the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

a class of tractable incomplete market models for studying asset returns and risk exposure abstract we present a class of tractable incomplete market models where agents face both aggregate risk and limited participation in financial markets tractability relies on the assumptions of small asset volumes and of a period utility function that is linear beyond a threshold in line with fishburn s 1977 contribution in decision theory we prove the existence of an equilibrium and derive theoretical results regarding asset prices and consumption choices this small trade model is able to reproduce a low safe return and a high equity premium together with a realistic representation of household exposure to both idiosyncratic and aggregate risks

precautionary demand for money in a monetary business cycle model we investigate the quantitative implications of precautionary demand for money for business cycle dynamics of velocity of money and other nominal aggregates there is a standing challenge in monetary macroeconomics to account for business cycle dynamics of nominal variables as previous business cycle models that have tried to incorporate demand for money have failed to generate realistic predictions in this regard our stance is that part of this failure results from the fact that demand for money in those previous models is deterministic since agents in them face only aggregate risk whereas we believe idiosyncratic risk to be important as well we conduct the exercise inside a monetary search model as our additional goal is to put to the test a recent generation of such frictional models to examine whether their quantitative predictions are realistic and whether they generate additional insight into business cycle data that non search models of money cannot generate on the first question our results suggest that precautionary demand for money plays a substantial role in accounting for business cycle behavior of velocity of money and other nominal variables such as inflation and nominal interest rates on the second question our preliminary results indicate that the search frictions generate discernible though small quantitative effects helping the model account for relevant properties of the data but not very significantly the biggest quantitative potential for search frictions in this setting is in the dynamic implications they generate for inventories and markups in the retail sector assessment of this potential is in progress

durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 on adverse selection this paper surveys durable goods theory starting with these three contributions where much of the focus is on recent literature and on models that explain real world phenomena in addition to the ideas found in the contributions of swan coase and akerlof topics covered include why producers sometimes practice planned obsolescence the role of adverse selection in new car leasing and reasons for aftermarket monopolization

price discrimination through offers to match price in this paper a firm discriminates between two classes of customer who have a different cost of information by coupling a list price with an offer to match the pr ice of any other shop if the list price elsewhere is lower the firm will be successful in discrimination the list price of each firm is increasing in the number of sellers and the total sales are decreasi ng in the number of sellers furthermore if sellers coordinate they discriminate more efficaciously and increase their profits by increa sing their total sales copyright 1987 by the university of chicago

innovation and the durable goods monopolist the optimality of frequent new version releases when an improvable durable good such as packaged software saturates the market the seller could be tempted to release new versions too frequently hurting her profit a novel contractual device which i term as a free new version rights warranty free nvr warranty can help the seller overcome this temptation in a two period game theoretic model involving a monopolist firm facing heterogeneous consumers i derive conditions under which a rational monopolist can act suboptimally she could face a commitment problem and offer the new version even if doing so lowers her overall profit profit is hurt because when consumers expect a new version a fewer consumers buy the initial version and b the monopolist is forced to charge a lower price for the initial version i show how the free nvr warranty which requires the monopolist to offer consumers the right to receive the new version for free for a limited period can solve her commitment problem this is a new surprising finding by bundling new version rights with the initial version the monopolist at first appears to be denying herself future revenue i derive conditions under which this apparently unprofitable action is optimal which is my main contribution when free nvr is offered consumer surplus decreases and social surplus increases this work extends prior literature on durable goods and the coase conjecture to innovative durable goods with network externalities the findings have important practical implications for firms selling new versions of innovative durable goods subject to network effects as well as for their consumers

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

an experimental and theoretical analysis of price matching refund policies abstract price matching refund policies or offers by firms to match competitor s prices are common in both consumer and industrial marketing much of the previous theoretical work in economics suggests that price matching refunds are associated with higher prices in contrast the trade press postulates that price matching policies are associated with lower prices given these inconsistent views regarding price matching policies the authors experimentally examine how consumers view and interpret such policies and then develop a model that incorporates these consumer interpretations as well as asymmetries across stores in the model the asymmetry across stores is the key to deriving the conditions under which a signaling equilibrium exists in the presence of price matching policies the critical point is that the competition reducing and price discrimination effects which seem to form the basis of most of the previous theoretical literature can be counteracted by the presence of differentiated firms

does the per se rule deter vertical price fixing i introduction beginning with the wide scale introduction of branded goods in the late nineteenth century manufacturers have often tried to dictate minimum resale prices to the retail outlets carrying their products and since roughly the same time antitrust experts have debated why they would do so 1 less attention has focused on what manufacturers do when they can not impose minimum prices even though legal obstacles have forced them to look for alternatives so what do manufacturers do when they cannot legally set the prices their outlets charge 2 many antitrust officials believe they go right on setting prices either flaunting the law or finding some means to circumvent it barrett 1991 quotes former new york state antitrust chief lloyd constantine as saying that the practice is ubiquitous but based upon winks and nods rather than written agreements that could be used in court new york attorney general robert abrams 1991 argues that vertical price fixing is endemic claiming that antitrust officers can recount scores of tales of retailers calling our offices too scared to give their names telling of coercion and intimidation by manufacturers representatives and rival dealers because their prices were too low former ftc commissioner terry calvani argues that a manufacturer practicing resale price maintenance would have to have an i q two points lower than a carrot to get caught 3 the prospects for wink and nod resale price maintenance are not hard to appreciate for example suppose a manufacturer wants to impose a 500 sanction on any discount outlet if it cannot do so overtly it may instead impose a lump sum charge of 500 on all outlets and ex post reward non discount outlets with a 500 rebate given this scheme s transparency courts legislators and antitrust officials should not be fooled yet the rebates could be indirect and discreet they could be spread over several periods and parceled out in small quantities as compensation for point of sale services to defray overhead to pay for advertising or training and so forth hence it may be hard for outsiders to prove a link between what the manufacturer pays each retailer and that retailer s price moreover in some instances antitrust officials may want an excuse to loosen the legal restrictions on resale price maintenance and may themselves wink and nod at these practices finally antitrust officials cannot always and perhaps not often distinguish legitimate cost sharing arrangements from maneuvers to influence resale prices as such they must proceed carefully manufacturers can employ two other legal means to fix resale prices first manufacturers can coordinate retailers meet the competition guarantees antitrust experts have long believed that on occasion retailers can independently offer meet the competition guarantees to their customers to discourage price competition 4 here a manufacturer coordinates retailers efforts by financing some or all of the meet the competition related rebates they make so in equilibrium all retailers adopt the suggested price while previous models of meet the competition guarantees focus on tacit horizontal price fixing this paper examines explicit vertical price fixing second the manufacturer can persuade retailers to charge its suggested price by guaranteeing the margins of those victimized by price cutting rivals in equilibrium no outlet wants to cut price first so discounting does not occur at all manufacturers have various other means to influence their dealers resale prices in addition to such well known instruments as consignment sales and exclusive territories manufacturers can agree to buy back dealers unsold inventories or parcel out merchandise only as demand for it materializes they can also use devices such as markdown allowances to influence when and by how much dealers discount if demand turns out low presumably this list does not exhaust the possibilities for innovative manufacturers seeking to subsidize dealers that cooperate and to discriminate against those that do not

