occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

innovations improvements and the optimal adoption of new technologies abstract this paper extends the literature on technology adoption by introducing a distinction between technological breakthroughs innovations and the engineering refinements improvements that follow such a breakthrough firms do not necessarily wait for a future technological breakthrough but instead have an incentive to delay the adoption of a new technology until it is sufficiently advanced we characterize a firm s adoption decision as the solution to a continuous time infinite horizon dynamic programming problem which gives rise to an ordinary differential equation that is highly non linear and does not have a closed form solution we thus employ projection techniques and show how these techniques can be applied to the analysis of optimal stopping problems

wages relative prices and the choice between fixed and flexible exchange rates this paper reexamines the choice between fixed and flexible exchange rates to take into account wage indexation and flexible prices the difference in output variation in the two exchange rate regimes is shown to be dependent on wage behaviour in the domestic economy being proportional to one minus the degree of wage indexation foreign wage behaviour is also shown to be of key importance since high wage indexation abroad can insulate the domestic country from some foreign disturbances regardless of domestic behaviour while for other economic disturbances it is the relative degree of wage indexation which determines the desirability of flexible rates niveaux de salaires prix relatifs et le choix entre les regimes de taux de change fixes ouflucttuants ce memoire reouvre le dossier du choix entre regime de taux de change fixes et regime de taux de change fluctuants quand on tient compte de l indexation des salaires et de la flexibilite des prix il appert que l ecart entre les variations du niveau de production domestique entre les deux regimes depend du comportement des salaires dans l economie domestique il est proportionnel a 1 le degre d indexation des salaires le comportement des salaires dans le reste du monde est aussi important puisque un haut degre d indexation des salaires dans le reste du monde peut proteger l economie domestique de certaines perturbations economiques h l etranger quel que soit le comportement des salaires domestiques dans le cas d autres perturbations economiques c est le degre relatif d indexation des salaires h l interieur et h l exterieur qui devient le facteur determinant dans le choix d un regime de taux de change how much difference a flexible exchange rate makes to the economic performance of a country depends significantly on wage behaviour if wages are sufficiently sensitive to exchange rates output will exhibit much the same variability under flexible exchange rates as under fixed rates foreign wage behaviour is also of key importance since high wage flexibility abroad can insulate the domestic country from some foreign disturbances regardless of domestic wage behaviour while for other economic disturbances it is the relative degree of wage flexibility which determines the desirability of flexible rates this paper re examines the choice between fixed and flexible rates taking into account both domestic and foreign wage

capital accumulation games of infinite duration abstract consider a market in which firms accumulate capital according to the nerlove arrow capital accumulation equation each player chooses a path of investment and thus an induced path of capital to maximize his total discounted profits which depend on his own capital and the capital stocks of his rivals existence is proved for such a nonzero sum infinite horizon differential game and conditions under which the game converges to a particular stationary point regardless of the initial conditions are shown thus the game possesses the property of conditional global asymptotic stability

dynamic control of a monopolist s product and process innovation with reference quality our main purpose is to investigate the dynamic control problem of a monopolist s product and process innovation under reference quality the main features of this article are i a monopolist deal

standardization and the stability of collusion we characterize the interplay between firms decision in terms of product standardization and the nature of their ensuing market behaviour we prove the existence of a nonmonotone relationship between firms decision at the product stage and their intertemporal preferences c 1998 elsevier science s a

open loop and feedback models of dynamic oligopoly abstract a simple method of estimating the degree of oligopoly power in dynamic markets using either open loop or feedback subgame perfect strategies is developed new theoretical results are presented for families of oligopoly models differences between discrete time and continuoustime models and open loop and feedback models are demonstrated the effects of increasing the number of firms or adjustment costs are examined

from mind to market a global dynamic analysis of r d existing models of rd the path to the saddle point steady state is never globally optimal we also sketch some tentative policy implications of our analysis

a dynamic model of oligopoly in the coffee export market a linear quadratic dynamic feedback oligopoly model that nests various market structures is used to estimate the degree of competitiveness and the adjustment paths of the two largest coffee exporters brazil and colombia their estimated behavior is relatively competitive this subgame perfect dynamic model is compared to a standard static oligopoly model and the open loop model the dynamic generalization of the standard static model both classical and bayesian tests of open loop and feedback dynamic models are reported

