interpreting economic time series this paper explores some of the implications for econometric practice of the principle that people s observed behavior will change when their constraints change in dynamic contexts a proper definition of people s constraints includes among them laws of motion that describe the evolution of the taxes they must pay and the prices of the goods that they buy and sell changes in agents perceptions of these laws of motion or constraints will in general produce changes in the schedules that describe the choices they make as a function of the information that they possess until very recently received dynamic econometric practice ignored this principle the practice of dynamic econometrics should be changed so that it is consistent with the principle that people s rules of choice are influenced by their constraints this is a substantial undertaking and involves major adjustments in the ways that we formulate estimate and simulate econometric models

inequality preserving rationing abstract the present paper considers rationing problems interpreted as e g bankruptcy problems or taxation problems we demonstrate that among continuous and order preserving rationing methods the proportional method is the only rationing method that preserves inequality in both gains and losses

on the indeterminacy of capital accumulation paths abstract in neoclassical optimal growth models the stability of the accumulation paths depends on the discount parameter we prove that for discount factors small enough the policy function which describes an optimal path can be of any type the result is achieved using the notion of concavity we adopt a constructive approach given any twice differentiable map we show how to construct an optimal growth problem which produces that map as the optimal policy function a consequence is that chaos can appear in these models we also provide bounds on the values of the discount parameter for which indeterminacy is possible

adaptation and mitigation in long term climate policies the paper analytically explores the optimal allocation of investments into mitigation and environmental adaptation against climate change damages at a macroeconomic level the economic environmental model is formulated as a social planner problem where adaptation and abatement investments are separate decision variables the existence of a unique steady state is proven a comparative static analysis of optimal investments leads to essential implications for associated long term environmental policies it is shown that the optimal policy mix between adaptation and mitigation is lower for countries with higher economic efficiency for all applicable parameter ranges data calibration and numerical simulations are provided to estimate practical validity of theoretical outcomes

solving asset pricing models when the price dividend function is analytic we present a new method for solving asset pricing models which yields an analytic price dividend function of one state variable to illustrate our method we give a detailed analysis of abel s asset pricing model a function is analytic in an open interval if it can be represented as a convergent power series near every point of that interval in addition to allowing us to solve for the exact equilibrium price dividend function the analyticity property also lets us assess the accuracy of any numerical solution procedure used in the asset pricing literature

determinants of economic well being among u s farm operator households participation in government programs has a mild impact on the economic well being of u s farm households major factors that determine farm household prosperity are the primary operator s education level and ethnicity education level of the spouse and other characteristics such as forward purchasing of inputs use of contract shipping of products having a succession plan farm ownership and location in a metro area this article uses the 2001 agricultural resource management survey arms as well as relative and an absolute measure to assess u s farm households economic well being the relative measure compares the income and wealth position of farm households relative to median income and median wealth of the general population the absolute measure adds annualized wealth to a farm household s income

least cost subsidization alternatives this paper addresses the problem of designing least cost subsidy schemes for agriculture thus it departs somewhat from the mainstream of the literature on agricultural policy analysis which following wallace s pioneering work focuses on evaluating alternative policies in a welfare theoretic context the approach taken here is more closely related to that taken in the optimal taxation literature e g mirrlees it involves the specification of a goal of farm policy and an examination of appropriate policy instruments to achieve that goal the only policy instruments considered are linear subsidies i e subsidies all individuals receive while the criterion for choosing among alternative subsidy schemes is the minimization of government expenditure hence we are interested in isolating the cheapest way of attaining a stated policy objective and we do not consider the welfare consequences of such policy action no use is made of traditional welfare measures like deadweight loss and consumer surplus the approach is purely positive and therefore ignores issues like those raised in gardner s recent paper on efficient redistribution of eco

weak complementarity and production abstract this paper describes how weak complementarity a common assumption to characterize consumer preferences for recovering measures of willingness to pay for nonmarketed environmental resources can be used to evaluate the effects of pollution that may affect profits or costs in such cases pollution serves as an externality imposed by third parties on production activities

