optimal regulation under fixed rules for income distribution abstract it is by now well known that if arbitrary lump sum transfers are feasible then the optimal regulation of firms involves marginal cost pricing here we consider optimal regulation in an economy in which lump sum taxation is possible but the income distribution is in some sense fixed we show that under certain conditions production efficiency and marginal cost pricing are desirable in general however this need not be the case in an economy with increasing returns it is possible that the second best utility possibility frontier is strictly dominated by the pareto frontier and none of the marginal cost pricing equilibria lie on the second best frontier

the effects of oil price shocks in a new keynesian framework with capital accumulation the economic implications of oil price shocks have been extensively studied since the 1970s despite this huge literature no dynamic stochastic general equilibrium model was available that captures two well known stylized facts 1 the stagflationary impact of an oil price shock together with 2 the influence of the energy productivity of capital on the depth and length of this impact we build estimate and simulate a new keynesian model with capital accumulation which takes the case of an economy where oil is imported from abroad and where these stylized facts can be accounted for moreover the bayesian estimation of the model on the us economy 1984 2007 suggests that the output elasticity of oil might have been above 10 stressing the role of oil use in us growth at this time finally our simulations confirm that an increase in energy efficiency significantly attenuates the effects of an oil shock a possible explanation of why the third oil shock 1999 2008 did not have the same macro economic impact as the first two ones

the tragedy of the commons in cote d ivoire agriculture empirical evidence and implications for evaluating trade policies expansion of cultivated land diminishes the extent of forestlands or reduces the length of fallow periods and hence reduces the amount of natural vegetation the increase in land under cultivation has a direct output increasing effect at the cost of reducing natural capital and agricultural productivity the evidence for western cote d ivoire is consistent with and provides an explanation for the declining agricultural productivity observed in sub saharan africa during the past few decades this article uses a theoretical model to determine the level of land cultivation that maximizes village income using data from cote d ivoire for 1985 87 an important part of the land is under common property usually at the village level the results show that farmers do not internalize even a small fraction of the external cost of biomass in their land allocation decisions the lack of internalization of the social cost of the biomass resource leads to large income losses at the village level as much as 14 percent of village income these losses are many times larger than the usual estimates for conventional distortions

soil conservation as an investment in land abstract most studies on the problem of optimal soil conservation have analyzed soil conservation measures as being time limited in their effect this paper extends previous analyses of the soil conservation decision by allowing farmers to make investments in soil conservation structures such as terraces bundles and ditches it shows that the main conclusions arrived at in previous studies remain valid the long term effects of unanticipated permanent changes in prices and discount rates may go either way independent of whether conservation measures are time limited or have lasting effects on the soil base

an economic model of soil conservation by introducing soil depth and soil loss into a simple model of agricultural production this paper seeks to determine when the private path of erosion differs from the socially optimal path considering the depletion of soil only and abstracting from the environmental disruption caused by erosion the paper argues that under most institutional arrangements the social and private rates of erosion are the same the paper concludes that public policy should be directed toward reducing erosion only when it leads to significant pollution externalities

existence of marginal cost pricing equilibria in economies with several nonconvex firms this paper considers a general equilibrium model of an economy where some firms may exhibit increasing returns to scale or more general types of nonconvexities the firms are instructed to follow the standard marginal cost pricing rule or to fulfill the first order necessary conditions for profit maximization a general existence theorem of equilibria is proved in the case of an arbitrary number of firms no assumption is made to imply the aggregate productive efficiency of equilibria a condition that must be excluded in the nonconvex case the failure of the competitive mechanism in the presence of increasing returns to scale has been recognized since marshall 1920 and the search for alternative mechanisms has resulted in the so called theory of marginal cost pricing this theory was developed by allais 1953 hotelling 1938 lange 1936 lerner 1936 pigou 1932 to remain in the thirties and forties but has a long history dating back to the discussion on public utility pricing by dupuit 1844 it states that an optimum of welfare corresponds to the sale of everything at marginal cost hotelling 1938 this statement of the second welfare theorem has since been formulated at a high level of generality starting with the work by guesnerie 1975 and more recently by bonnisseau and cornet 1988b cornet 1986 1988a b c khan and vohra 1987 1988 quinzii 1986 none of these papers however is concerned with the existence of equilibria this has been considered in the past ten years by beato 1979 1982 beato and mas colell 1985 brown and heal 1982 brown et al 1986 cornet 1982 dierker guesnerie and neuefeind 1985 mantel 1979 and more recently by bonnisseau bonnisseau cornet kamiya and vohra in the special issue of the journal of mathematical economics 1988 on general equilibrium theory and increasing returns the purpose of this paper is to provide a general existence theorem for an economy with an arbitrary number of convex and nonconvex producers which may exhibit increasing returns to scale or even more general types of nonconvexities in our model a the consumers maximize their preferences subject to their budget constraints b the convex producers maximize their profits while the nonconvex producers are instructed to follow the marginal pricing rule i e they

