these limited results are discussed and possible avenues for future research are suggested

industrial dynamics fiscal policy and r d evidence from a computational experiment we present an agent based computational model in which bounded rational firms and workers trade on fully decentralized markets for final goods and labor by means of random matching protocols the model replicates several macroeconomic phenomena regularly observed in the data with aggregate features emerging from the localized interactions of individual entities the model is then used as a computational laboratory to run an experiment on the role of fiscal policy in increasing macroeconomic performance

information marketing and pricing in the u s antiulcer drug market introduced into the united states in 1977 tagamet was the pioneer product in the class of antiulcer drugs known as h2antagonists by promoting ulcer healing through inhibiting acid secretion tagamet was able to heal ulcers and treat pre ulcer conditions pharmacologically on an outpatient basis thereby substituting for more costly hospital admissions and surgeries in 1983 another h2 antagonist called zantac entered and by early 1987 u s zantac sales surpassed those of the pioneering tagamet today there are four h2 antagonists sold in the united states tagamet zantac pepcid and axid zantac is now the world s largest selling prescription drug having estimated worldwide sales in 1994 of about 4 billion each of the four h2 antagonists is among the top 100 in world drug sales although tagamet lost u s patent protection on may 17 1994 in this paper we examine empirically the role of information in facilitating and explaining growth of the overall antiulcer drug market as well as in shaping the changing market shares of the four patented products the dissemination of information is due largely to the use of marketing channels such as visits by manufacturers representatives to physicians called detailing advertising in medical journals and most recently by direct to consumer advertising we examine these and also explore pricing policies product differentiation and orderof entry effects

informative advertising with differentiated products in this paper we study the role of promotional expenditures by sellers in a model of product differentiation advertising conveys full and accurate information about the characteristics of products heterogeneous consumers who have no source of information other than advertisements seek to purchase the products that best fit their needs despite the roles played by advertising in improving the matching of products and consumers and in increasing the elasticity of demand faced by each firm we find that the market determined levels of advertising are excessive given the extent of diversity in the market we derive a promotional equilibrium based on a specific information transmission technology paying explicit attention to the structure of consumer information and its impact on firms demand curves this allows us to study the effects of changes in the advertising technology including an increased ability to target messages to specific groups of consumers on the equilibrium in the product market we find that decreased advertising costs may reduce profits by increasing the severity of price competition

asset prices and consumption in a model of perpetual youth i construct a general equilibrium overlapping generations model with heterogeneous agents and obtain analytical solutions to asset prices consumption and asset demands individuals have constant absolute risk aversion and a constant probability of dying agents have three stages in their lives in the first stage agents are young and constrained from investing in stocks in the second stage they work and in the third they retire i analyze asset prices numerically and with comparative statics changing any exogenous parameter has large effects on asset prices when there are large demographic changes to the population constrained from investing in stocks

structural stochastic volatility in asset pricing dynamics estimation and model contest abstract in the framework of small scale agent based financial market models the paper starts out from the concept of structural stochastic volatility which derives from different noise levels in the demand of fundamentalists and chartists and the time varying market shares of the two groups it advances several different specifications of the endogenous switching between the trading strategies and then estimates these models by the method of simulated moments msms where the choice of the moments reflects the basic stylized facts of the daily returns of a stock market index in addition to the standard version of msm with a quadratic loss function we also take into account how often a great number of monte carlo simulation runs happen to yield moments that are all contained within their empirical confidence intervals the model contest along these lines reveals a strong role for a tamed herding component the quantitative performance of the winner model is so good that it may provide a standard for future research

pre emptive patenting joint ventures and the persistence of oligopoly abstract gilbert and newbery 1982 have examined pre emptive patenting and the persistence of monopoly the present paper considers pre emptive patenting when there are several incumbent firms rather than just one it is shown why the incumbent oligopolists behaving non cooperatively might fail to deter entry this suggests that a joint venture in r and d might be a useful entry deterring device insofar as it pools the incumbents incentives to prevent entry this is indeed the case for small innovations but for large innovations the formation of a joint venture weakens the incumbents incentive to innovate by removing the competitive stimulus between them

the effects of moral hazard on asset prices when financial markets are complete abstract this paper discusses the implications for prices and quantities of an alternative trading arrangement in kahn s 1990 economic environment with moral hazard unlike kahn s model of asset trade my model does not impose any unmotivated restrictions on short sales instead it features complete markets and publicly observable asset transactions like kahn s model my model implies that allocations are constrained pareto optimal however the implications of my model for asset prices are considerably different in particular when all agents have log utility asset prices satisfy an aggregation theorem also unlike kahn s model the model in this paper does worse than the standard representative agent model in terms of explaining the equity premium