burglary and income inequality abstract in a model where risk neutral agents have differing legal incomes which may be supplemented by burglary we study the effects of income distribution on the level of burglary assuming that a detected burglar is incarcerated for a fixed term and assuming that burglars choose target houses using the signal of house quality we show how increases in income inequality may increase the level of crime in particular increases in relative differential inequality unambiguously increase burglary crime corollaries are that a more regressive income tax increases the level of crime and that richer neighborhoods may have lower crime rates

analysis of a small open economy the case of energy prices in canada the analysis suggests that land rental price decrease in the long run as a consequence of higher energy prices energy demand from agriculture decreases if land and energy are substitute inputs the necessary and sufficient conditions for expecting increasing average farm size decreasing agricultural output and number of farms also have been provided the analysis considers a competitive equilibrium environment with specific proviso that land prices adjust in response to higher domestic energy prices simple expressions for calculating long run agricultural responses to higher domestic energy prices were derived and used in estimating such responses for canadian agriculture

comparative dynamics in aggregate models of optimal capital accumulation the hypothesis that capital increases at each time in response to an increase in the discount factor is explored for a class of aggregate models of optimal accumulation when the optimal program is monotonic capital is shown to increase with an increase in the discount factor a counterexample in the case of oscillating programs is discussed an application of the monotone case is given for an adjustment cost model of the firm

smooth dynamics and computation in models of economic growth abstract in this paper we give an overview of the differentiability properties of the value and policy functions of dynamic programming based upon the differentiability analysis we also derive approximation estimates for the value and policy functions of a discretized model amenable to the computation of optimal solutions

inequality reducing and inequality preserving transformations of incomes symmetric and individualistic transformations abstract this paper analyzes the redistributive effect of transformations of incomes when the same transformation is applied to all incomes following marshall and olkin lnequalities a theory of majorization and its applications academic press new york 1979 we consider two competing families of nested inequality criteria all of which are consistent with the lorenz ordering looking at the transformations that reduce the inequality of incomes we show that within each family all the criteria generate exactly the same class of transformations we next identify those transformations that preserve or convert a given inequality ranking into a finer ranking we finally find necessary and sufficient conditions to be imposed on a pair of transformations for the inequality ranking of distributions to be preserved journal of economic literature classification number d31 d63 h24

the theory of the firm in long run equilibrium in a recent series of articles economists have investigated the comparative statics of the neoclassical firm in a competitive environment with the specific proviso that output price adjusts in response to changes in factor prices the older theory of the firm such as is found for example in paul samuelson 1947 is deficient in this regard metaphors such as short run have been used to gloss over the inconsistency of holding output price constant in the face of changing costs through changing factor prices in this paper a simple yet thorough analysis of a firm in a competitive industry i e a firm facing zero entry and adjustment cost conditions is given new results pertaining to restrictions on the behavior of such firms are offered also the length and complexity of established results is substantially reduced

determinacy of equilibria in dynamic models with finitely many consumers abstract we consider a production economy with a finite number of heterogeneous infinitely lived consumers we show that if the economy is smooth enough equilibria are locally unique for almost all endowments we do so by converting the infinite dimensional fixed point problem stated in terms of prices and commodities into a finite dimensional negishi problem involving individual weights in a social value function by adding artificial fixed factors to utility and production functions we can write the equilibrium conditions equating spending and income for each consumer entirely in terms of time zero factor endowments and derivatives of the social value function

the need to rethink agricultural policy in general and to perform some radical surgery on commodity programs in particular there were some 6 8 million farmers in the united states in 1935 this was the highwater mark for the number of farms in the united states of this total there were a good number of small low production farms in the south one mule sharecropper farms and a good number of small subsistence farms in appalachia and the cut over regions of the lake states at the other end of the size scale there were some very large farms often of the corporate type in california south texas and along the mississippi delta but the overwhelming number of farms in the united states in the mid 1930s were moderate sized family farms in the midwest these farms tended to run between 100 and 200 acres in size in the typical case the family provided the labor and the management of the farming operation and had some equity in it this was a period of deep dark depression