money and the dispersion of relative prices a price dispersion equation is tested with data from the german hyperinflation the equation is derived from a version of lucas s and barro s partial information localized market models in this extension different excess demand elasticities across commodities imply a testable dispersion equation in which the explanatory variable is the magnitude of the unperceived money growth in order to test this hypothesis a price dispersion series is constructed and a measure of the unperceived part of money growth is estimated the model receives support from the empirical analysis although it is evident that unincluded variables have important effects on price dispersion

a coasean general equilibrium model of regulation abstract although marginal cost pricing is necessary for welfare maximization firms that produce under conditions of decreasing average cost incur losses if they price at marginal cost in this paper the coase two part tariff is extended to several cases of common costs by assessing surplus in order to recover the losses of the regulated natural monopolist the existence of equilibria in these cases is demonstrated three models are considered in the context of an arrow debreu private ownership economy a model of the regulated monopolist who charges hookups to both households and firms who use the good a model of the regulated natural monopolist who is allowed to make positive economic profit and finally a model where two or more monopolists are under the control of a single regulator

environmental externalities in traditional agriculture and the impact of trade liberalization the case of ghana abstract this paper provides a framework for the evaluation of trade policies that explicitly considers the effects of such policies on the environmental resources biomass in doing this we estimate the effects of biomass as a factor of agricultural production and test the hypothesis that farmers efficiently exploit biomass a resource held in common property the main findings are i biomass is an important factor of production in ghanian agriculture ii the biomass resource is exploited beyond the socially optimal level iii a deepening of trade liberalization is likely to induce further losses of biomass and deforestation and iv national income is likely to fall in response to further trade liberalization

relative price variability inflation and the allocative efficiency of the price system abstract this paper develops a theory of the relationship between aggregate and relative price variability based on the inability of people even in a rational world to identify permanent changes in relative demands whether caused by real or by monetary variability and relative productivities as soon as they occur the theory implies that the variance of the rate of inflation and the variance of relative price change are positively related although expectations are rational and markets always clear production decisions respond sluggishly to changes in relative prices temporary shocks to relative demands cause prolonged changes in the structure of production available information is used so as to maximize the efficiency of the price system however this efficiency decreases when any of the underlying variances increases this decrease is more pronounced when the production lag is longer

consumption risk farm characteristics and soil conservation adoption among low income farmers in the philippines abstract this paper investigates patterns of soil conservation adoption among low income farmers in the philippines a model is presented that focuses attention on the role of assets and consumption risk in influencing soil conservation adoption decisions results from a reduced form probit model of adoption are reported these econometric findings indicate that patterns of soil conservation adoption reflect relative risk considerations in addition to farm and household characteristics farm size tenure security labor availability and land quality all exhibit a positive association with soil conservation adoption in contrast controlling on these and other household characteristics the probability of adoption falls as consumption risk rises these results underscore a need for greater sensitivity among policymakers to the role of consumption risk in influencing soil conservation decisions in low income settings

the relationship between relative prices and the general price level it is very nearly a truismi amaong neoclassical economists that the public is wont to confuse changes in the general price level with relative price changes correspondingl y one might speak of the independence between the two as one of the central postulates of the neoclassical tradition william stanley jevons was aml ong the first to identify this basic dichotomin economic life as well as to attempt to explain the ordinary citizen s seenming incapacity to understand it