advertising and competition in the ethical pharmaceutical industry the case of antihypertensive drugs abstract this paper uses data on the majority of name brand antihypertensive drugs marketed in the united states during 1988 93 to test the hypothesis that advertising decreases the price elasticity of demand in the pharmaceutical industry this is the first study to directly estimate the effects of drug product promotion on the price elasticity of demand in this industry we find strong evidence of an advertising effect in particular detailing efforts the salient means for product promotion in this industry systematically lower price sensitivity given the inverse relationship between elasticity of demand and price it is likely that consumers pay higher prices as a result of the advertising that occurs in this industry our findings are thus consistent with hurwitz and caves who find evidence that advertising inhibits entry into this market but in contrast to earlier research that found no anticompetitive effect

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

strategic pricing of new pharmaceuticals this paper provides empirical evidence on the leading factors affecting the prices of new pharmaceuticals both at introduction and after 4 6 and 8 years most important is the extent of therapeutic advance embodied in a new product for drugs which represent important therapeutic gains launch prices can be two or three times those of existing drugs used for the same purposes while drugs that largely duplicate the actions of currently available products are typically priced at comparable levels in addition the number of branded substitutes has a substantial negative effect on launch prices which reflects the importance of competitive pressures duplicate products thereby play an important economic role in pharmaceutical markets

market structure r d and advertising in the pharmaceutical industry jungere entwicklungen der literatur zum thema marktstruktur ermoglichen es robuste testbare hypothesen aus der theorie des strategischen verhaltens abzuleiten das grundlegende industrieokonomische modell geht von einer einfachen aber allgemein gultigen beziehung zwischen konzentration und marktgrose aus dabei wird insbesondere der einflus endogener versunkener kosten fur werbung und oder forschung und entwicklung fue auf den wettbewerb untersucht die empirischen ergebnisse dieser fallstudie zeigen das endogene versunkene kosten tatsachlich eine entscheidende rolle fur die herausbildung der marktstruktur in der pharmazeutischen industrie spielen die ergebnisse zeigen jedoch auch das unternehmensspezifische fahigkeiten geeignet sind die reaktionsweisen der unternehmen im wettbewerb zu erklaren

asymmetric information financing constraints and investment the results of a number of theoretical papers lead to the hypothesis that financial variables affect capital sp ending because of asymmetric information in capital markets the auth ors review the relevant theory and test this hypothesis with a large sample of firm data the results show that financial variables such a s cash flow and interest expense add significant explanatory power to investment equations based on dale jorgenson s neoclassical model w ith a capm specification for the firm s cost of capital and a sales accelerator model the analysis therefore links recent theoretical work on capital markets to long standing empirical debates in the inv estment literature copyright 1987 by mit press

non existence of recursive equilibria on compact state spaces when markets are incomplete abstract this paper analyzes one good exchange economies with two infinitely lived agents and incomplete markets it is shown that there are no recursive markov equilibria for which borrowing debt constraints never bind if the state space of exogenous and endogenous variables is a compact subset of r n moreover for large enough but finite borrowing limits no recursive equilibrium with compact state space exists these non existence results hold for any economy satisfying the following standard assumptions preferences are additively separable across time and states the one period utility function is time and state independent and unbounded from below endowments are bounded and follow a markov chain with stationary transition matrix there is some idiosyncratic risk and no aggregate risk

a new approach to business fluctuations heterogeneous interacting agents scaling laws and financial fragility abstract in this paper we discuss a scaling approach to business fluctuations our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to re discover a set of stylized facts which have to be satisfactorily accounted for in their models standard macroeconomics based on a reductionist approach centered on the representative agent is definitely badly equipped for this task on the contrary we show that a simple financial fragility agent based model based on complex interactions of heterogeneous agents is able to replicate a large number of scaling type stylized facts with a remarkable high degree of statistical precision