money credit and banking in monetary models where agents are subject to trading shocks there is typically an ex post inefficiency since some agents are holding idle balances while others are cash constrained this problem creates a role for financial intermediaries such as banks who accept nominal deposits and make nominal loans in general financial intermediation improves the allocation the gains in welfare come from the payment of interest on deposits and not from relaxing borrowers liquidity constraints we also demonstrate that when credit rationing occurs increasing the rate of inflation can be welfare improving

why would a durable good monopolist also produce a cost inefficient nondurable good abstract we develop both commitment and time consistent stationary policies for a monopolist who produces a mixture of goods distinguished by production costs and degree of durability under commitment only the cost efficient durable good is produced and the monopoly output is realized each period for the time consistent stationary case there is an interval for the degree of durability where only the durable good is produced and a higher non overlapping interval where both the cost efficient durable and the cost inefficient nondurable good are produced for any period length when the degree of durability is such that both durable and nondurable goods are provided combined output is less than the competitive output and decreases in the degree of durability approaching the single period monopoly output when both goods are produced the coase conjecture does not hold

on the competitive effects of price matching policies abstract this paper challenges the conventional wisdom that price matching policies lead to supracompetitive prices by reducing firms incentives to undercut rivals i argue that price matching and price beating policies are more appropriately viewed as a means of price discrimination and develop a model that demonstrates their use as such analysis of this model shows that in contrast to the results of the existing literature price matching and price beating may raise or lower equilibrium prices relative to the equilibrium in which firms may not adopt such policies

a tractable monetary model under general preferences this article studies an economy with both centralized and decentralized monetary exchanges under search frictions a degenerate asset distribution is featured under a broad class of preferences including for example constant return to scale constant elasticity of substitution cara and others from a range of macroeconomic literatures some novel applications impossible under quasi linear preferences for example endogenous growth are illustrated under this class of preferences this article finds that the welfare cost and growth loss of inflation can be much higher in these applications than previous estimates

measuring over education previous work on over education has assumed homogeneity of workers and jobs relaxing these assumptions we find that over educated workers have lower education credentials than matched graduates among the over educated graduates we distinguish between the apparently over educated workers who have similar unobserved skills as matched graduates and the genuinely over educated workers who have a much lower skill endowment over education is associated with a pay penalty of 5 11 for apparently over educated workers compared with matched graduates and of 22 26 for the genuinely over educated over education originates from the lack of skills of graduates this should be taken into consideration in the current debate on the future of higher education in the uk

no lease is short enough to solve the time inconsistency problem the author provides a model of endogenous lease duration determination in the context of the durable goods monopolist problem he shows that infinitely many leases per finite unit of time are required to solve completely the time inconsistency problem thus suggesting that leasing may not provide a practical solution the author also provides a warning regarding the results that can be derived by exogenously setting lease durations equal to one period by resolving a paradoxical result in the literature copyright 1994 by blackwell publishing ltd

the intertemporal consequences of unauthorized reproduction of intellectual property in an intertemporal framework the harm to firms from unauthorized reproduction of their products may be significantly greater than that predicted by most static models copying by some consumers reduces the appropriable surplus from all consumers including those consumers lacking any propensity to copy somewhat paradoxically however the commitment value of copies may also imply that profits are higher with copying than without copying it is therefore suggested that firms may prefer differential copyright enforcement and that the commitment value of copies may offer a strategic explanation for free giveaways of abridged versions of intellectual property and vertical product differentiation more generally

a meta analysis of the international gender wage gap abstract since the early 1970s a number of authors have calculated gender wage differentials between women and men of equal productivity this meta study provides a new quantitative review of this vast amount of empirical literature on gender wage differentials as it concerns not only differences in methodology data and time periods but also different countries we place particular emphasis on a proper consideration of the quality of the underlying study which is done by a weighting with quality indicators the results show that data restrictions i e the limitation of the analysis to new entrants never marrieds or one narrow occupation only have the biggest impact on the resulting gender wage gap moreover we are able to show what effect a misspecification of the underlying wage equation like the frequent use of potential experience has on the calculated gender wage gap over time raw wage differentials worldwide have fallen substantially however most of this decrease is due to better labor market endowments of females