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

soil erosion and labor shortages in the andes with special reference to bolivia 1953ndash 1991 implications for conservation with development abstract many claims in support of soil conservation policies have been flawed by excessively deterministic reasoning and unwarranted spatial overaggregation a case study remedying these flaws demonstrates that soil erosion in the bolivian andes worsened during recent decades 1953 91 due to changes in production as peasants shifted labor from conservation techniques to nonfarm employment these findings reflect in three policy issues concerning sustainable resource management oriented toward development conservation with development are discussed a environmental consequences and economic causes of increased nonfarm employment by part time peasant farmers b environment related aspects of technology innovation and technique modifications in labor scarce peasant production and c the environmental perceptions of peasant farmers in participatory development planning

two part marginal cost pricing equilibria with n firms sufficient conditions for existence and optimality the authors explore the interactions among firms with increasing returns regulated to break even by pricing with two part tariffs they provide conditions for existence and for efficiency of general equilibria with n firms this involves finding hookup fees that are voluntarily paid and cover the firms losses from marginal cost pricing a problem that because of both substitution and income effects is complicated by multiple firms using two part tariffs but that must be solved to ensure the continuity of demands necessary to prove break even equilibria exist copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

inflation expectations real rates and risk premia evidence from inflation swaps this paper develops a model of the term structures of nominal and real interest rates driven by state variables representing the short term real interest rate expected inflation inflation s central tendency and four volatility factors that follow garch processes we derive analytical solutions for nominal bond yields yields on inflation indexed bonds that have an indexation lag and the term structure of expected inflation unlike prior studies the model s parameters are estimated using data on inflation swap rates as well as nominal yields and survey forecasts of inflation the volatility state variables fully determine bonds time varying risk premia and allow for stochastic volatility and correlation between bond yields yet they have small effects on the cross section of nominal yields allowing for time varying volatility is particularly important for real interest rate and expected inflation processes but long horizon real and inflation risk premia are relatively stable

are changes in inflation expectations capitalized into stock prices a micro firm test for the nominal contracting hypothesis unlike earlier studies the author finds empirical support using microfirm data for the nominal contracting hypothesis that is changes in expected inflation create a wealth redistribution between creditors bondholders and debtors shareholders the author is able to improve model specification by 1 recognizing explicitly that a firm s asset and capital structure variables are balance sheet constrained and 2 controlling for individual firm risk differences and capital gains taxation copyright 1989 by mit press

on a general existence theorem for marginal cost pricing equilibria abstract we report a generalization of recent results on the existence of marginal cost pricing equilibria mcpe in economies with an increasing returns to scale industry our result makes no ad hoc assumptions which force the equilibrium to be on the efficiency frontier of the aggregate production possibility set we also present an additional condition under which our mcpe are productively efficient in the aggregate

on the inefficiency of two part tariffs the partial equilibrium literature on two part tariffs suggests that if a commodity is produced under increasing returns efficiency can be achieved through marginal cost pricing and a suitable choice of entry fees fixed charge which may vary from consumer to consumer we show that this partial equilibrium intuition cannot be extended beyond some special cases even with a consumer specific fixed charge it is possible that none of the equilibria yield pareto efficiency furthermore it may be impossible to achieve pareto efficiency through any specification of taxes which are levied solely to cover losses hotelling 1939 and lerner 1944 among others see for example the surveys by ruggles 1949 1950 argued that firms operating under increasing returns to scale should be regulated to equate their marginal cost to the price of the output and the resulting losses financed through lump sum taxes being concerned primarily with efficiency issues the proponents of the marginal cost pricing principle did not advocate any particular distribution of the lump sum taxes among the consumers after the ensuing debate see for example ruggles 1950 there seems to have been a general agreement that marginal cost pricing is necessary for efficiency while admitting this coase 1946 presented an illuminating analysis of the drawbacks of what he called the hotelling lerner solution and also proposed an alternative solution it will be useful to begin by briefly recalling coase s criticism of the hotelling lerner solution apart from the practical problem of collecting lump sum taxes he emphasized two distinct drawbacks of the hotelling lerner scheme he claimed that this solution would not necessarily guarantee efficiency in the sense that it might lead to a marginal cost pricing equilibrium in which a positive amount of the commodity was produced whereas it would be better not to produce the commodity at all this can be restated simply as the argument that in the presence of non convexities marginal conditions need not guarantee global optimality there may be several marginal cost pricing equilibria some efficient and some inefficient as such this phenomenon can hardly be ruled out coase s second objection to the hotelling lerner solution was that it could effectively alter the income distribution if for instance a lump sum tax was imposed on all the consumers but only some of them consumed the commodity produced by the firm operating under increasing returns to scale then there would effectively be a redistribution in favour of those who consumed this subsidized commodity it was natural to keep the issue of efficiency separate from that of equity and coase argued that the hotelling lerner solution