infinite horizon incomplete markets the model of general equilibrium with incomplete markets is a generalization of the arrow debreu model which provides a rich framework for studying problems of macroeconomics this paper shows how the model which has so far been restricted to economies with a finite horizon can be extended to the more natural setting of an open ended future thereby providing an extension of the finite horizon representative agent models of modern macroeconomics to economies with heterogeneous agents and incomplete markets there are two natural concepts of equilibrium over an infinite horizon which prevent agents from entering into ponzi schemes that is from indefinitely postponing the repayment of their debts the first is based on debt constraints which place bounds on debt at each date event the second is based on transversality conditions which limit the asymptotic rate of growth of debt the concept of an equilibrium with debt constraint is a natural concept of equilibrium for macroeconomic analysis however the concept of an equilibrium with transversality condition is more amenable to theoretical analysis since it permits the powerful techniques of arrow debreu theory to be carried over to the setting of incomplete markets in an economy in which agents are impatient expressed by the mackey continuity of their preference orderings and have a degree of impatience at each date event which is bounded below a concept defined in the paper we show that the equilibria of an economy with transversality condition coincide with the equilibria with debt constraints an equilibrium with transversality condition is shown to exist it follows that for each economy there is an explicit bound m such that an equilibrium with explicit debt constraint m exists in which the constraint is never binding this latter property ensuring that the debt constraint whose objective is to prevent ponzi schemes does not in itself introduce a new imperfection into the model over and above the incompleteness of the markets

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

incomplete markets and volatility abstract this paper shows that the precautionary motive combined with asset incompleteness is a major source of volatility and indeterminacy in financial markets price fluctuations originate from agents efforts to insure themselves through time by borrowing and lending instead of shifting income across states of nature by trading risky assets a high interest rate at a future date reduces the potential for future consumption smoothing via borrowing which leads to a strong precautionary motive and a low interest rate in the current period the negative feedback between future and current rates generates fluctuations this logic is developed in spec a cara normal exchange economy with many periods and endogenous interest rates when there is an intermediate level of market incompleteness and sufficient investor impatience fluctuations in the real interest rate can be large even though the aggregate endowment is constant spec has a unique equilibrium under a finite horizon on the other hand with a finite number of infinitely lived agents there exists a robust continuum of equilibria that are neither bubbles nor sunspots journal of economic literature classification numbers c61 d52 d58 g11 g12

strategic r d policy this paper uses a natural extension of lee and wilde s 1980 model to show that the outcome of technological competition between firms or countries depends on the resolution of two forces the profit incentive and the competitive threat using a duopoly model of a patent race the paper illustrates that by understanding the relative strength of these two forces one can not only go a long way to understanding the outcome of these races but also obtain crucial insights into the desirability of various r d policies the particular example considered in the paper is the subsidizing of r d effort copyright 1989 by royal economic society

reference pricing competition and pharmaceutical expenditures theory and evidence from a natural experiment abstract we study the impact of regulation on competition between brand names and generics and pharmaceutical expenditures using a unique policy experiment in norway where reference pricing rp replaced price cap regulation in 2003 for a sub sample of off patent products first we construct a vertical differentiation model to analyze the impact of regulation on prices and market shares of brand names and generics then we exploit a detailed panel data set at product level covering several off patent molecules before and after the policy reform off patent drugs not subject to rp serve as our control group we find that rp significantly reduces both brand name and generic prices and results in significantly lower brand name market shares finally we show that rp has a strong negative effect on average molecule prices suggesting significant cost savings and that patients copayments decrease despite the extra surcharges under rp

the financial accelerator in an evolving credit network we model a credit network characterized by credit relationships connecting i downstream d and upstream u firms and ii firms and banks the net worth of d firms is the driver of fluctuations the production of d firms and of their suppliers u firms in fact is constrained by the availability of internal finance proxied by net worth to the d firms the structure of credit interlinkages changes over time due to an endogeneous process of partner selection which leads to the polarization of the network at the aggregate level the distribution of growth rates exhibits negative skewness and excess kurtosis when a shock hits the macroeconomy or a significant group of agents in the credit network a bankruptcy avalanche can follow if agents leverage is critically high in a nutshell we want to explore the properties of a network based financial accelerator

rational asset pricing bubbles this paper provides a fairly systematic study of general economic conditions under which rational asset pricing bubbles may arise in an intertemporal competitive equilibrium framework our main results are concerned with nonexistence of asset pricing bubbles in those economies these results imply that the conditions under which bubbles are possible including some well known examples of monetary equilibria are relatively fragile this paper is concerned with the conditions under which asset prices in an intertemporal competitive equilibrium are equal to the present value of the streams of future dividends to which each asset represents a claim according to a central result of the theory of finance this is very generally true in the case of economies with trading at only a finite sequence of dates as long as there are no restrictions upon transactions other than that associated with possible incom pleteness of the set of securities that are traded the result is sometimes called the fundamental theorem of asset pricing here we consider the extent to which such a result continues to be valid in the case of trading over an infinite horizon it has often been observed in the econometric literature on asset pricing bubbles that it is possible in principle for the price of a perpetuity and the dividends on that security to satisfy at all times a present value relation for one period holding returns while the security s price nonetheless does not equal the present value of the stream of dividends expected over the infinite future in such a case the price of the perpetuity is said to involve a bubble component 2 joint stochastic processes for which this component is nonzero are sometimes argued to characterize existing assets for a recent example see froot and obstfeld 1991 but such an inference depends upon aspects of the stochastic