product and process innovation the implication of making comparisons between uniform pricing monopolist and second degree price discriminating monopolist the question of simultaneous product and process innovation price discrimination is crucial for technologically evolving industries in this paper we assume that there are two different kinds of

optimal pricing policy in the presence of experience effects i introduction in this paper we analyze the problem of optimal intertemporal pricing for a monopolist when cur rent and past output affect future cost and or demand conditions through experience in production and or in consumption learning by doing the experience curve contagion habit formation bandwagon and snob effects are all examples of terminologies used to describe such situations we call these experience effects for convenience and explore profit maximizing pricing behavior when such effects exist in the traditional profit maximization model a firm chooses the price output combination so as to maximize short run i e current profits the familiar mc mr equality given that price is higher than average variable cost and a nonbind ing capacity constraint is a necessary condition for price takers as well as price makers this as sumes that the current pricing decision has no bearing on the future so that long run profit is maximized by a series of short run maximizing

on the instability of the r d portfolio in a dynamic monopoly or one cannot get two eggs in one basket abstract firms innovation portfolios include several dimensions ranging from organizational aspects to cost reduction and product characteristics all of these efforts take place during the product life cycle and interact with each other in determining the spectrum of features of the product and its performance on the market this paper contributes to the related theoretical debate focussing on the possibility of having superior product quality levels at lower marginal production cost over time to deal with this issue we investigate the optimal r d portfolio of a single product monopolist investing in cost reducing activities accompanied by efforts improving the quality of its product over an infinite time horizon it turns out that the firm s relative incentives along the two directions are conditional upon market affluence measured by consumers willingness to pay for quality and r d efforts are complements in the neighbourhood of the steady state equilibrium however the dynamics of the two r d controls depend on both quality and marginal cost at every instant consequently as the stability analysis reveals the steady state equilibrium is indeed unstable due to the dynamics of marginal cost thereby implying that one should not expect the firm to supply an increasing quality level at a decreasing production cost hence the dynamic interplay between r d controls and the resulting instability affecting production costs also imply that one may not expect to observe product quality to increase and market price to decrease over the product life cycle

cournot oligopoly and the theory of supermodular games abstract we reconsider the cournot oligopoly problem in light of the theory of supermodular games invoking the recent ordinal version of this theory proposed by milgrom and shannon we generalize novshek s existence result derive the associated uniqueness result give an extension of a classical existence result under symmetry and provide conditions making a cournot oligopoly into a log supermodular game with the natural order on the action sets we also provide extensive and precise insight as to why decreasing best responses are widely regarded as being typical for the cournot model with production costs several illustrative examples are provided journal of economic literatureclassification numbers c72 l10 l13

endogenous timing in duopoly games stackelberg or cournot equilibria abstract simultaneous versus sequential play is studied in an extended game in a preplay stage players decide whether to select actions in the basic game at the first opportunity or to wait until observing their rivals first period actions in one extended game players first decide when to select actions without committing to actions in the basic game the equilibrium has a simultaneous play subgame unless payoffs in a sequential play subgame pareto dominate those payoffs in another extended game deciding to select at the first turn requires committing to an action both sequential play outcomes are the equilibria only in undominated strategies

duopoly with both ruin and entry duopoly is modeled here as a prisoner s dilemma repeated in continuous time firms wish to maximize discounted flows of dividend payments which are paid when capitalization levels permit a firm is ruined when its capitalization falls below zero but each ruined firm is immediately replaced by a new entrant attempting to ruin a rival is not necessarily an attractive strategy here since the postentry game against the new rival may be a less favorable one on the other hand firms that are close to ruin have little to lose by playing aggressively and hence are attractive targets of aggression themselves equilibria are constricted that reflect these considerations

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

intensity of competition and the choice between product and process innovation abstract two questions are examined within a model of vertical differentiation the first is whether cost reducing innovations are more likely to be observed in regimes of more intense bertrand or less intense cournot competition we find that there are cost reducing innovations that are pursued under cournot but not under bertrand competition the second is whether the regime of competition affects a firm s choice between product and process innovation we show that for the high quality firm whenever there is a difference between the choice made by a bertrand competitor and the choice made by a cournot competitor the former opts for product innovation while the latter prefers process innovation for the low quality firm the result is reversed