equal pay as a moving target international perspectives on forty years of addressing the gender pay gap this paper provides an overview of the key factors impacting upon the gender pay gap in the uk europe and australia forty years after the implementation of the first equal pay legislation the pay gap remains a key aspect of the inequalities women face in the labour market while the overall pay gap has tended to fall in many countries over the past forty years it has not closed in some countries it has been stubbornly resistant or has even widened in reviewing the collection of papers that make up this special issue we identify four broad themes with which to group the contributions and draw out the explanations for diverse trends theoretical and conceptual debates legal developments and their impacts wage setting institutions and changing employer demands and newly emerging pay inequalities between and within educational and ethnic groups across the four themes we underline how the trends in the gender pay gap capture the dynamism of inequalities as the market power of different groups and stakeholders changes over times three key dimensions emerge from the papers to provide a framework for future research and policy discourse the relationship between litigation and bargaining strategies the interaction between wage setting institutions and new organisational practices and the increasing and range of diversity or equality strands competing for equal treatment we conclude that progress towards closing the gender pay gap will not be easy will require a collective effort of various actors and will not be quick

price matching guarantees are price matching guarantees anticompetitive we examine the incentives for price matching guarantees in markets where information about prices is costly the conventional explanation of price matching as facilitating cartel pricing finds some theoretical support but our model provides an additional explanation a price matching guarantee may be a credible and easily understood means of communicating to uninformed consumers that a firm is low priced the credibility of the signal is assured by the behavior of informed consumers we contrast the testable implications of our model with those arising from two theories of price matching as anticompetitive and show that available evidence supports the signalling theory

the demand for money financial innovation and the welfare cost of inflation an analysis with household data we use microeconomic data on households to estimate the parameters of the demand for currency derived from a generalized baumol tobin model our data set contains information on average currency deposits and other interest bearing assets the number of trips to the bank the size of withdrawals and ownership and use of atm cards we model the demand for currency accounting for adoption of new transaction technologies and the decision to hold interest bearing assets the interest rate and expenditure flow elasticities of the demand for currency are close to the theoretical values implied by standard inventory models however we find significant differences between individuals with an atm card and those without the estimates of the demand for currency allow us to calculate a measure of the welfare cost of inflation analogous to bailey s triangle but based on a rigorous microeconometric framework the welfare cost of inflation varies considerably within the population but never turns out to be very lar

emissions taxation in durable goods oligopoly this paper examines the use of taxation to control external damage due to pollution when product durability is endogenously determined a special form of the emissions function is also examined which is equivalent to an excise tax on output the dynamic oligopoly model indicates that many conventional results in the durability and taxation literature need not hold when durability is endogenously determined in particular the analysis shows durability may not be independent of industry structure nor will firms minimize their manufacturing costs of providing service in addition the second best tax on imperfectly competitive firms is not necessarily less than the tax on a competitive firm when firms choose their product s durability

learning by doing and product durability many durable goods industries are industries that have significant learning affects i examine a monopolist s and social planner s cost minimizing durability choice in both the short and the long run when learning effects are present the model indicates that the relationship between durability and learning depends crucially upon whether or not knowledge decays and on learning s impact on the marginal cost of durability in particular this model demonstrates that swan s 1970 1971 independence result will hold in the long run if knowledge does not decay but will not hold if knowledge does decay thus whether or not monopolists will manufacture products with the same durability or quality as a social planner depends to a large extent on the type of learning process in the industry and on whether or not quality and durability directly influence this learning process

durable good monopoly and best price provisions best price provisions guarantee buyers that the prices they pay are the lowest available if the seller subsequently cuts price then each previous buyer is entitled to a refund a durable good monopolist who offers certain forms of these provisions can construct a consistent plan yielding the same profits as rental agreements and contracts with explicit quantity commitments the provisions require special circumstances to be practical but they are simple and effective and appear in a variety of economic settings three applications are discussed international commodity agreements markets for electric turbogenerators and markets for financial claims copyright 1990 by american economic association

money liquidity and welfare abstract this paper develops an analytically tractable bewley model of money demand to shed light on some important questions in monetary theory such as the welfare cost of inflation it is shown that when money is a vital form of liquidity to meet uncertain consumption needs the welfare costs of inflation can be extremely large with log utility and parameter values that best match both the aggregate money demand curve suggested by lucas 2000 and the variance of household consumption agents in our model are willing to reduce consumption by 3 4 to avoid 10 annual inflation the astonishingly large welfare costs of inflation arise because inflation increases consumption risk by eroding the buffer stock insurance value of money thus hindering consumption smoothing at the household level such an inflation induced increase in consumption risk at the micro level cannot be captured by representative agent models or the bailey triangle although the development of financial intermediation can mitigate the problem with realistic credit limits the welfare loss of moderate inflation still remains several times larger than estimations based on the bailey triangle our findings provide a strong justification for adopting a low inflation target by central banks especially in developing countries where money is the major form of household financial wealth

who is credit constrained in the u s economy an important assumption of the life cycle model of consumption is the postulate of perfect capital markets this hypothesis has recently been challenged by substantial empirical evidence hall and mishkin 1982 using the panel study of income dynamics estimate that 20 percent of united states families are liquidity constrained mariger 1986 derives a life cycle model with endogenous liquidity constraints and using a cross section estimates this fraction to be 19 4 percent hubbard and judd 1986 simulate a model with a constraint on net worth which shows that with reasonable assumptions about preferences 19 0 percent of united states consumers are liquidity constrained the emerging consensus points therefore to a fraction of approximately 20 percent of the population behaving in a manner that is inconsistent with the pure life cycle model in addition hayashi 1985 and zeldes 1989 investigate the correlation among consumption wealth and income for various population groups and infer that liquidity constraints are more important for younger families with low levels of wealth and saving the main limitation of these studies is that in their data sets constrained consumers are not observable and have to be identified via indirect evidence thus there is as yet little firm evidence about the characteristics of the consumers who are likely to be credit constrained this paper adopts an approach that differs from previous tests for liquidity constraints because it makes use of data where constrained consumers are observable and explicitly links their existence to credit market imperfections and personal characteristics the data drawn from the 1983 survey of consumer finances scf and described in section ii provide information on individuals whose request for credit has been rejected by financial intermediaries in section iii a model is developed in which consumers and lenders behavior jointly determines the probability that a consumer is rationed in the credit market this probability is then

