but who will monitor the monitor suppose that providing incentives for a group of individuals in a strategic context requires a monitor to detect their deviations what about the monitor s deviations to address this question i propose a contract that makes the monitor responsible for monitoring and thereby provides incentives even when the monitor s observations are not only private but costly too i also characterize exactly when such a contract can provide monitors with the right incentives to perform in doing so i emphasize virtual enforcement and suggest its implications for the theory of repeated games jel c78 d23 d82 d86

efficiency considerations and the exemption of food from sales and value added taxes we evaluate efficiency considerations underlying the widespread exemption of food from sales and value added taxes and the implications for tax policy household and restau rant meals and both constant and increasing returns cases are examined higher taxes on food offset the non taxation of time inputs into household production even under constant returns to scale with increasing returns gains from taxing food are higher and amplified by subsidizing restaurant food and all marginal cost components of restaurant meals on effi ciency grounds exemption of food from sales and value added taxes emerges as socially costly policy especially under increasing returns

the effects of taxation price control and government contracts in oligopoly and monopolistic competition abstract many government contracts with or policies towards oligopolistic sectors essentially involve private firms selling a given proportion or quantity of output to the government at a fixed price p r with the remainder being sold on the open market often this is combined with consumer rationing examples include cement and sugar in india and health housing and defence in many countries the paper investigates the effects of these schemes including sales and excise taxation on prices output and household welfare under oligopoly and monopolistic competition less government control reduced may raise prices and tax shifting can be above or below 100 percent

cross border shopping and the optimum commodity tax in a competitive and a monopoly market using a partial equilibrium model optimality rules for a commodity tax are derived for an economy that is exposed to cross border shopping in a competitive market the conventional inverse elasticity rule is shown to be valid with the qualification that it is the elasticity of domestic rather than total demand that matters with a foreign monopoly the inverse elasticity is modified by a tax shifting effect when the supplier is a multinational firm price repercussions abroad should be taken into account the implications for domestic taxation of the prices and taxes set abroad are also examined

communication in repeated games with private monitoring abstract the paper considers repeated games where each player can be observed by only a subset of the other players and where players can make public announcements about the behavior of the players they observed we address the following question what is the minimal level of observability that is required to obtain efficient outcomes the main result is that the limit set of sequential equilibrium payoffs when the discount factor tends to one contains the set of individual rational payoffs whenever each player is observed by at leasttwoother players journal of economic literatureclassification number c73

repeated partnership games with imperfect monitoring and no discounting in a partnership game each player s utility depends on the other players actions through a commonly observed consequence e g output profit price which is itself a function of the players actions and an exogenous stochastic environment if a partnership game is repeated infinitely and each player s payoff in the infinite game supergame is the long run average of his expected one period utilities then efficient combinations of one period actions can be sustained as nash equilibria of the supergame even if the players cannot observe other players actions or information but can only observe the resulting consequences

second best subsidies in monopolistic competition abstract in the spence dixit stiglitz model of monopolistic competition an output or input subsidy is welfare improving under competitive conjecture the significance of this result is that it holds even when the subsidy exacerbates the potential problem of excess product diversity

inventories stock outs and production smoothing if stock outs are ignored and if demand shocks are additive then optimal behaviour requires that the marginal cost of production mc be equated with the expected marginal revenue of increasing expected sales by one unit emr however with more general demand shocks and still ignoring stock outs the excess of mc over emr has the same sign as the covariance of the slope of the demand curve and the marginal valuation of inventory the equality of emr and mc is also broken by taking account of stock outs even if demand shocks are additive if there is a production lag then taking account of stock outs implies that optimal behaviour will be characterized by production smoothing even if the cost of production is linear two alternative definitions of production smoothing are presented and optimal behaviour in the presence of stock outs displays each type of smoothing it is a well known proposition that a firm producing a storable good under conditions of increasing marginal cost will tend to smooth the time profile of its production relative to the time profile of its sales the incentive to smooth production arises from the fact that the cost function is a convex function of the level of production for a given average level of production average costs can be reduced by reducing the variation in production of course if the cost function is linear in the level of production then this incentive to smooth production disappears however we will demonstrate in this paper that if the possibility of stock outs is explicitly incorporated into the firm s dynamic optimization problem i e if we impose a non negativity constraint on inventories and if there is a lag in production then optimal behaviour can be characterized by production smoothing even if the cost function is linear