an examination of the effects of government purchases in an open economy this paper examines the effects of permanent and transitory changes in government purchases in the context of a model of a small open economy that produces and consumes both traded and nontraded goods the model incorporates an equilibrium interpretation of the business cycle that emphasizes the responsiveness of agents to intertemporal relative price changes it is demonstrated that transitory increases in government purchases lead to an appreciation of the real exchange rate and an ambiguous change although a likely worsening in the current account while permanent increases have an ambiguous impact on the real exchange rate and no effect on the current account when agents do not know whether a given increase in government purchases is permanent or transitory the effect is a weighted average of these separate effects the weights depend on the relative variances of the transitory and permanent components of government purchases in the past few years a considerable amount of effort has been devoted to examining the effects of macroeconomic policy in an open economy such issues as exchange rate overshooting deviations from purchasing power parity sterilization and monetary control the effectiveness of monetary policy and the choice between alternative exchange rate regimes have been at center stage the models that have been employed to study these issues have run the spectrum from variants of the mundell fleming model such as dornbusch 1976 turnovsky 1981 and kimbrough 1983a to wage contracting and indexing models like bhandari 1982b and flood and marion 1982 to equilibrium models of the business cycle along the lines of bhandari 1982a saidi 1982 and kimbrough 1983b to the closely related intertemporal utility maximization models with money of helpman 1981 and stockman 1980 1983 one common thread that in a sense unifies all of these and other recent contributions is that they are concerned primarily with the effects of alternative monetary and exchange rate policies that the central bank might enact in light of the development and refinement during this period of the monetary approach to the balance of payments and the exchange rate it is not surprising i would like to thank phil brock jeremy greenwood gary zarkin and two anonymous

a differential game approach to investment in product differentiation abstract we consider a dynamic oligopoly where firms invest to increase product differentiation and an externality effect operates in the r d activity via the demand functions in the fully noncooperative setting we find that the degree of differentiation resulting from r d effort is higher the larger is the population of firms in the industry if firms cooperate in the r d activity by setting up an r d cartel aggregate investment is larger and product substitutability is lower than in the decentralised case

dynamic optimal control of process product innovation with learning by doing abstract in this paper we present a dynamic optimal control model of process product innovation with learning by doing and extend the model of chenavaz 2012 to an even more general model in which the firm s cost functions of product and process innovation depend on both the innovation investments and the knowledge accumulations of product and process innovation furthermore in our paper the product price the investments of product and process innovation are decision variables the product quality production cost the change rates of knowledge accumulations of product and process innovation are state variables the main objective of this paper is to analyze the relationships between these variables and investigate the model s optimal conditions and characteristics further we solve the model with some numerical examples and sensitivity analysis is conducted to study the effect of changing the parameters and coefficients on the objective function value

excess capacity and collusion in this paper the authors analyze a restricted class of equilibria in the dynamic model of j p benoit and v krishna 1987 in which firms choose their scale of operation before engaging in a repeated game of price competition benoit and krishna established that all firms carry excess capacity in all collusive equilibria as the authors are interested in the relationship between excess capacity and collusion in price they examine equilibria in which firms tacitly collude in price but not in investment decisions copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

process and product innovation by a multiproduct monopolist a dynamic approach abstract we adopt a dynamic approach to model the behaviour of a multiproduct monopolist investing in process innovation and either product differentiation or product proliferation or both irrespective of the number of activities appearing in the r d portfolio we prove that depending on initial conditions there may exists substitutability between process innovation and either form of product innovation along the optimal path towards the steady state while in the latter only complementarity emerges looking at the threefold investment plan we qualitatively characterise the ranking of r d activities in terms of the consumer reservation price and the extent of the spectrum of varieties

demand heterogeneity and technology evolution implications for product and process innovation the evolution of technology has been a central issue in the strategy and organizations literature however the focus of much of this work has been on what is essentially the supply side of technical change the evolution of firm capabilities we present a demand based view of technology evolution that is focused on the interaction between technology development and the demand environment in which the technology is ultimately evaluated we develop a formal computer simulation model that explicitly considers the influence of heterogeneity in market demand the presence of consumers with different needs and requirements on firms innovation choices the model is used to examine the dynamics of product and process innovation utterback and abernathy 1975 the analysis reveals that demand heterogeneity offers an alternative to supply side explanations of the technology life cycle further by considering the implications of decreasing marginal utility from performance improvements the model highlights the role of technologically satisfied consumers in shaping innovation incentives and suggests a rationale for a new stage in the technology life cycle characterized by increasing performance at a stable price the stage has not yet been treated formally in the literature but is widely observed most prominently in digital and information based technologies