price and output responsiveness to nominal changes under differential information abstract the paper considers how changes in nominal income are transmitted into price and output changes within a setting where the traditional assumption of instantaneous market clearing costless coordination is given up in favour of a more realistic setting where price decisions are made by numerous agents firms acting independently on their private decentralized information the responsiveness of firm specific prices is considered and it is shown how absolute or nominal price rigidity can be explained building this into a theory of the general price level it is proved that heterogenously perceived nominal changes affect the price level less than proportionally moreover it is shown how a phillips curve relation between inflation and output can be rationalized within the model finally the issue of relative price variability is considered and related to misallocation of economic resources under differential information

a note on the variability of inflation and the dispersion of relative price changes abstract the relationship between the variance of inflation and the variability of relative price changes is analyzed empirically a strong positive association is found for 1948 1969 and 1948 1975 application of chow s test indicates structural instability and granger s test suggests a feedback effect between these variables

comovements in aggregate and relative prices some evidence on neutrality abstract this paper develops an alternative test of the neutrality of anticipated monetary policy a multi good equilibrium model along the lines of barro and hercowitz is used to derive a neutrality proposition for anticipated movements in the aggregate price level and to demonstrate its equivalence econometrically to the exogeneity of relative prices with respect to the aggregate price level multivariate causality tests provide a basis for testing these restrictions the empirical results provide mixed evidence for the equilibrium models while the variation in the findings across industries suggests a role for supply side disturbances in explaining comovements in aggregate and relative prices

on the real effects of short and long run inflation and relative sector price variability some empirical evidence using the kalman filter this paper evaluates empirically the effects of sector relative price variability and short run and long run inflation on the growth rate of real output in the united states since 1947 also permanent and transitory estimates are constructed to evaluate the effects of unanticipated movements in sector relative price on the growth rate of real output the results show a statistically significant inverse relationship beween the growth rate of real output and transitory sector relative price variability and anticipated long run inflation and a direct relationship between the growth rate of real output and unanticipated short run inflation

optimal soil conservation and the reform of agricultural pricing policies abstract soil degradation is often blamed for the poor performance of agriculture in developing economies so too are policies which keep the prices of both outputs and inputs artificially low some economists have argued that pricing reforms will encourage soil depletion others say that such reforms will encourage soil conservation to evaluate these claims this paper develops models of the optimal control of soil erosion and soil fertility it is shown that the effect could go either way but that there are strong reasons for suspecting that pricing reforms will not affect soil conservation dramatically

robustness of the relationship between price variability and inflation for us manufacturing we study the relationship between relative price variability and inflation in two different ways we first look at product class census unit values for five time periods between 1958 and 1982 and find evidence of a positive relationship between variability and inflation then we directly update the vining and elwertowski 1976 study for the period 1974 91 using individual commodity series from the bureau of labor statistics we conclude by discussing differences across industries in price stickiness

on marginal cost pricing with given tax subsidy rules we provide an existence proof for generalized marginal cost pricing with given tax subsidy rules the novelty is that our approach allows for economic environments where all the generalized marginal cost pricing equilibria are inefficient in the aggregate an example is recalled in order to suggest how non pathological these environments are

the genealogy of modern theoretical public economics from first best to second best abstract the development of second best modelling in the seventies has shaped modern theoretical economics the paper discusses some key changes in the economists conceptions the first two sections examine the efficiency equity dilemma the study of non convexities has shown that counterintuitive efficiency enhancing income redistribution might occur the introduction of asymmetric information has shed doubts on virtues of lump sum compensation the last sections focus on the intricate geometry of second best optimisation and the ambiguous value of the signals provided by the price system outside a first best world

increasing returns in infinite horizon economies this paper shows that in a general equilibrium model with an infiniite holizonl in whichi productionl may exhibit increasing returns to scale or non conivexities marginal cost pricing equilibria exist anid are essential that is stable witlh respect to small perturbationis of the economily as in many important models of mairket imperfections marginal cost pricinig equilibria need not be pareto optimal in the presence of noni convexities so the systematic approaches to equilibrium analysis in infinite dimenisionial commodity spaces which rely crucially oln the first welfare theorem cainnot be used instead this paper introduces leray schauder degree theory the extension of degree theor y to banacih and locally convex spaces as the natural methodology for showinlg that equilibria exist and for anialyzing qualitative features of equilibria such as local uniqueness or essentiality