inventories and interest rates a critique of the buffer stock model economists generally test for the effect of interest rates on inventories by including some measure of the real interest rate in a standard flexible accelerator buffer stock model this paper presentsseveral reasons for concluding that this approach is incorrect and demonstrates how interest rate effects can be introduced into decisionrules derived under the assumption of optimizing behavior by firms decision rules for finished good inventories output and price are estimated using monthly observations on the food and kindred product industry the results generally conform to the predictions of the theory copyright 1986 by american economic association

rents and the cost and optimal design of commodity taxes this paper numerically investigates the significance of rents for both the welfare costs and the optimal design of commodity taxes using a general equilibrium model calibrated to 1986 canadian data in the data we use ricardian rents are concentrated in agriculture and utilities with market structure rents concentrated in manufacturing different types of rents have different implications for the welfare cost of taxes and hence also for appropriate tax design ricardian rents lower the cost of taxes rents supported by imperfect competition with no free entry raise the cost of taxes rents supported by regulation generate rent seeking costs and if taxed improve resource allocation model results show a markedly nonuniform optimal tax structure and a substantial influence of the treatment of rents on the pattern of optimal tax rates by commodity

taking stock a critical assessment of recent research on inventories empirical and theoretical aspects of inventory behavior became hot topics in the 1950s and early 1960s no one seemed to notice the tension that was developing between the emerging macroeconomic and microeconomic views of inventories macroeconomists routinely thought of inventories as a destabilizing factor yet the prevailing micro theory viewed inventories as a stabilizing factor it was a fascinating question that was barely explored instead somewhat inexplicably interest in inventories dried up as if inventories were of minor economic significance and little intrinsic interest by the early 1980s then economists once again knew something they had known in the 1950s that inventory investment is of first order importance in business cycles but they were also beginning to realize that the standard production smoothing buffer stock model of inventories was in deep trouble this paper focuses on developments since that realization

the determinants of manufacturing inventories in the uk the authors examine the determinants of inventory holding by the u k manufacturing sector over the period 1968 89 they find that inventory levels respond positively to output and its conditional variance and negatively to the level of gearing tehnological innovation in the form of computerized inventory control leads to a fall in the stock output ratio epirical results for inventories are examined in a cointegration and a general to specific error correction model with conditional variances estimated using an arch framework a backward looking error correction model is found to outperform a forward looking model although the latter also provides a reasonable fit to the data copyright 1993 by royal economic society

perfect public equilibrium when players are patient we provide a characterization of the limit set of perfect public equilibrium payoffs of repeated games with imperfect public monitoring as the discount factor goes to one our result covers general stage games including those that fail a full dimensionality condition that had been imposed in past work it also provides a characterization of the limit set when the strategies are restricted in a way that endogenously makes the full dimensionality condition fail as in the strongly symmetric equilibrium studied by abreu abreu d 1986 extremal equilibria of oligopolistic supergames j econ theory 39 191 228 and abreu et al abreu d pearce d stacchetti e 1986 optimal cartel equilibria with imperfect monitoring j econ theory 39 251 269 finally we use our characterization to give a sufficient condition for the exact achievability of first best outcomes equilibria of this type for which all continuation payoffs lie on the pareto frontier have a strong renegotiation proofness property regardless of the history players can never unanimously prefer another equilibrium