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

dynamic r d with spillovers competition vs cooperation abstract we investigate dynamic r d for process innovation in a cournot duopoly where firms may either undertake independent ventures or form a cartel for cost reducing r d investments by comparing the profit and welfare performances of the two settings in steady state we show that private and social incentives towards r d cooperation coincide for all admissible levels of the technological spillovers characterising innovative activity we also evaluate the whole history of the dynamic system along the transition to the steady state showing that the conflict between private and social incentives does not necessarily emerge

fiscal policy and stabilization of exchange rates under alternative criteria this paper examines the role of fiscal policy in the determination of the exchange rate in a small open economy and discusses the efficiency of feedback rules in minimizing the volatility of the exchange rate two criteria are introduced to stabilize the large fluctuations in exchange rates i minimizing the variance of the exchange rate and ii minimizing the expected squared gap between the full and incomplete current information values of the exchange rate the two criteria are based on different beliefs regarding the working of the market forces and require the choice of diametrically opposed policy rules

evaluation of financial liberalization a general equilibrium model with constrained occupation choice the objective of this paper is to assess both the aggregate growth effects and the distributional consequences of financial liberalization as observed in thailand from 1976 to 1996 a general equilibrium occupational choice model with two sectors one without intermediation and the other with borrowing and lending is taken to thai data key parameters of the production technology and the distribution of entrepreneurial talent are estimated by maximizing the likelihood of transition into business given initial wealth as observed in two distinct datasets other parameters of the model are calibrated to try to match the two decades of growth as well as observed changes in inequality labor share savings and the number of entrepreneurs without an expansion in the size of the intermediated sector thailand would have evolved very differently namely with a drastically lower growth rate high residual subsistence sector non increasing wages but lower inequality the financial liberalization brings welfare gains and losses to different subsets of the population primary winners are talented would be entrepreneurs who lack credit and cannot otherwise go into business or invest little capital mean gains for these winners range from 17 to 34 percent of observed overall average household income but liberalization also induces greater demand by entrepreneurs for workers resulting in increases in the wage and lower profits of relatively rich entrepreneurs of the same order of magnitude as the observed overall average income of firm owners foreign capital has no significant impact on growth or the distribution of observed income

a note on price and quantity competition in differentiated oligopolies abstract in this note we show that the results developed in n singh and x vives 1984 rand j econ 15 546 554 are sensitive to the duopoly assumption if there are more than two firms prices may be higher under price competition than under quantity competition this will be the case if quality differences are large and goods are complements if goods are substitutes high quality firms may earn higher profits under price competition than under quantity competition hence it is not evident which kind of competition is more efficient journal of economic literature classification numbers d43 l13

the simple economics of research portfolios this article identifies biases in market portfolios of parallel research projects arising from the noncongruence of social goals and private aspirations occasioned by those circumstances where the market rewards only the winner and where the winner is awarded the entire social surplus it is shown that under risk neutrality this noncongruence implies that t he market encourages the development of too many discoveries too lar ge a spread in the distribution of the quality of discoveries and an excessive occurrence of multiple discoveries copyright 1987 by royal economic society

continuous stochastic games of capital accumulation with convex transitions abstract we consider a discounted stochastic game of common property capital accumulation with nonsymmetric players bounded one period extraction capacities and a transition law satisfying a general strong convexity condition we show that the infinite horizon problem has a markov stationary subgame perfect equilibrium and that every finite horizon truncation has a unique markovian equilibrium both in consumption functions which are continuous and nondecreasing and have all slopes bounded above by 1 unlike previous results in strategic dynamic models these properties are reminiscent of the corresponding optimal growth model journal of economic literature classification codes c73 o41 q20

learning by doing and aggregate fluctuations does the form of the accumulation technology matter abstract several authors have identified learning by doing as a mechanism capable of generating the endogenous propagation of shocks in rbc models it is shown that this endogenous propagation mechanism depends upon the dynamic structure associated with learning rather than any functional form assumptions on the accumulation technology

a theory of dynamic oligopoly iii cournot competition abstract we study the markov perfect equilibrium mpe of an alternating move infinite horizon duopoly model where the strategic variable is quantity we exhibit a pair of difference differential equations that when they exist differentiable mpe strategies satisfy for quadratic payoff functions we solve these equations in closed form and demonstrate that the mpe corresponding to the solution is the limit of the finite horizon equilibrium as the horizon tends to infinity we conclude with a discussion of adjustment costs and endogenization of the timing