dynamic duopoly with best price clauses this article investigates best price clauses as a strategic devise to facilitate collusion in a dynamic duopoly game best price clauses guarantee rebates on the purchase price if a customer finds a better price after his purchase two different price clauses are distinguished most favored customer and meet or release i examine the collusive potential of both clauses in a finite horizon duopoly model with homogeneous durable goods in each period new consumers enter the market i show that in this context meet or release clauses have a greater anticompetitive potential than most favored customer clauses

on inflation as a regressive consumption tax abstract evidence on the portfolio holdings and transaction patterns of households suggests that the burden of inflation is not evenly distributed we build a monetary growth model consistent with key features of cross sectional household data and use this framework to study the distributional impact of inflation at the aggregate level our model economy behaves similar to standard monetary growth models within the representative agent abstraction inflation has however important distributional effects since it is effectively a regressive consumption tax thus neglecting the distributional consequences of inflation may prove misleading in assessing the effects of inflation in our economy

declining bias and gender wage discrimination a meta regression analysis this paper extends tests and revises a previous meta regression analysis of the gender wage gap stanley and jarrell 1998 we find that there remains a strong though dampened tendency for discrimination estimates to fall and male researchers still report significantly larger amounts of wage discrimination against women this extensive research base containing 104 estimates suggests that there is less need to correct for selection bias an indirect sign of lessened discrimination there is evidence that gender research is changing and improving although gender wage discrimination has lessened the research base still finds a significant gender wage inequality

gender wage differentials and educational mismatch an application to the spanish case this article aims to analyse gender wage differentials in spain by taking into account the levels of educational attainment and by studying whether the educational mismatch affects the gender wage gap focusing on returns to education evidence is found on the existence of educational mismatch and on its contribution to determine wages with women suffering greater wage penalties that are associated with educational mismatch furthermore although the gender wage gap is lower for individuals with low educational levels we find that the part of this gap due to differences in returns is greater in this group on the contrary the gender gap is greater among highly educated workers but in this case most of the wage differentials are due to differences in productive characteristics in any case our results suggest that gender wage discrimination tends to be greater for those workers who show educational mismatch

leasing lemons and moral hazard abstract a number of recent papers have analyzed leasing in the new car market as a response to the adverse selection problem in the used car market originally explored in the seminal 1970 paper by george akerlof in this paper we consider a model characterized by both adverse selection as in these earlier papers and moral hazard concerning the maintenance choices of new car drivers we show that this approach provides explanations for a number of empirical findings concerning real world new and used car markets including that leasing has become more popular over time very high income new car drivers lease more and used cars that were leased when new sell for more than used cars that were purchased when new we also compare and contrast our approach to new car leasing with alternative approaches

consumption insurance an evaluation of risk bearing systems in low income economies the hypothesis of full risk sharing can be taken to data from low income countries and evaluate formal and informal financial systems in many contexts idiosyncratic risks are high so credit insurance arrangements could be beneficial statistical tests reveal that households in southern india take advantage of these possibilities villages in cote d ivoire and countries in thailand do not do as well the paper includes an empirical description of the devices used to smooth consumption and a theoretical discussion of private information and incentives on ideal operating systems the full information and mechanism design frameworks provide benchmarks for policy analysis

durability choice under demand uncertainty this paper examines the impact of demand uncertainty on a monopolist s durability choice within a simple two period framework the analysis shows that the firm will produce the socially optimal durability if its output is rented and demand uncertainty is small but that it may produce units with inefficiently short life spans if output is sold however the model reveals that this planned obsolescence may be reduced from certainty levels depending upon the impact of uncertainty on future demand thus uncertainty may actually increase the firm s product durability relative to certainty levels

competitive price matching guarantees equilibrium analysis of the availability verification clause under demand uncertainty price matching guarantees involve a retailer matching the lower price of a competitor for an identical product in reality retailers often make such guarantees contingent on the verification of product availability at the competitor s location and decline a price match request if the product is not available there this creates certain consternation on the part of customers in this paper we investigate the availability contingency strategy from the perspectives of both the retailers and the customers our analysis shows that availability contingency clauses intensify inventory competition between retailers and reinstitutes price competition which is otherwise eliminated by unconditional price matching guarantees consequently despite what customers may think about the availability verification it actually increases their surplus on the other hand such a clause reduces profits and hence is not the equilibrium strategy for retailers subsequently we discuss how a likely customer behaviour pattern may be a plausible explanation regarding the use of the clause by the retailers in practice this paper was accepted by yossi aviv operations management

long and plosser meet bewley and lucas abstract we develop an n sector business cycle network model a la long and plosser 1983 featuring heterogenous money demand a la bewley 1980 and lucas 1980 despite incomplete markets and a well defined distribution of real money balances across heterogeneous households the bewley lucas long plosser model remains analytically tractable with closed form solutions relying on the tractability we establish several important results i the economy s input output network linkages become endogenously time varying over the business cycle thanks to the endogenous time varying distribution of money demand and its influence on cross sector allocations of commodities ii despite flexible prices transitory money injections can generate highly persistent effects on sectoral output also thanks to the time varying distribution of money demand and its effect on input output coefficients iii although money injection is distributed equally across households by design the real effects are asymmetric across production sectors e g the impact of money is strongest on downstream sectors that purchase intermediate goods from the rest of the economy but weakest on upstream sectors that supply intermediate goods to the other sectors in sharp contrast to the case of sectoral technology shocks and government spending shocks our model also provides a micro foundation for the labor wedge and shows that movements in the distribution of money demand can explain the cyclical behavior of the labor wedge