production smoothing in the linear quadratic inventory model contrary to popular belief the linear quadratic inventory model does not imply that in response to demand shocks output is always less variable than sales when demand shocks are not anticipated and without this assumption it is hard to see why firms should hold inventories in the first place it is shown that output can be more variable than sales even when the only shocks are demand shocks and the inventory target is not a rising function of sales the variance of output will typically exceed that of sales when the firm s marginal cost curve is fairly flat copyright 1994 by royal economic society

endogenous market structures and optimal taxation this article provides optimal labour and dividend income taxation in a general equilibrium model with oligopolistic competition and endogenous firms entry in the long run the optimal dividend income tax corrects for inefficient entry the dividend income tax depends on the form of competition and the nature of the sunk entry costs in particular it is higher in market structures characterised by competition in quantities rather than those characterised by price competition oligopolistic competition leads to an endogenous countercyclical price markup as a result offsetting the distortions over the business cycle requires deviations from full tax smoothing

tax design in the presence of imperfect competition an example abstract this paper studies the effects upon price output and entry in an oligopolistic market induced by tax policy elsewhere in the economy the results derived are applied to a model of copying to find conditions for which subsidisation of the manufacturers of originals is welfare improving the critical factor is found to be the distribution of consumers tastes

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

robustness of public equilibria in repeated games with private monitoring a repeated game with private monitoring is close to a repeated game with public monitoring or perfect monitoring when i the expected payoff structures are close and ii the informational structures are close in the sense that private signals in the private monitoring game can be aggregated by some public coordination device to generate a public signal whose distribution is close to the distribution of the public signal in the public monitoring game we provide a sufficient condition for the set of uniformly strict perfect public equilibria for a public monitoring game to be robust in nearby private monitoring games in the sense that they remain equilibria with respect to the public signal that is generated by such public coordination devices with truthful reporting our sufficient condition requires that every player is informationally small in a well defined sense

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

trade inventories and s s the paper presents empirical tests of the s s model of inventory behavior using aggregate retail trade data estimation and testing are based on the probability distributions of inventories derived by caplin 1985 the excess volatility of retailers demand over their consumers demand and the forgetfulness of inventories under s s are emphasized test results indicate that the time series properties of deliveries and sales are consistent with s s and not a quadratic cost model finally when autoregressions of inventories are given an s s rather than a stock adjustment interpretation traditional empirical problems such as low speeds of adjustment are explained

the variability of aggregate demand with s s inventory policies this paper develops a general theory of the aggregate implications of s s inventory policies it is shown that s s policies add to the variability of demand with the variance of orders exceeding the variance of sales overall the s s theory contradicts the widely held notion that retail inventories act as a buffer protecting manufacturers from fluctuating sales in 1951 arrow harris and marschak 3 introduced the s s form of inventory policy the policies are designed for retailers of finished goods who face economies of scale when placing orders with their suppliers to pursue an s s inventory policy the retailer establishes a lower stock point s and an upper stock point s no order is placed until inventories fall to s or below whereupon they are restored to the maximum of s a general proof of the optimality of these s s inventory policies was provided by scarf 13 at the microeconomic level the model has been extensively investigated formulae are available to compute optimal policies e g ehrhardt 6 and these policies are xidely used in industry e g schwartz ed 14 in addition the model has been extended to increasingly complex demand environments e g karlin and fabens 11 in contrast little is known about the macroeconomic implications of s s policies several recent papers have begun to correct this deficiency akerlof has suggested that pursuit of constant threshold money holding policies of the s s variety might be responsible for the observed low short run income elasticity of the demand for money akerlof 1 and akerlof and milbourne 2 in the operations research literature ehrhardt schultz and wagner 7 analyzed the demand environment of a wholesaler supplying several retailers they required that the distinct retailers have independent sales ruling out the analysis of common factors in sales finally simulation results of blinder 4 suggested a role for the s s model in understanding retail sector inventories however the theoretical difficulties with the model remained unresolved blinder commented if firms have a technology that makes the s s rule optimal aggregation across firms is inherently difficult indeed it is precisely this difficulty which has prevented the s s model from being used in empirical work to date blinder 4 p 459 in this paper we present a general theory of the aggregate implications of s s policies our central finding is that s s policies add to the variability of demand with the variance of orders exceeding the variance of sales this result holds even in the presence of common factors in retail sales in addition a close connection