ethically robust comparisons of bidimensional distributions with an ordinal attribute abstract we provide foundations for robust normative evaluation of distributions of two attributes one of which is cardinally measurable and transferable between individuals and the other is ordinal and non transferable the result that we establish takes the form of an analogue to the standard hardy littlewood polya theorem for distributions of one cardinal attribute more specifically we identify the transformations of the distributions which guarantee that social welfare increases according to utilitarian unanimity provided that the utility function is concave in the cardinal attribute and that its marginal utility with respect to the same attribute is non increasing in the ordinal attribute we establish that this unanimity ranking of the distributions is equivalent to the ordered poverty gap quasi ordering introduced by bourguignon 12 finally we show that if one distribution dominates another according to the ordered poverty gap criterion then the former can be derived from the latter by means of an appropriate and finite sequence of such transformations

differential human capital and structural evolution in agriculture abstract the growth of market capitalism and the technological advances of the last two centuries underlie the relentless process of structural change in agriculture substantial occupational migration out of farming and geographical migration from rural to urban areas is a characteristic of most if not all economies in the 20th century the process of rural urban migration and the resulting urban problems have received considerable attention the fate of the residual farm population has received less scrutiny and is less well understood in the united states we observe considerable farm poverty increasing farm size inequality and a disturbing decay of rural communities for the last half century the problem of low farm incomes has been perceived as a farm problem amenable to solutio by appropriate farm policy in this paper a model is proposed which suggests that farm poverty and inequality are inevitable consequences of a rural urban migration process in which two types of human capital play a fundamental role general human capital determines a person s expected nonfarm income while farming specific human capital determines his her productivity in farming it is argued that inadequate human capital combined with positive rural urban migration cost positive farm technology adoption costs and inelastic demand for farm output can explain persistently high levels of farm poverty and increasing farm size inequality the model suggests that traditional farm policies are inappropriate programs that directly address the problems of inadequate human capital are advocated

food costs and the 1988 us drought abstract alternative government stock policies are evaluated in terms of their effects on the us livestock sector and consumer food prices before and after the 1988 drought using a comprehensive model of the us agricultural sector stock levels associated with the food security act of 1985 fsa85 are compared with those of a reduced stock policy this option reduced government corn stocks to zero and lowered overall stocks by almost 2 million bushels prior to the drought saving taxpayers about 15 billion compared to the observed level of spending associated with fsa85 however consumers were projected to spend almost 40 billion more following the drought in higher food particularly meat costs because of the dramatic shock lower corn stocks would have on corn prices and the livestock sector

focusing on the specific problems of agriculture a fresh look at an old policy approach in a paper which i presented to this association last summer at ames iowa i argued that the commodity programs had outlived their usefulness were in fact creating serious social and economic problems and should be eliminated at the earliest opportunity cochrane i will not repeat those arguments in this paper but i also opened up the argument in that paper that policy oriented economists should focus on the specific problems of agriculture by defining describing and analyzing those specific problems and then developing program solutions to them where they appear to merit collective governmental action i want to develop this line of argument more fully in this paper in my last summer s paper i set forth a list of ten specific problem areas in agriculture on which i believe present day policy oriented economists should focus their attention that list is as follows a the current farm credit crisis b the economic survival of some 400 000 moderate sized family farms c the impact of the overvalued dollar on farm exports d barriers to trade ranging from the restrictive policies of most state trading nations to quantitative controls to old fashioned tariffs e the price and income instability problem the propensity for farm prices and incomes to swing up and down widely and sharply in an unpredictable fashion f widespread soil erosion g the depletion of underground water sources and the pollution of those sources with toxic wastes h the importation and management of foreign workers to undertake stoop labor i f deral taxing policies that contribute to unneeded output expansion and resource concentration in farming and j hunger and malnutrition both at home and abroad