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

dynamic oligopoly in the rice export market a linear quadratic dynamic oligopoly model is used to estimate the competitiveness of the rice export market the model nests various market structures using either open loop or feedback strategies the estimated feedback model implies a less competitive market structure than the estimated open loop model the rice export market is oligopolistic but it is closer to competitive than collusive copyright 1989 by mit press

dynamic duopoly with adjustment costs a differential game approach abstract this paper develops a differential game model of duopoly in which firms incur costs associated with how fast they change their level of output the analysis solves for a subgame perfect equilibrium to the model in which the steady state level of output lies strictly between the static cournot and perfect competition solutions furthermore we demonstrate that the limit game in which the speed of adjustment parameter approaches zero does not tend toward the static cournot equilibrium

government spending and the exchange rate this paper investigates the effects of govenment spending on real and nominal exchange rates within the context of an open economy equilibrium rational expectations model the model predicts that both real and nominal exchange rates appreciate in response to anticipated and unanticipated increases in government spending empirical evidence from germany for the period 1975 2 1989 4 provides some weak support for the predictions of the model

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

endogenous sequencing of firm decisions abstract when firms are symmetrically informed a stackelberg leader prefers to be leader rather than a cournot duopolist however when the leader has superior information about demand the leader may earn lower ex ante profits than it would earn if it was choosing quantities simultaneously with the follower in this paper i give the firm with superior information the option of delaying its quantity decision until the decision period of the less informed firm so that decisions are made simultaneously surprisingly in the unique stable outcome the informed firm moves first regardless of its private information journal of economic literature classification numbers c72 c73 d82 l10

strategic incentives in dynamic duopoly abstract we compare steady states of open loop and locally stable markov perfect equilibria mpe in a general symmetric differential game duopoly model with costs of adjustment strategic incentives at the mpe depend on whether an increase in the state variable of a firm hurts or helps the rival and on whether at the mpe there is intertemporal strategic substitutability or complementarity a full characterization is provided in the linear quadratic case then with price competition and costly production adjustment static strategic complementarity turns into intertemporal strategic substitutability and the mpe steady state outcome is more competitive than static bertrand competition

experimentation and learning in a differentiated products duopoly abstract this paper explores price setting behavior in the context of a duopoly in which firms are uncertain about the degree of product differentiation firms learn from the difference in their realized demands in light of the price differential the informativeness of this market experiment is shown to be increasing in size of the price differential in markets with highly substitutable products price dispersion is enhanced as firms adjust their prices so as to generate more information in markets with highly differentiated products firms compress their prices as they prefer to reveal less about the extent of product differentiation journal of economic literature classification numbers d43 d83 l13

optimal foreign exchange rate policy for a small open economy abstract this paper examines optimal exchange rate policy for a small open economy which faces temporary and pemanent real and nominal disturbances it demonstrates that exchange rate stabilization is desirable if most diturbances are nominal if most disturbances are real then stabilization should be greater 1 the greater the fraction of exchange rate variance accounted for by permanent disturbances 2 the greater the information available to firms in setting the wage 3 the greater the fraction of exchange rate variance attributed to domestic productivity shocks compared with foreign relative price shocks and 4 the more elastic is labor supply

world trade patterns economic disturbances and exchange rate management abstract this paper construct and analyzes a three country stochastic model of world trade the objectives of this paper are to investigate the propagation of economic disturbances worldwide and to analyze the nature of optimal exchange rate management on the part of a single country faced with monetary and real disturbances accurring in all its trade patterns the paper analyzes the roles of bilateral trade patterns the type of underlying stochastic disturbances i e monetary vs real and transsitory vs permanent and of the optimality criterion in determining the optimal exchange rate regime