extensive margins and the demand for money at low interest rates we argue that the relevant monetary decision for the majority of u s households is not the fraction of assets to be held in interest bearing form but whether to hold any such assets at all we call this the decision to adopt the financial technology we show that the key variable governing the adoption decision is the product of the interest rate times the total amount of assets this implies that the interest elasticity of household money demand at low interest rates can be estimated from the variation in asset holdings in a cross section of households rather than historical interest rate variations we do so with the 1989 survey of consumer finances we find that a the elasticity of money demand is very small when the interest rate is small b the probability that a household holds any amount of interest bearing assets is positively related to the level of financial assets and c the cost of adopting financial technologies is negatively related to participation in a pension program at intere

dynamic monopoly with nondurable goods abstract a nondurable good monopolist who posts a single price will generally achieve an inefficient outcome but is it possible that the monopolist would achieve efficiency by repeatedly posting prices before delivery if buyers recognize the effect of current purchases on future prices then under complementary ideal conditions the answer is yes on the other hand traditional concerns about monopoly are viable if the seller bears a small cost per buyer of market reopening journal of economic literature classification numbers d42 l12

inventory dynamics and supply chain coordination this paper extends the theory of supply chain incentive contracts from the static newsvendor framework of the existing literature to the simplest dynamic setting a manufacturer distributes a product through retailers who compete on both price and fill rates we show that inventory durability is the key factor in determining the underlying nature of incentive distortions and their contractual resolutions when the product is highly perishable retailers are biased toward excessive price competition and inadequate inventories vertical price floors or inventory buybacks subsidies for unsold inventory can coordinate incentives in both pricing and inventory decisions when the product is less perishable the distortion is reversed and vertical price ceilings or inventory penalties can coordinate incentives

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

is the gender wage gap declining in the netherlands in this paper i try to answer the question whether the gender wage gap in the netherlands is declining i posed this question because on several other indicators labour market differences between men and women in the netherlands declined or disappeared altogether first of all the labour market participation of women has increased and women on the labour market are no longer a small minority second the difference in productive characteristics between men and women is disappearing third both product and labour markets have become increasingly competitive due to changes in regulation like anti trust laws which should have an effect on the gender wage gap contrary to these expectations i did not find a declining gender wage gap the data in dutch institute for labour studies osa labour supply panel show a steady gender gap of approximately nineteen per cent at most twenty five to thirty per cent of the gap can be explained by productivity differences the largest part of the gender wage gap is due

gender wage differentials by education in italy in this article we evaluate wage differentials in italy combining gender and education perspectives the main goal of this article is to verify whether the extent of the gender pay gap varies between highly and low educated workers and whether or not the role played by gender differences in characteristics and in market rewards is similar in the two groups we apply quantile regression analysis and an adaptation of the procedure suggested by machado and mata 2005 to evaluate the predicted wage gap at different points of the female wage distribution scale the analysis is carried out on the italian sample of the last available year of the european community household panel echp we show that the extent and the trend of the gap predicted across the female distribution is sharply different between groups with diverse educational levels in the case of low educated workers although the predicted gap is largely explained by differences in rewards lower levels of education or experience are responsible

optimal monetary policy in an economy with incomplete markets and idiosyncratic risk abstract this study investigates an incomplete markets economy in which the saving behavior of a continuum of infinitely lived agents is influenced by precautionary saving motives and borrowing constraints agents can use two types of assets interest bearing ious and money to smooth consumption money is valued because of a timing friction in the bond market in particular the bond market closes before agents observe their idiosyncratic productivity shock i find that the friedman rule is not optimal for this economy the results indicate that the optimal allocation has a rate of inflation of 10 and a positive amount of private credit held by the government a positive inflation rate transfers resources from agents with big endowments to those holding bonds which improves risk sharing and therefore welfare however for higher rates of inflation agents economize on money holdings offsetting the insurance effects and causing a reduction in welfare furthermore higher rates of inflation discourage agents from borrowing and the endogenous lower bound on bond holdings is higher than the exogenous borrowing limit high rates of inflation therefore exacerbate frictions in the bond market

durable goods monopoly with limited choice of commitment strategy when should the monopolist precommit consider a firm a monopolist offering a unique product to a fixed number of potential customers suppose that no consumer desires more than one unit of the good within a given period or across periods that is there is no value to repeat purchases in addition suppose that customers vary with respect to their initial reservation prices which decline over time a natural interpretation is that the monopolist is selling a good that is durable alternatively the firm is providing an entertainment or fashion good consumers may place a premium on obtaining the product quickly before it becomes less useful less stylish or less novel coase 7 conjectured that this firm s ability to extract surplus is limited because the firm has to compete with itself across time periods high valuation customers would be unwilling to pay a high initial price because they would anticipate that over time the firm will be reducing the price in order to sell to lower valuation customers subsequent literature formalizes this as a time inconsistency problem faced by a monopolist unable to make intertemporal commitments a separate strand of the literature proceeds from the polar assumption that the monopolist can precommit to any multiperiod pricing strategy comparison to coase s monopolist is simple higher profits are obtainable under precommitment because more surplus is extracted from high valuation customers an important proposition due to stokey 22 is that it will be optimal for the monopolist to precommit to a declining intertemporal price schedule if consumers with higher initial valuations have a higher rate of time preference 2 otherwise the optimal strategy is to hold price constant at the static monopoly level and to sell no more than the static monopoly quantity 3

employers discriminatory behavior and the estimation of wage discrimination this paper considers the linkage of empirical estimates of wage discrimination between two groups introduced by oaxaca 1973 to a theoretical model of employers discriminatory behavior it is shown that conditional on different assumptions about employers discriminatory tastes oaxaca s estimators of wage discrimination can be derived that the approach is more generally useful is demonstrated by deriving an alternative estimator of wage discrimination based on the assumption that within each type of labor e g unskilled skilled the utility function capturing employers discriminatory tastes is homogeneous of degree zero with respect to labor inputs from each of the two groups the estimators are compared empirically in an application to male female wage differentials