two part marginal cost pricing equilibria existence and efficiency two part tariffs are explored in a general equilibrium model with increasing returns to scale two part marginal cost pricing equilibria are not generally paretoefficient the second fundamental theorem of welfare economics may also fail we introduce a notion of consumer surplus as the willingness to pay for access to the increasing returns good the individuals s hookup charge is set to a fixed fraction of his consumer surplus if aggregate consumer surplus exceeds the losses of the regulated monopoly then exact two part marginal cost pricing equilibria exist further for efficient allocations having positive net surplus the second fundamental theorem of welfare economics holds

externalities and fundamental nonconvexities a reconciliation of approaches to general equilibrium externality modeling and implications for decentralization abstract starrett 1972 33 and boyd and conley 1997 7 approaches to externality modeling are unified by distinguishing between producible and nonproducible public commodities nonconvexities are associated with detrimental producible public commodities but not with nonproducible public commodities in boyd and conley 1997 7 disposability properties costly or costless imply that producible public commodities are either by products e g pollution or joint products e g national defense markets fail for both beneficial and detrimental by products nonconvexities imply that price based equilibria e g pigovian tax equilibrium may not be pareto efficient foley s 1967 1970 17 18 public competitive equilibrium combines price and quantity signals with a unanimity criterion and restores the equivalence between equilibrium and efficiency

relative price variability real shocks and the stock market in this paper we investigate the effects of relative price variability on output and the stock market and gauge the extent to which inflation proxies for relative price variability in stock return inflation regressions the evidence shows that the negative stock returninflation relations proxy for the adverse effects of relative price variability on economic activity particularly during the seventies when the u s experienced oil supply shocks hence it appears that inflation spuriously affects the stock market in two ways the aggregate output link of fama 1981 and the supply shocks reflected in relative price variability a number of papers have attempted to explain the anomalous negative relations between stock returns and inflation witnessed in the post war period one hypothesis that has held up well in light of empirical evidence suggests that the negative relation between stock returns and unexpected inflation simply reflects the more fundamental positive relation between stock returns and future real variables see e g fama 1981 geske and roll 1983 and kaul 1987 1989 in this paper we investigate the effects of relative price variability on output and the stock market and gauge the extent to which inflation proxies for relative price variability in stock return inflation regressions first relative price variability can have detrimental effects on output and employment see e g friedman 1977 and barro 1976 second absolute relative price confusion models of the lucas 1973 type suggest that monetary shocks can induce a positive relation between inflation and relative price variability see e g cukierman 1983 hence the negative stock return inflation relations could simply be a reflection of the negative effects of relative price variability on the stock market we use data for the 1947 1985 period to test the various links of our hypothesis the results indicate that relative price variability is positively related to both expected and unexpected inflation measures relative price variability also has a significant negative effect on output and the stock market more importantly

general equilibrium when some firms follow special pricing rules in this paper we study the existence of a general equilibrium in an economy in which some of the firms behave competitively whereas others follow special pricing rules an even casual observation of economic reality confirms the need for the inclusion of price setting firms in the study of general equilibrium models and in fact this has been emphasized in the economic literature for some time we consider this a sufficient justification to present a general equilibrium model which allows for both types of behavior price setting as well as price taking behavior the model to be presented will account for a wide range of price setting rules we however find it appropriate to point out at the start that not all economically relevant price setting rules are covered although our model permits the drawing of useful conclusions for the general equilibrium theory of oligopolistic competition through prices it is not especially designed for that purpose in particular our results are not applicable to the general equilibrium analysis with price making monopolistic firms a subject on which there exists some literature 2 our motivation as well as our modelling options and assumptions are directed to two fields where an increased interest in the theoretical foundations recently could be noticed

migration remittances and agricultural productivity in china in our paper we have used the new economics of labor migration framework to trace the complex linkages that exist among migration remittances and agricultural productivity in china constraints in the operation of on farm labor and capital or insurance markets or institutions provide households with a motivation to migrate and distort on farm operations when labor leaves in our household sample the net impact of migration and remittances on maize production is negative excerpt

intercountry differences in the relationship between relative price variability and average prices this paper provides new evidence on the relationship between relative price variability and inflation the model uses a consistently defined data set for nine european countries it benefits from the inclusion and testing of the effects of macroeconomic variables and the incorporation into the measures of inflation and dispersion adjustments for timeliness appropriate formulas and proximity the general findings of an effect on relative price variability by the macroeconomic environment and negative coefficients on unexpected inflation are supported by their occurrence in models estimated by seemingly unrelated regression and a robust systems estimator