world income components measuring and exploiting risk sharing opportunities a method is constructedfor decomposing the variance of changes in incomes in the world into components to indicate the most important risk sharing opportunities among people of the world a constant absolute risk premium carp model an intertemporal general equilibrium model of the world is presented to permit optimal contract design for a contract designer maximizing a social welfare function the optimal contracts maximize the equilibrium world real interest rate securities are defined in terms of eigenvectors of a transformed variance matrix the method is applied using penn world table data on the g 7 countries 1950

liaisons dangereuses increasing connectivity risk sharing and systemic risk the recent financial crisis poses the challenge to understand how systemic risk arises endogenously and what architecture can make the financial system more resilient to global crises this paper shows that a financial network can be most resilient for intermediate levels of risk diversification and not when this is maximal as generally thought so far this finding holds in the presence of the financial accelerator i e when negative variations in the financial robustness of an agent tend to persist in time because they have adverse effects on the agent s subsequent performance through the reaction of the agent s counterparties 2012 elsevier b v all rights reserved

heterogeneity aggregate uncertainty and the short term interest rate this article analyzes the relationship between the short term interest rate and diversity i e the number of types in models with heterogeneous agents and incomplete markets the number of types needed to approximate a continuum varies across examples in all cases however the number of types has little effect on the average interest rate and consumption variability in these models the set of state variables is large because the equilibrium law of motion depends on the cross sectional wealth distribution the article shows how to solve these models numerically by approximating the distribution using moments or percentiles

financial stability at risk due to investing rapidly in renewable energy we present novel insights about effective energy policies using an agent based model the model describes relevant feedback mechanisms between technological evolution the interbank market and the electricity sector analysis with it shows that energy policies affect interbank connectivity and hence the likelihood of cascades of bank failures this effect has not been studied before in the literature in particular we find that investments in renewable energy reduce interbank connectivity increasing the probability of bank failures while raising taxes on energy has an opposite effect increasing the share of renewable energy in electricity production initially increases the price of electricity and thus improves profits and the ability to re pay debts of incumbent power plants however when the share of renewable energy increases too quickly financial stability may be at stake as the burden of financing investments in renewable energy offsets the improved profitability of existing power stations all in all this study provides a unique and novel perspective on the relationship between renewable energy investments and financial stability

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

personal income tax progressivity and output volatility evidence from oecd countries this paper investigates empirically the effect of personal income tax progressivity on output volatility using macro data from a sample of oecd countries over the period 1982 2009 our measure of progressivity is based on the difference between the marginal and the average personal income tax rate for the average production worker we find supportive empirical evidence for the hypothesis that higher personal income tax progressivity leads to lower output volatility this effect comes in addition to the stabilizing impact of government size and it is equally important in economic terms all other factors constant countries with more progressive personal income tax systems seem to benefit from stronger automatic stabilizers

the economics of product patents this paper develops a model of product patents in which the patent changes the nature of market entry behavior rather than preventing entry entirely the model incorporates three levels of action namely the innovator s patenting decision the potential entrant s location decision and possible court action the analysis demonstrates how the characteristics of the patents system and the enforcement framework can influence rivals variety choices and thus the market equilibrium it also considers how the system can in principle be adjusted to improve social welfare copyright 1990 by american economic association

how broad should the scope of patent protection be i explore the trade off between a patent s length that is its lifetime and its width that is its scope of coverage a wider patent generally reduces the distortion of consumers choices between the patented brand of the product and unpatented lower priced varieties sold by competitors but also permits higher prices which increase relative to profits the deadweight losses from consumers switching consumption out of the product class i show under what conditions infinitely lived but very narrowly focused patents are the socially efficient way to reward innovation and under what conditions very short lived but very broad patents are optimal

credit chains and bankruptcy propagation in production networks abstract we present a simple model of a production network in which firms are linked by supplier customer relationships involving extension of trade credit our aim is to identify the minimal set of mechanisms which reproduce qualitatively the main stylized facts of industrial demography such as firms size distribution and at the same time the correlation over time and across firms of output growth and bankruptcies the behavior of aggregate variables can be traced back to the direct firm firm interdependence in this paper we assume that the number of firms is constant and the network has a periodic static structure but the framework allows further extensions to investigate which network structures are more robust against domino effects and if the network is let to evolve in time which structures emerge spontaneously depending on the individual strategies for orders and delivery