what do facilitating practices facilitate an empirical investigation of most favored nation clauses in natural gas contracts long term contracts often include most favored nation clauses mfns which are nondiscrimination guarantees that obligate a buyer or seller to treat all trading partners symmetrically in pricing decisions recent theoretical work has shown that such clauses can facilitate tacit collusion by increasing the cost of selective price changes aimed at attracting new business an alternative view is that mfns serve to facilitate efficient price adjustment in extended exchange relationships we test these competing hypotheses using data from long term natural gas contracts many of which employ mfns our conclusion is that the pattern of mfn adoption in conjunction with the structure of the nondiscrimination regions and the parallels with other nonstrategic price escalation provisions lends strong support to the efficiency rationale

different selling strategies in bertrand oligopoly abstract i analyse a bertrand oligopoly game where firms can choose between selling strategies i price announcements ii price announcements and offers to price match i establish the set of nash equilibria and show that only the monopoly price nash equilibrium satisfies iterative dominance

the welfare cost of inflation under imperfect insurance abstract this paper examines the welfare cost of inflation in an economy where agents hold money in order to smooth consumption in the face of income variability for which there is no insurance the findings indicate that for the type of economies considered here the area under the empirical money demand curve is a poor measure of the welfare cost of inflation this area accounts for only one fourth of the true costs in the case of 5 inflation

on the robustness of the argument that price matching is anti competitive abstract the existing literature suggests that price matching leads to monopoly prices i show that this argument relies on an arbitrary and unrealistic restriction of the firms strategies in particular if firms may adopt price beating policies the competitive outcome prevails

bilateral most favored customer pricing and collusion in a two period differentiated products duopoly model most favored customer mfc pricing policies allow firms to commit to prices above the bertrand prices it is shown here however that unless a restrictive and unappealing assumption is made about demand there is no equilibrium in which both firms adopt mfc policies the restrictive assumption is that at least one firm s demand is more responsive to changes in its opponent s price than to changes in its own price otherwise firms have an incentive to deviate from a greater than bertrand price in the first period

labor market discrimination against hispanic and black men h ispanic american men have lower average wage rates than white non hispanics in 1975 the average white non hispanic male wage earner in the united states earned 5 97 an hour mexican men earned 4 31 72 as much as white non hispanics puerto rican men earned 4 52 76 as much and cuban men earned 5 33 89 as much as white non hispanics by way of comparison black men s average wages in 1975 were 4 65 78 of the white male wage several possible reasons for the hispanics lower wages come to mind among them are age and education geographic location immigration language difficulties and discrimination for example as shown in table 1 mexicans and puerto ricans are younger on average than the white non hispanic population and earnings tend to rise with age hispanics have lower average levels of education than white non hispanics and wages are positively associated with education many mexican americans live in the southwest where prices are relatively low moreover hispanics are more likely to be recent immigrants and to lack fluency in english than white non hispanics and so to be at a disadvantage in the labor market in addition there is a widespread belief that hispanics suffer from employment discrimination and cannot obtain the wages that their human capital would command if they were non hispanic whites how much of the wage differentials described above are due to each of these factors and to other inter group differences in wage related characteristics in particular how much impact does labor market discrimination have on the average hispanic man s wage and how does this compare with discrimination against blacks this paper provides answers to these questions a few other efforts have been made to analyze the relative earnings of hispanic and white nonhispanic men using 1960 and 1970 census data fogel 1966 poston and alvirez 1973 poston alvirez and tienda 1976 long 1977 and gwartney and long 1978 we use more recent data from the 1976 survey of income and education this data set enables us to measure wage rates more accurately and to specify the wage function more completely than does the census unlike previous analysts in estimating the wage function we take account of possible selectivity bias due to the distinction between average wage offers and average observed wages thus we hope to obtain a more accurate and up to date measure of labor market discrimination against hispanic men section ii explains the method used to separate the minority white non hispanic wage differential into the portions due to differences in average characteristics and the portion due to differences in unobserved factors and discrimination taking into account the possibility of selectivity bias in the observed wage sample section iii describes the data used in the study and the specification of the wage equation the breakdown of the observed wage differentials into components due to differences in participation in the wage and salary sector local price levels average characteristics and discrimination are presented in section iv section v summarizes our findings and discusses their implications for efforts to improve the economic situation of hispanics in the united states

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

opportunism in multilateral vertical contracting nondiscrimination exclusivity and uniformity comment an input supplier selling to competing downstream firms would benefit from publicly committing at the outset to all contracts efficient commitment however would require complete contracts the authors study instead bilateral contracting without commitment regarding others terms each firm then fears that the supplier might opportunistically renegotiate another s contract to increase bilateral profit at the firm s expense the authors show that nondiscrimination clauses generally cannot curb such third party opportunism even with symmetric firms to reassure firms crude forms of commitment may be adopted this could explain the pervasiveness of exclusivity arrangements and the striking uniformity and intertemporal rigidity of franchise contracts copyright 1994 by american economic association

preferences inflation and welfare abstract this paper systematically examines how degrees of household risk aversion ra and elasticity of intertemporal substitution eis impact the welfare costs of inflation in a heterogeneous agent environment featuring capital and essential money empirical evidence suggests that households have degrees of ra and eis that differ on average from traditional values and display large amounts of dispersion capturing these empirical features of preference values in an otherwise standard model leads to welfare enhancements of inflation due to household substitution of money for capital the analysis also compares the welfare implications for alternative ways to implement monetary policy

a model of duopoly and meeting or beating competition this paper analyzes the use of meeting and beating competition clauses in duopoly markets a differentiated products price setting model is considered in which firms have the option of precommitting themselves to contracts which bind their own price to be some prespecified function of their competitor s price the analysis establishes conditions under which these contracts facilitate oligopoly coordination under which they result in price discrimination and under which they can actually be procompetitive