rational expectations and the optimal foreign exchange regimes this paper evaluates the optimality of fixed and flexible rates under rational expectations and wage and prices stickiness the optimality of fixed or flexible rates depends crucially on how efficient and accurate contemporaneous information on exchange rate or money supply can be dissipated to firms and households if current money supply or exchange rate is perfectly observable the two exchange rate regimes are identical in spite of wage and prices stickiness anticipations rationnelles et regimes de taux de change optimaux ce memoire etudie l optimalite de regimes de taux de change fixes ou fluctuants quand les anticipations sont rationnelles et qu il y a rigidite du niveau de salaire et desprix l optimalit6 de i am indebted to the managing editor anonymous referees and keizo nagatani for helpful comments i am responsible for errors canadian journal of economics revue canadienne d economique xv no 1 february fevrier 1982 printed in canada imprime au canada 0008 4085 82 0000 0164 01 50 1982 canadian economics association this content downloaded from 157 55 39 162 on thu 11 aug 2016 06 27 48 utc all use subject to http about jstor org terms rational expectations 165 l un ou 1 autre regime de taux de change depend de fa9on fondamentale de la capacit6 a diss6miner instantanement une information efficace etjuste aux firmes et aux menages quant au taux de change et a l offre de monnaie sans delai aucun si l offre de monnaie ou le taux de change qui ont cours sont parfaitement observables les deux regimes de taux de change sont identiques malgr6 la rigidit6 du salaire et des prix

markov puppy dogs and related animals abstract it is shown that steady state markov perfect equilibria of discrete time infinite horizon quadratic adjustment cost games differ from equilibria of their infinitely repeated counterpart games with zero adjustment costs even though no adjustment costs are paid in the steady state in contrast to continuous time games the limit of these equilibria as adjustment costs approach zero is the same as the equilibria of their static counterpart games a classification scheme is presented and it is shown that the taxonomy is identical to that of analogous two stage games such as those analyzed by fudenberg and tirole american economic review papers and proceedings 1984 74 361 366 this classification is useful in that it implies that steady state equilibria need not be explicitly calculated to analyze qualitatively the effects of adjustment costs in strategic environments it is also argued that estimated conjectural variations parameters may capture a well defined property of strategic interaction in a dynamic game

enterprise inequality and economic development we characterize an equilibrium development process driven by the interaction of the distribution of wealth with credit constraints and the distribution of entrepreneurial skills when efficient entrepreneurs are relatively abundant a traditional development process emerges in which the evolution of macroeconomic variables accord with empirical regularities and income inequality traces out a kuznets curve if instead efficient entrepreneurs are relatively scarce the model generates long run distributional cycles driven by the endogenous interaction between credit constraints entrepreneurial efficiency and equilibrium wages

a dynamic analysis of investment in process and product innovation with learning by doing this paper investigates the optimal control problem of a monopolist s investments in process and product innovation under learning by doing in a dynamic setting we show that i there exists the saddle stable steady state under monopolist optimum and social optimum ii the learning rates of product and process innovation affect not only the monopolist s process or product innovation investments but also the complementarity substitutability relationship between product and process innovation iii the social incentive towards both product and process innovation is always larger than the private incentive characterizing the profit seeking monopolist these results are valuable complement and development to the results drawn from the standard product and process innovation model

the transmission of disturbances under alternative exchange rate regimes with optimal indexing the paper develops a general stochastic macroeconomic model that can be used to study the international transmission of disturbances under four alternative exchange rate systems uniform flexible exchange rates uniform fixed exchange rates and two versions of two tier exchange rates the analysis makes two general points first one cannot assume stability of structure when assessing the consequences of alternative exchange rate regimes for example the slope of the aggregate supply curve and the rationally formed expectations in the asset markets can respond dramatically to the government s choice of exchange rate regime second exchange rate regimes that provide full insulation from foreign disturbances may nevertheless be inferior to other regimes in terms of their ability to maximize social welfare

product and process innovation with knowledge accumulation in monopoly a dynamic analysis abstract in this paper we investigate monopolist optimal investment levels using a dynamic model under knowledge accumulation we show that i investment decisions in product and process innovation are independent of each other ii under both the monopolist and the social optimum there exist the saddle stable steady state equilibria iii optimal investment levels in product and process innovation positive response to learning rate and knowledge accumulation rate inversely response to knowledge depreciation rate

optimal pricing with costly adjustment evidence from retail grocery prices in many theoretical models it is assumed that there are costs associated with adjusting prices in this paper the existence type and magnitude of such costs are investigated empirically a discrete choice dynamic programming model that nests fixed and variable costs is developed and econometric estimates of the adjustment cost function are obtained the data used to implement the model consist of weekly retail prices and sales of three brands of saltine crackers sold by four chains of grocery stores in a small u s town the study has several distinguishing characteristics first the data are highly disaggregate at the level of brand and store second variables are sampled at weekly intervals third the model nests fixed and variable adjustment costs and can therefore determine their relative importance finally the discrete choice model is both structural and dynamic