informative advertising and entry deterrence a bertrand model abstract this paper shows that strategic entry deterrence via informative advertising is impossible in a game of sequential advertising followed by simultaneous price setting in a homogenous product market it contrasts schmalensee s journal of political economy 91 1983 636 653 result that when the strategic variables at the post advertising stage are quantities not prices optimal entry deterrence is possible and involves underinvestment in advertising

scaling the volatility of gdp growth rates abstract the distribution of shocks to gdp growth rates is found to be exponential rather than normal their standard deviation scales with gdp where 0 15 0 03 these macroeconomic results place restrictions on the microeconomic structure of interactions between agents

pharmaceutical patents incentives for research and development or marketing we analyze how a patent holding pharmaceutical firm may strategically use advertising of existing drugs to affect research and development r d investments in new differentiated drugs and thereby affect the probability distribution of future market structures in the industry within a fairly general model framework we derive exact conditions for advertising and r d being substitute strategies for the incumbent firm and show that it may overinvest in advertising to reduce the incentive for an entrant to invest in r d thereby reducing the probability of a new product on the market in a more specific setting of informative advertising we show that such overinvestment incentives are always present and that more generous patent protection implies that a larger share of the patent rent is spent on marketing relative to r d

schumpeter meeting keynes a policy friendly model of endogenous growth and business cycles this paper studies an agent based model that bridges keynesian theories of demandgeneration and schumpeterian theories of technology fueled economic growth we employ the model to investigate the properties of macroeconomic dynamics and the impact of public polices on supply demand and the fundamentals of the economy we find profound complementarities between factors influencing aggregate demand and drivers of technological change that affect both short run fluctuations and longterm growth patterns from a normative point of view simulations show a corresponding complementarity between keynesian and schumpeterian policies in sustaining long run growth paths characterized by milder fluctuations and relatively lower unemployment levels the matching or mismatching between innovative exploration of new technologies and the conditions of demand generation appear to suggest the presence of two distinct regimes of growth or absence thereof characterized by different short run fluctuations and unemployment levels

the importance of the number of different agents in a heterogeneous asset pricing model abstract models with heterogeneous agents and incomplete markets often only have two types of agents to limit the computational complexity the question arises whether equilibrium models with a realistic number of types have the same implications as models with a small number of types in the asset pricing model considered in this paper several properties depend crucially on the number of types for example in the economy with only two types interest rates respond to idiosyncratic income shocks which makes it easier to smooth consumption moreover these effects can be so strong that it is possible that a relaxation of the borrowing constraint reduces an agent s utility average interest rates on the other hand are not very sensitive to the number of types

disequilibrium dynamics an empirical study despite the amount of attention devoted in economics to the study of equilibria the process by which an equilibrium can be attained is not well understood stephen smale 1977 called this the fundamental problem of economic theory this paper explores the microeconomics of the adjustment process by examining empirically the disequilibrium behavior of firms implications for the microeconomic foundations of macroeconomics are stressed the data from german industry describe the month by month price and output changes of individual firms as well as the firms own assessments of the levels of their inventories and unfilled orders because the data are qualitative use is made of the multivariate conditional logit model developed by marc nerlove and s james press 1973 1976 and extended by kawasaki and zimmermann section i discusses the underlying model of firm behavior and the significance of the inquiry for macroeconomics in section ii the econometric techniques are briefly described in section iii the empirical results are summarized and interpretations of the results are offered in section iv

consumption dynamics in general equilibrium a characterisation when markets are incomplete we introduce a methodology for analysing infinite horizon economies with two agents one good and incomplete markets we provide an example in which an agent s equilibrium consumption is zero eventually with probability one even if she has correct beliefs and is marginally more patient we then prove the following general result if markets are effectively incomplete forever then on any equilibrium path on which some agent s consumption is bounded away from zero eventually the other agent s consumption is zero eventually so either some agent vanishes in that she consumes zero eventually or the consumption of both agents is arbitrarily close to zero infinitely often later we show that a for most economies in which individual endowments are finite state time homogeneous markov processes the consumption of an agent who has a uniformly positive endowment cannot converge to zero and b the possibility that an agent vanishes is a robust outcome since for a wide class of economies with incomplete markets there are equilibria in which an agent s consumption is zero eventually with probability one even though she has correct beliefs as in the example in sharp contrast to the results in the case studied by sandroni 2000 29 and blume and easley 2006 8 where markets are complete our results show that when markets are incomplete not only can the more patient agent or the one with more accurate beliefs be eliminated but there are situations in which neither agent is eliminated c 2010 elsevier inc all