monetary and fiscal policies in a heterogeneous agent economy i study the effects of long run inflation and income taxation in an economy where households face uninsurable idiosyncratic risks i construct a tractable competitive search framework that generates dispersion of prices income and wealth i analytically characterize the stationary equilibrium and the policy effects on individual choices quantitative analysis finds that monetary and fiscal policies have distinctive effects on macro aggregates such as output savings wealth dispersion income and consumption inequalities there can be a hump shape relationship between welfare and the respective policies overall welfare can be maximized by a deviation from the friedman rule paired with distortionary income taxation

the right of first offer abstract this paper examines the right of first offer which requires a seller to bargain with the contracted buyer before subsequent buyers arrive the contract also prevents the seller from selling his unique asset to subsequent buyers at a price below what he offers to the contracted buyer the right of first offer makes the seller less aggressive in bargaining with the contracted buyer who is privately informed about his valuation such a contract can reduce inter temporal misallocation in which a subsequent buyer gets the asset when the contracted buyer has higher valuation but it also may cause misallocation in which the contracted buyer gets the asset when subsequent buyers have higher valuations overall whether the right of first offer can increase the joint surplus for the seller and the contracted buyer as well as social welfare depends on the contracted buyer s renegotiation power and the distribution of the buyers valuations this paper also discusses the differences between the right of first offer and the most favored customer clause

a note on probability distributions with increasing generalized failure rates distributions with an increasing generalized failure rate igfr have useful applications in pricing and supply chain contracting problems we provide alternative characterizations of the igfr property that lead to simplify verifying whether the igfr condition holds we also relate the limit of the generalized failure rate and the moments of a distribution

durable goods monopoly increasing marginal cost and depreciation this paper combines increasing marginal cost and depreciation in a continuous time model of a durable goods monopolist in contrast to the case of increasing marginal cost but no depreciation analysed by kahn and the case of depreciation with constant marginal cost analysed by bond and samuelson steady state output in this model is less than in the competitive case a turnpike result shows that choice of a long enough time horizon can make the equilibrium path of output in a finite horizon game arbitrarily close to the path of the infinite horizon game

sales taxes and internet commerce we estimate the sensitivity of internet retail purchasing to sales taxes using ebay data our first approach exploits the fact that a seller s location and therefore the applicable tax rate is revealed only after a buyer has expressed interest in an item we document how adverse tax surprises reduce the likelihood of purchase and shift subsequent purchases toward out of state sellers we then use more aggregated data to estimate that every one percentage point increase in a state s sales tax increases online purchases by state residents by almost 2 percent while decreasing their online purchases from state retailers by 3 4 percent jel h71 l81 l86

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

the risk free rate in heterogeneous agent incomplete insurance economies abstract why has the average real risk free interest rate been less than one percent the question is motivated by the failure of a class of calibrated representative agent economies to explain the average return to equity and risk free debt i construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk free asset i calibrate the economy and characterize equilibria computationally with a borrowing constraint of one year s income the resulting risk free rate is more than one percent below the rate in the comparable representative agent economy

contracts as a barrier to entry in markets with nonpivotal buyers considering markets with nonpivotal buyers we analyze the anticompetitive effects of breakup fees used by an incumbent facing a more efficient entrant in the future buyers differ in their intrinsic switching costs breakup fees are profitably used to foreclose entry regardless of the entrant s efficiency advantage or level of switching costs banning breakup fees is beneficial to consumers the ban enhances the total welfare unless the entrant s efficiency is close to the incumbent s inefficient foreclosure arises not because of rent shifting from the entrant but because the incumbent uses a long term contract to manipulate consumers expected surplus from not signing it

sluggish responses of prices and inflation to monetary shocks in an inventory model of money demand we examine the responses of prices and inflation to monetary shocks in an inventory theoretic model of money demand we show that the price level responds sluggishly to an exogenous increase in the money stock because the dynamics of households money inventories leads to a partially offsetting endogenous reduction in velocity we also show that inflation responds sluggishly to an exogenous increase in the nominal interest rate because changes in monetary policy affect the real interest rate in a quantitative example we show that this nominal sluggishness is substantial and persistent if inventories in the model are calibrated to match u s households holdings of m2

the welfare cost of inflation in general equilibrium abstract this paper presents a general equilibrium monetary model in which inflation distorts a variety of marginal decisions although individually none of the distortions is very large they combine to yield substantial welfare cost estimates a sustained 4 percent inflation like that experienced in the us since 1983 costs the economy the equivalent of 0 41 percent of output per year when currency is identified as the relevant definition of money and over 1 percent of output per year when m1 is defined as money the results illustrate how the traditional partial equilibrium approach can seriously underestimate the true cost of inflation

gender pay gaps and the restructuring of graduate labour markets in southern europe in this article we investigate whether education job mismatches and growing occupational diversity are important explanatory factors of gender pay gaps amongst university graduates in southern europe namely in portugal spain and italy we use standard decomposition techniques and test the implications of controlling for selection bias our results indicate that over education and greater occupational segregation associated with the emergence of new graduate job profiles are important determinants of earnings inequality whilst our focus is on graduates early careers demonstrating that occupational assignment and selection into employment shape gender pay gaps amongst the highly skilled provides a more pessimistic view on the ability of educational expansion or equal pay legislation to significantly reduce gender pay inequality southern european economies are also particularly interesting to look at since there may be a greater degree of mismatch between the pace of higher education expansion and the changes in the job structure making women particularly vulnerable to over education

price guarantees in dynamic pricing and revenue management we present a new model for revenue management of product sales that incorporates both dynamic pricing and a price guarantee the guarantee provides customers with compensation if prior to a fixed future date the price of the product drops below a level specified at the time of purchase we consider the problem of simultaneously determining optimal dynamic price and guarantee policies for items from a fixed stock when demand depends both on the price and on the parameters of the price guarantee the model can be used for pricing any items with limited availability over a fixed time horizon we formulate this model as a discrete time optimal control problem prove the existence of its optimal solution explore some of the structural properties of the solution present lower bounding heuristics for solving the problem and report numerical results