on the existence of lindahl hotelling equilibria abstract we consider an economy characterized by the simultaneous presence of public goods and many increasing returns to scale firms we formalize a notion of equilibrium termed a lindahl hotelling equilibrium in which producer prices are marginal cost prices and the public goods are financed through lindahl prices sufficient conditions are provided for such an equilibrium to exist

a note on soil depth failing markets and agricultural pricing abstract due to implementation of structural adjustment programs prices of agricultural products have increased in many developing countries from an environmental point of view it is an open question whether these price increases stimulate sustainable agriculture in the context of a simple model that includes labour intensive investments in soil conservation it is demonstrated that rising prices for agricultural outputs unambiguously increase soil conservation in the steady state with imperfect labour markets the reverse effect may occur giving rise to a conflict between agricultural reform programs and soil conservation

a note on soil depth failing markets and agricultural pricing comment abstract bulte and van soest bulte e van soest d 1999 a note on soil depth failing markets and agricultural pricing journal of development economics 58 245 254 argue that higher agricultural output prices result in greater soil conservation when labor markets function well but have ambiguous effects when labor markets are absent the latter result is not attributable to labor market failure but rather occurs whenever labor supply is less than perfectly elastic consistent with the more general model presented here empirical evidence from a number of developing countries suggests that well functioning labor markets are associated with decreases in investment in soils

public economics yesterday today and tomorrow public economics that is to say the study of public intervention in the economy 1 has emerged from public finance in the 1950s to reach its autonomy at the beginning of the seventies with in particular the creation of the journal of public economics in 1971 with some oversimplifications we are going to argue that modern public economics was born from taking into account more or less explicitly the informational constraints of the state in its role of production allocation and distribution of resources the criticism of the benevolent state by the virginia polytechnic institute and chicago schools followed today by a renewal of political economy constitutes the second major key to read the new developments of public economics this leads us to a presentation in four parts section 2 will overview the implications of the arrow debreu general equilibrium paradigm in public economics section 3 will present some essential results obtained in public economics when the informational constraints of the state are taken into account the paradigm of the benevolent state will be criticized in section 4 section 5 will briefly sketch our view of the immediate future for public economics

existence of marginal cost pricing equilibria the nonsmooth case in this article we report a general existence theorem of a marginal cost pricing equilibrium for an economy which may exhibit increasing returns to scale or more general types of nonconvexities in the production sector our model considers an arbitrary number of firms and no smoothness assumption is made on their production sets or on the aggregate production set in this article we report a general existence theorem of marginal cost pricing equilibria for an economy which may exhibit increasing returns to scale or more general types of nonconvexities in the production sector in our model which considers a positive finite numbers 1 of commodities m of consumers and n of firms a consumers maximize their preferences subject to their budget constraints b convex producers maximize profits while nonconvex producers are instructed to follow the marginal pricing rule i e they fulfill the first order necessary condition for profit maximization in a precise mathematical sense formalized with clarke s normal cone our treatment of convex and nonconvex producers will in fact be symmetric the technological possibilities of the jth producer j 1 n

real business cycles and the lucas paradigm when the lucas paradigm is generalized to include real effects the effects of real factors and monetary factors on the business cycle are always interrelated furthermore in such models monetary factors can affect the long run behavior of real output contrary to the commonly held view that they cannot real business cycle models and lucas type models are different paradigms but not in the sense of real versus monetary rather interrelationships between real and monetary factors are intrinsic to the lucas paradigm whereas the real business cycle literature implies a dichotomy between real and monetary factors

the existence of marginal cost pricing equilibria with increasing returns the competitive mechanism fails in economies with nonconvex technologies competitive equilibria do not exist in general and pareto optima are no longer equilibria the search for alternative mechanisms in economies with increasing returns was developed and resulted in the principle of marginal cost pricing modern economic theory has returned to the foundations of marginal cost pricing theory in a general equilibrium framework the existence of equilibria with marginal cost pricing in economies with increasing returns and a more general type of nonconvexities is analyzed in this paper the case of differentiable economies where all production sets are limited by smooth surfaces is developed the principles of the proof are also extended to the nondifferentiable case