nonconvex costs and the behavior of inventories this paper explores one possible explanation for the apparent excess volatility of production relative to sales nonconvexities in the technology facing firms it is shown that if firms operate in a region of declining marginal costs then small shifts in demand can cause production to jump substantially estimates for six production to stock industries as well as the automobile industry suggest that all these industries behave as if they were operating in the region of nonconvex costs the results have important implications not only for inventory investment but also for the cyclical behavior of productivity and prices

oligopolistic competition and economic welfare a general equilibrium analysis of entry regulation and tax subsidy schemes abstract two contributions to the general equilibrium analysis of an oligopolistic economy with free entry are intended first we generalize the excess entry theorem to the effect that a marginal decrease in the number of oligopolistic firms from the free entry equilibrium level improves economic welfare second we explore the pareto improving tax subsidy schemes in an oligopolistic economy several self financing and pareto improving tax subsidy schemes will be identified in contrast with the preceding analysis by atkinson and stiglitz which focused on the long run incidence of corporate taxation we analyse the short run as well as long run welfare implications of various policies under generalized conditions

communication in repeated games with imperfect private monitoring this paper examines repeated games in which each player observes a private and imperfect signal on the actions played and in which players are allowed to communicate using public messages providing incentives for players to reveal their observations generates revelation constraints that combined with signal imperfections may be a source of inefficiencies however by delaying the revelation of their observations players may economize on the cost of deterring deviations and thereby avoid these inefficiencies because a player would not want to trigger a sanction that would penalize him too revelation constraints also tend to make sanctions difficult to enforce however with at least three players detecting deviations may not require that all the players reveal their observations in that case we obtain a nash threat version of the folk theorem with two players we do not obtain a similar result nevertheless we show that an efficient outcome can almost always be approximated

rational expectations and the smoothing properties of inventories of finished goods abstract this paper formulates and estimates a dynamic rational expectations equilibrium model of inventories of finished goods and employment of labor the view that the primary role of inventories of finished goods is to act as a buffer stock in the face of fluctuating demand is examined both the model and estimation results indicate that this is the case because of differences in the costs involved for firms in changing their inventory stocks and labor force in addition to providing some new evidence on the behavior of inventories of finished goods and employment the paper illustrates a technology for maximum likelihood estimation of structural parameters under the hypothesis of rational expectations

optimal labour taxation and search abstract this paper explores the optimal role of the tax system in alleviating labour market imperfections and raising revenue for this purpose the standard search model of the labour market is extended by introducing scarce entrepreneurial talent and arbitrage between the supply and demand sides of the labour market we study how these extensions affect the following two major implications of the standard model 1 only the ad valorem component of the wage tax should be employed to raise revenue 2 the optimal tax system should not distort labour market tightness

a robust folk theorem for the prisoner s dilemma we prove the folk theorem for the prisoner s dilemma using strategies that are robust to private monitoring from this follows a limit folk theorem when players are patient and monitoring is sufficiently accurate but private and possibly independent any feasible individually rational payoff can be obtained in sequential equilibrium the strategies used can be implemented by finite randomizing automata journal of economic literature classification numbers c72 c73 d82

impact of vat reform on swedish restaurants a synthetic control group approach var analys av den sankta restaurangmomsen visar pa positiva effekter pa lonesumma omsattning anstallningar rorelsemarginaler och foretagsstocken resultaten visar tydligt att foretagen har valt

imperfect competition the marginal cost of public funds and public goods supply abstract this paper analyses the impact of changes in product market competition on the marginal cost of public funds mcpf and public goods supply when distortionary commodity taxes are used to raise revenue first less competition measured by a switch from bertrand to cournot conduct or a decrease in the elasticity of demand does not necessarily raise the mpcf second even if it does optimal public good supply does not necessarily fall the paper also presents a method for modelling bertrand and cournot competition in general equilibrium that may be of independent interest