comment on long and plosser meet bewley and lucas abstract feng dong and yi wen introduce money into the long and plosser multi sector real business cycle model money exists as a liquid asset that allows households to respond to idiosyncratic preference shocks despite the resulting heterogeneity in consumption a constant marginal utility of leisure implies that households eliminated differences in their wealth each period i argue that this framework implies excessive consumption volatility at the household level

eliminating the market for secondhand goods an alternative explanation for leasing there are a number of prominent specific instances in which a durable goods manufacturer with significant market power employed a lease only policy i united shoe in the market for shoe machinery ii ibm in the market for computers and iii xerox in the market for copiers the obvious question that arises is why would such a firm prefer leasing over selling in this article i argue that one role of the lease only policy was to eliminate the market for secondhand goods the article formally demonstrates the argument discusses the relationship between this article and earlier literature on secondhand markets and discusses the implications for antitrust policy

imperfect durability and the coase conjecture this article considers a market served by a monopolist who sells a durable good that depreciates stochastically over time we show that there exist three types of stationary equilibria a coase conjecture equilibrium a monopoly equilibrium and a reputational equilibrium when the depreciation rate is low the coase conjecture equilibrium is the unique equilibrium for intermediate values of the depreciation rate all three equilibrium types coexist when the depreciation rate is high the monopoly equilibrium is the unique equilibrium consequently when selling a good of sufficiently low durability the monopolist does not lose any of her monopoly power furthermore the steady state output in the reputational equilibrium falls below the monopoly quantity hence in durable goods markets welfare losses due to monopoly power may be larger than in markets for perishables

research note consumer heterogeneity and competitive price matching guarantees price matching guarantees are widely used in consumer and industrial markets previous studies argue that they are a marketing tactic that facilitates implicit price collusion this is because once a store adopts this marketing tactic its rivals can no longer steal its customers by undercutting its price and hence they have little incentive to initiate price cuts while a store with price matching guarantees has no fear of losing customers to rivals price cuts it has every incentive to raise its own price to charge a higher price to its loyal consumers a growing body of legal literature uses this argument today to justify calls for antitrust actions against stores employing this marketing tactic however this theoretical conclusion baffles practitioners and industry experts in practice sellers typically embrace this marketing tactic in response to heavier competition and a growing bargain consciousness among shoppers the introduction of price matching guarantees by a store is frequently interpreted by industry observers as the initiation of a price war rather than a signal of price collusion this assertion is supported in many instances by the fact that stores that introduce price matching guarantees also roll back their prices and typically suffer subsequent loss of profits most ironically the favorite examples used by researchers to illustrate how price matching guarantees can enforce price collusion crazy eddie and nobody beats the wiz have subsequently either gone bankrupt or filed for federal bankruptcy protection in this study we show that price matching guarantees can indeed facilitate competition the expected prices and profits can be strictly lower when all stores adopt price matching guarantees than when they are not allowed to this is because the adoption of price matching guarantees generates not only a competition dampening effect which has been recognized in the literature but also a competition enhancing effect this latter effect comes from the fact that price matching guarantees encourage price search by those consumers who prefer to shop at a particular store but are mindful of saving opportunities these consumers will have incentives to obtain the rival store s price when their favorite store offers price matching guarantees to avail themselves of the lowest possible price at their favorite store as a result price matching guarantees reduce the number of purchases at the store from those consumers who would have paid the full price and thus prompt a store to price more aggressively to bid for more incremental sales this competition enhancing effect can more than offset the competition dampening effect in markets where consumers differ in their price search costs and store loyalty thus our study casts doubt on the advisability of blanket prohibition on price matching guarantees our argument relies only on consumer segmentation and on the phenomenon of periodic sales both of which are common in retail markets we arrive at our conclusion by incorporating bargain shoppers and opportunistic loyals into the standard sales promotion models in contrast the past literature on price matching guarantees ignores the ubiquitous phenomenon of sales in retail markets and overlooks those consumers who prefer to shop at a particular store but are alert to saving opportunities as a result it is troubled by two awkward conclusions on the one hand price matching guarantees simply remove rivals incentives to undercut in price and hence also their incentives to run sales this implies that the adoption of price matching guarantees in a market will eliminate the phenomenon of sales which is obviously counterfactual on the other hand in equilibrium no consumer actually invokes price matching guarantees as each player has incentives to close any price gap in the market this is obviously false based on our casual observations and our conversations with store managers theoretical research on the subject thus far has been overwhelmingly one sided and empirical or experimental studies are conspicuously lacking we hope that our conclusion will spark further research in both directions a healthy debate will broaden our perspective on an issue of great importance in formulating public policies and in managerial decision making

damaged durable goods i analyze a durable goods monopolist s incentives to introduce a damaged good a stripped down version of the original good in an infinite horizon framework the damaged good helps the monopolist to mitigate the coasian time inconsistency problem however it may lead to a welfare reduction low valuation buyers are induced to purchase the low quality damaged good early rather than buy the high quality original good later and when the players are patient the surplus loss from quality reduction outweighs the gain from earlier consumptions this welfare result contrasts with the previous literature based on a static framework

earnings inequality in spain new evidence using tax data we use tax files from 2004 to 2010 to document the recent evolution of earnings inequality in spain we find that inequality went in parallel with the evolution of the unemployment rate during the period this evolution is consistent with the evidence from social security records recently documented in bonhomme and hospido 2012 quantitatively the 90 10 percentile ratio of daily earnings experienced a 10 increase between 2007 and 2010 which is partly but not fully explained by changes in labour force composition we also use the tax data to study the evolution of the gender earnings gap and find that it has decreased throughout the distribution during the period lastly we tentatively exploit the panel dimension of the data to explore the permanent and temporary dimensions of spanish inequality