intertemporal price competition alternating price competition between firms selling differentiated products to nonhomogeneous consumers can yield two different types of equilibria one which we call disciplined arises when products are close substitutes another which we call spontaneous emerges when products are more differentiated in disciplined equilibria an implicit threat to cut price further in response to an initial price cut supports quite collusive outcomes which become less collusive as product differentiation increases in spontaneous equilibria no such threat is needed consumers in the smaller market tend to pay a higher price as do consumers served by the more efficient firm copyright 1990 by the econometric society

portfolio choice in research and development we analyze the effects of a winner take all patent mechanism on the riskiness of the research strategies chosen by competingfirms as well as on thefirms incentives to duplicate research projects nash equilibrium choices are compared with the social optimum in a oneshot simultaneous move game in which competitors choose the riskiness or correlation of their research performances we show that neither society nor firms have any preference for correlation per se while the divergence between social and privately optimal levels of risk depends on skewness characteristics of the probability distribution over discovery dates and on levels of risk aversion

credit constraints competition and meritocracy this paper studies a simple model of the talent ownership mismatch or failure of meritocracy brought about by credit market imperfections that prevent the transfer of control over productive assets from the untalented rich to the talented poor we present two main insights first there may be multiple equilibria in the degree of meritocracy second the severity of the misallocation of talent depends on the degree of concentration on the good market hence reforms that improve the workings of the credit market such as better enforcement of contracts and reforms that reduce concentration such as deregulation are to some degree substitutes in bringing about greater meritocracy we also examine which reform strategy is more likely to enhance efficiency without violating political constraints jel g3 o10 o47

prisoners dilemma in duopoly super games abstract the choice between quantity and price in order to stabilize collusion is modeled here it is shown that this relocates the prisoners dilemma backward from the market stage to the stage where the market variable is chosen in order to sustain collusion and where discount rates appear as the payoffs likewise a prisoners dilemma arises also when both the market variable and the type of behavior cooperative or non cooperative are simultaneously chosen journal of economic literature classification numbers c72 d43 l13

product innovation incentives by an incumbent firm a dynamic analysis we employ a dynamic framework to study how product innovation activities of a firm are influenced by its investments in production capacity of an established product and vice versa the firm initially has capacity to sell an established product additionally it also has the option to undertake an r d project which upon completion allows the firm to introduce a new vertically and horizontally differentiated product to the market thereby extending its current product range the breakthrough probability of detecting the new product depends on both the value of the firm s r d stock and its current r d investment it is shown that the initial production capacity for the established product influences the intensity of r d activities of the firm in particular there are constellations such that for large initial production capacity for the established product the firm never invests in r d and the new product is never introduced for small initial capacity the firm keeps investing in r d implying that eventually the new product is always introduced finally for an intermediate range of initial capacity levels the firm initially invests in product r d but then reduces these investments to zero in this scenario the new product is introduced with a positive probability which is however substantially smaller than 1 from a technical perspective this analysis gives the example of a new type of skiba threshold phenomenon in the framework of a multi mode optimization model

product differentiation process r d and the nature of market competition abstract we investigate the relationship between process and product rd ii bertrand firms have a stronger incentive for product rd and iii cooperation in product r d promotes both types of r d relative to competition whereas cooperation in both types of r d discourages r d relative to cooperation in just product r d

capacity investment preemption and commitment in an infinite horizon model the commitment value of capacity is analyzed in an infinite horizon duopoly model the paper focuses on the role of alternative behavioral assumptions about the ability of firms to commit to investment paths each firm s investment strategy in a feedback nash equilibrium is shown to be a decreasing function of its rival s current capacity this creates an incentive for a firm to expand its capacity to preempt subsequent rival investment in a precommitment equilibrium there are no incentives to invest preemptively as a consequence steady state capacity levels are greater in a feedback nash equilibrium than in a precommitment equilibrium copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

dynamic duopoly prices and quantities we study a dynamic model of duopoly in which firms choose both prices and quantities if quantity capacity choices are relatively inflexible firms generally carry excess idle capacity in equilibrium because of this enforcement cost firms are unable to achieve monopoly levels this contrasts with models in which which firms compete in either prices or quantities alone on the other hand if capacities are flexible firms may be able to sustain monopoly behaviour