firm types price setting strategies and consumption tax incidence abstract we analyze price responses to large restaurant vat rate reductions in two different european countries our results show that responses in the short and medium run were clustered around two focal points of zero pass through and full pass through differences between independent restaurants and chains is the key explanation for this pattern while nearly all independent restaurants effectively ignored the tax reductions and left consumer prices unchanged a substantial fraction of restaurants belonging to chains chose a rapid and complete pass through in the longer run prices converged but primarily through a price reversion among chain restaurants the stark difference in price responses does not appear to arise because of different market characteristics such as location initial price levels meal types and restaurant segment

inventories and the volatility of production a stylized fact associated with inventory behavior is that the variance of production exceeds the variance of sales this paper presents a model of production decisions with demand uncertainty that incorporates no nnegativity constraints on inventories even with no productivity shocks optimal behavior by the firm is consistent with this stylized fact either if demand exhibits positive serial correlation or if the firm can backlog excess demand the reason is that a demand shock affects both the actual inventory level given unchanged production and the desired level production must replenish the stock and adjust to the new desired level copyright 1987 by american economic association

perfect communication equilibria in repeated games with imperfect monitoring this paper introduces an equilibrium concept called perfect communication equilibrium for repeated games with imperfect private monitoring this concept is a refinement of myerson s myerson r b 1982 optimal coordination mechanisms in generalized principal agent problems j math econ 10 67 81 communication equilibrium a communication equilibrium is perfect if it induces a communication equilibrium of the continuation game after every history of messages of the mediator we provide a characterization of the set of corresponding equilibrium payoffs and derive a folk theorem for discounted repeated games with imperfect private monitoring

the distinction between inventory holding and stockout costs implications for target invemtories asymmetric adjustment and the effect of aggregation on production smoothing this paper shows that differences between the costs of holding inventories and the costs of incurring stockouts provide a convenient theoretical distinction between production to stock and production to order industries furthermore differences in holding and stockout costs can cause a firm to replenish inventories following a positive demand surprise at a different speed than it reduces stocks following unexpectedly low sales this asymmetric adjustment lessens the tendency for firm specific production shocks to cancel out in aggregation and can cause industry output to be more variable than industry sales even when representative firms exhibit production smoothing behavior copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimal taxes and the structure of preferences if optimal tax theory is to be the basis for calculating tax rates a close understanding is required of the relationship between the structure of preferences and the configuration of optimal tax rates otherwise hypotheses chosen by the econometrician for practical convenience may completely determine the results independently of measurement this paper explores the relationship between various types of separability particularly weak and implicit separability and optimal tax rates in the various models discussed in the literature the use of distance functions and the antonelli matrix provides a significant unification of previously disparate results in the final analysis optimal tax theory should be the basis for actual calculation of tax rates although recently there have been great advances in theoretical results and in our understanding of their meaning we are still some way from a working knowledge of whether uniform commodity taxes are in practice optimal or if not which commodities should be discriminated against present theoretical formulae do not yield clear cut results except in special cases and it has recently become clear that optimal rates depend crucially on the detailed structure of consumer preferences for example atkinson and stiglitz 3 show that with an optimal nonlinear income tax discriminatory commodity taxes are only necessary to the extent that individual commodities are not weakly separable from leisure more recently deaton 6 has shown that a similar result holds for what is perhaps the most interesting of the standard models that where there are many consumers and only a linear income tax and proportional commodity taxes are allowed in this case separability between goods and leisure together with linear engel curves for goods removes the need for differential commodity taxation in consequence nothing can be learned about commodity taxes from consumer demand studies in which commodity demands are explained conditionally on total expenditure and commodity prices and which assume linear engel curves all such studies require separability from leisure as a maintained hypothesis and so are consistent with uniform commodity taxation these results suggest that the prospects for meaningful empirical calculations of tax rates are bleak econometricians estimating commodity demand and labor supply equations make generous use of separability assumptions to enable estimation at all in consequence it is likely that empirically calculated tax rates based on econometric estimates of parameters will be determined in structure not by the measurements actually made but by arbitrary untested and even unconscious hypotheses chosen by the econometrician for practical convenience to remedy this situation and as a prelude to fruitful empirical work it is necessary to have a more explicit understanding of how preference structure affects optimal tax rates such is the object of this paper three different