rules discretion and reality both with respect to inflation and productivity macroeconomic performance in the last decade or so has been disappointing promises of policymakers to improve things have been frequently thwarted not only in terms of inflation and growth but also in terms of achieving targets for such summary measures of policy as the budget deficit or the money supply moreover critics have charged that policy failures are to blame for many of our economic difficulties the net effect has been to raise the practical question of whether the political process as now constituted can produce good economic policies the last decade or so has also been marked more than coincidentally by substantial professional criticism of conventional neokeynesian macro models and the theory of policy associated with them one of the major punch lines of this research is that activist macroeconomic policy is misguided indeed at best it is seen as ineffective and at worst highly counterproductive as a consequence the so called new classical economists argue that policymakers should avoid activism or discretion and instead be guided by simple rules the issue of rules vs discretion has of course been a source of long standing professional debate and while the new classical economists have provided some additional intellectual ammunition for rules this hardly serves to explain the apparent popular resurgence in advocacy of rules recent interest in rules is reflected in the emphasis on monetary targeting in proposed legislation even constitutional amendments for controlling the federal budget and in attempts to untarnish the gold standard this paper reviews the current state of the rules vs discretion debate i the nature of policy some preliminaries

dynamic oligopoly with capacity adjustment costs abstract the literature on strategic investment emphasized the case of completely irreversible investment this paper considers an oligopoly model in which investment is reversible and capacity is subject to adjustment costs an n player linear quadratic differential game is analyzed existence and characterization results for perfect equilibrium feedback strategies are provided feedback strategies provide incentives for each player to invest strategically so as to preempt subsequent expansion by rivals a larger set of perfect equilibria is constructed by using memory dependent trigger strategies equilibria of this type are shown to support joint value maximization for some initial states and asymmetric steady states

the effect of succession taxes on family firm investment evidence from a natural experiment this paper provides causal evidence on the impact of succession taxes on firm investment decisions and transfer of control using a 2002 policy change in greece that substantially reduced the tax on intrafamily transfers of businesses i show that succession taxes lead to a more than 40 decline in investment around family successions slow sales growth and a depletion of cash reserves furthermore succession taxes strongly affect the decision to sell or retain the firm within the family i conclude by discussing implications of my findings for firms in the united states and europe

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

dynamic pricing product and process innovation abstract the question of simultaneous dynamic pricing product and process investment policies is crucial for manufacturing and high tech industries this paper models these policies in an optimal control setting on the supply side the firm sets prices product and process investment levels over time on the demand side current demand depends on price and quality under an additive separable demand function dynamic pricing increases with quality and cost therefore both product innovation and process innovation impact the pricing policy under a multiplicative separable demand function dynamic pricing policy follows the dynamic of production cost and is independent of the evolution of product quality thus process innovation is the main determinant of a firm s pricing policy over time and product innovation has no impact

a dynamic general equilibrium model of pollution abatement under learning by doing in 2013 beladi et al constructed a dynamic general equilibrium model of pollution and characterized a steady state equilibrium in this paper we extend beladi et al s model to an even more general model in which the pollution abatement costs under learning by doing are taken into account in our model the instantaneous abatement costs depend on both the rate of abatement and the experience of using a technology our objective is to apply optimal control theory to investigate the dynamic general equilibrium model of pollution abatement and derive the steady state equilibrium properties and optimal levels of emission permits and pollution treatment

the dynamics of the wealth distribution and the interest rate with credit rationing are uniquely determined and wealth dispersion among individuals or firms is irrelevant introducing credit rationing into the solow model modifies these conclusions multiple stationary interest rates and wealth distributions can exist because higher initial rates can be self reinforcing through higher credit rationing and lower capital accumulation the wealth accumulation process is ergodic in every steady state but wealth mobility is lower with higher steady state interest rates aggregate output is higher in steady states with lower interest rates because credit is better allocated short run interest rate or distribution shocks can be self sustaining and can have long run effects on output through the induced dynamics of the wealth distribution and credit rationing

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

product homogeneity as a prisoner s dilemma in a duopoly with r d abstract we prove that firms may decide to compete in undifferentiated products due to a prisoner s dilemma generated by externalities affecting r d in product innovation moreover the incentive to invest is higher under price competition than under quantity competition