the power of communication abstract in this paper i offer two ways in which firms can collude secret monitoring and infrequent coordination such collusion is enforceable with intuitive communication protocols i make my case in the context of a repeated cournot oligopoly with flexible production prices that follow a brownian motion and no monetary side payments an environment where it has previously been argued that any collusion is impossible trade associations can easily facilitate collusion by mediating communication amongst firms jel d21 d43 l12 l13

inventories in a competitive environment trade is sequential buyers arrive in batches and each batch completes trade before the next arrives producers allocate the available supply among all potential batches of buyers inventories accumulate whenever a batch does not arrive shocks to cost and demand are serially independent there is a stationary relationship between inventories and prices with the following properties larger beginning of period inventories tend to depress prices inventories are positively serially correlated a unit increase in inventories reduces output by less than one unit an increase in inventories leads to an increase in the price spread output tends to vary more than sales

final and intermediate goods taxation in an oligopolistic economy with free entry abstract optimal tax rules are analyzed in an oligopolistic economy with free entry the initial market allocation has two types of distortion price is set above marginal cost by the oligopolistic behavior and the advantage of increasing returns to scale is left to be unexploited by excessive entry of oligopolists with production subsidy accompanied by a self financing lump sum franchise tax on oligopolistic firms pareto efficient allocation could be restored without a lump sum tax on oligopolists however the second best optimum requires taxing intermediate inputs used in the oligopolistic industry the optimal intermediate goods taxation follows the production side ramsey rule to encourage the use of intermediate inputs elastic to output level and vice versa

the mirrlees review and the state of public economics the mirrlees review of taxation in the united kingdom is a landmark in the analysis of u k fiscal policy and of wide interest to public finance economists around the world this review concentrates on what we can learn from the review about the current state of public economics and directions for future research jel e62 h20 h50

the production smoothing model of inventories revisited an error correction specification which nests the linear quadratic production smoothing and stock adjustment models of inventories is estimated on u s seasonally adjusted two digit sic data the restrictions of the general model to the production smoothing specification is accepted for four out of six of the production to stock industries and for total nondurables the estimation results do not suggest any use of inventories to smooth the level of production but there is evidence of smoothing of the rate of change of production for three production to stock industries and for both total nondurables and total durables coefficient estimates may however be biased copyright 1994 by royal economic society

corrective tax and subsidy policies in economies with bertrand competition abstract this paper shows how we can correct market failure due to imperfect competition by using taxes and subsidies the analysis is carried out at the general equilibrium level and the importance of objective demand curves is stressed the main conclusions are first it is possible to tax the economy back to the walrasian equilibrium by using linear taxes and subsidies second the welfare theorem holds in an imperfectly competitive economy with corrective taxes and subsidies third a competitive equilibrium can also be achieved by the use of ad valorem taxes and specific output subsidies

endogenous monitoring in a partnership game i consider a repeated game in which due to imperfect monitoring no collusion can be sustained i add a self interested monitor who commits to obtain private signals of firms actions and sends a public message the monitor makes an offer specifying the precision of the signals obtained and the amount to be paid in return first with a low monitoring cost collusive equilibria exist second collusive equilibria are monitor preferred third in monitor preferred equilibria firms payoffs are decreasing in the discount factor my model helps explain cartel agreements between self interested parties and firms in legal industries in the united states and europe

the repeated prisoner s dilemma with imperfect private monitoring abstract in this paper i study a repeated prisoner s dilemma game in which monitoring is private and imperfect a partial folk theorem is proved for the case of almost perfect monitoring

ramsey tax rules for economies with imperfect competition abstract this paper derives optimal commodity tax rules for a general equilibrium model with imperfect competition to achieve this functions are constructed that describe the effects of taxation upon the equilibrium prices and profit levels of imperfectly competitive industries the use of these functions allows existing tax rules to be generalised to accommodate imperfect competition

inventories and risk in african manufacturing using a panel data set for zimbabwe which includes firm specific measures of contractual risk we show that contractual risk has a major effect on the holding input stocks and to a lesser extent the constitution of cash reserves this is consistent with inventories being a hedge against stockout risk by contrast firms facing more inter annual market risk hold less inventories this suggests that african manufacturers prefer adapting to long term market fluctuations as they materialise rather than building up inventories this interpretation is consistent with the finding that high market risk firms also have a low capacity utilisation rate

optimum commodity taxation in pooling equilibria abstract this paper extends the standard model of optimum commodity taxation ramsey f 1927 a contribution to the theory of taxation economic journal 37 47 61 diamond p mirrlees j 1971 optimal taxation and public production ii tax rules american economic review 61 261 278 to a competitive economy in which markets are inefficient due to asymmetric information insurance markets are prime examples consumers impose varying costs on suppliers but firms cannot associate costs with individual customers and consequently all are charged equal prices in such a competitive pooling equilibrium the price of each good is equal to the average of individual marginal costs weighted by equilibrium quantities we derive modified ramsey boiteux conditions for optimum taxes in such an economy and show that in addition to the standard formula they include first order effects which reflect the deviations of prices from marginal costs and the response of equilibrium quantities to the taxes levied an explanation of the additional terms is provided it is shown that a condition on the monotonicity of demand elasticities enables to sign the direction of the deviations from the standard case

communication in repeated games with costly monitoring abstract we study repeated games with discounting where perfect monitoring is possible but costly it is shown that if players can make public announcements then every payoff vector which is an interior point in the set of feasible and individually rational payoffs can be implemented in a sequential equilibrium of the repeated game when the discount factor is high enough thus efficiency can be approximated even when the cost of monitoring is high provided that the discount factor is high enough

the switching effect of environmental taxation within bertrand differentiated duopoly we investigate second best optimal taxation of the polluting variety of a product in a bertrand duopoly with differentiated varieties the analysis provides novel insight on a useful social function of environmental regulation besides internalizing the environmental externality the taxation of the polluting variety improves the matching of consumers and product varieties and so creates a socially desirable business switching between the differentiated varieties

price and output adjustment in a model with inventories econometric evidence from categorical in this paper we investigate the role of inventories in the adjustment process of prices and output in response to demand and cost shocks using the qualitative information contained in business surveys of u k firms the discussion is organized around a model based on the assumption of monopolistic competition and which permits a production smoothing role for inventories the econometric results suggest that the stock of inventories has no impact on output decisions the effect on pricing decisions is weak at best anticipated demands shocks are the main factor accounting for output changes while both cost and demand shocks are important determinants of prices coauthors are fabio schiantarelli jon breslaw and william low copyright 1993 by mit press

efficiency and observability with long run and short run players we present a general algorithm for computing the limit as 1 of the set of payoffs of perfect public equilibria of repeated games with long run and short run players allowing for the possibility that the players actions are not observable by their opponents we illustrate the algorithm with two economic examples in a simple partnership we show how to compute the equilibrium payoffs when the folk theorem fails in an investment game we show that two competing capitalists subject to moral hazard may both become worse off if their firms are merged and they split the profits from the merger finally we show that with short run players each long run player s highest equilibrium payoff is generally greater when their realized actions are observed journal of economic literature classification numbers c72 c73 d21 d82 d92 e22