on the minimum rate of impatience for complicated optimal growth paths the occurrence of complex dynamics in economic models has received wide attention by the economic profession during the last decade see boldrin and woodford 1990 for a recent survey one of the most interesting and surprising results obtained so far is the indeterminacy theorem of boldrin and montrucchio 1986b which implies that virtually every dynamical behavior is fully compatible with the standard assumptions of decreasing returns competitive markets and perfect foresight deneckere and pelikan 1986 have used a related approach to derive similar results for the special case of one dimensional dynamics whereas the analysis in boldrin and montrucchio 1986b and deneckere and pelikan 1986 is restricted to optimal growth models formulated in discrete time an analogous result holds also for the continuous time case see montrucchio 1988 and sorger 1990 all of these indeterminacy theorems have been proved by a constructive approach which requires a sufficiently high rate of impatience on the side of the decision maker in particular to construct optimal growth models exhibiting some well known chaotic maps like the logistic map or the henon map as optimal policy functions one needs time preference rates of more than 400

human capital adaptive ability and the distributional implications of agricultural policy the ability to adapt efficiently to an economic environment that has been altered in a specific way may be a scarce resource in agriculture schultz 1 the setting that i wish to focus upon is one in which farmers face uncertainty about the future course of events production technologies prices and governmental policies and production is dynamic a large share of inputs is purchased from the nonfarm sector and a significant share of output is exported information is available on past realizations of events storing and analyzing information is costly consequently farmers are not assumed to have complete information farmers are assumed to differ in their adaptive ability which is viewed as a form of human capital and to employ efficiently the information that they acquire the thesis of this paper is that adaptive ability is unimportant when the processes generating the variables which farmers take as exogenous are stationary and unaltered however when these processes undergo structural change adaptive ability is expected to affect the quality of production marketing and investment decisions farmers who have superior adaptive skills are expected on average to make better decisions furthermore given the highly competitive nature of u s agriculture successfully adapting to structural change is selective farmers possessing poor adaptive skill can be expected to comprise a relatively large share of the persons forced by economic circumstances to seek alternative employment or retirement provided governmental intervention does not neutralize this selection process when farmers make production marketing and investment plans their decision rules can be expected to incorporate the anticipated values of uncertain variables that are exogeous to their choices the unanticipated components of these exogenous variables however may confuse them and reduce the efficiency of otherwise good plans 2 when shocks occur because of domestic or foreign macroeconomic policy u s agriculture is saddled with transmitting business cycle disturbances

market failures and government failures a theoretical model of the common agricultural policy economic theory has tried to explain the characteristics of the common agricultural policy inductively on the basis of certain economic peculiarities of agriculture however by overlooking the so called government failures of the political system as an independent variable in explaining the common agricultural policy it is impossible to explain for example the strong agricultural lobbyism the deductive theoretical model of this article integrates economic as well as political actors in order to explain the characteristics of the common agricultural policy the proposed theoretical model is not tested but the criteria for such a test are presented

on the comparative statics of a competitive industry with inframarginal firms recently economists have begun to develop a theory of the perfectly competitive firm and industry in long run equilibrium in contrast to the traditional model2 in which all prices are parametric this new theory takes explicit recognition of the fact that output price must adjust to exogenous changes in input prices before the industry can be said to be in long run competitive equilibrium the focus of this analysis has been to derive implications of competitive theory which can be tested using data generated by observing individual firms in

strength of protection for geographical indications promotion incentives and welfare effects we address the question of how the strength of protection for geographical indications gis affects the gi industry s promotion incentives equilibrium market outcomes and the distribution of welfare geographical indication producers engage in informative advertising by associating their true quality premium relative to a substitute product with a specific label emphasizing the gi s geographic origin the extent to which the names words of the gi label can be used and or imitated by competing products which depends on the strength of gi protection determines how informative the gi promotion messages can be consumers heterogeneous preferences vis a vis the gi quality premium are modeled in a vertically differentiated framework both the gi industry and the substitute product industry are assumed to be competitive with free entry the model is calibrated and solved for alternative parameter values results show that producers of the gi and of the lower quality substitute good have divergent interests gi producers are better off with full protection whereas the substitute good s producers prefer intermediate levels of protection but they never prefer zero protection because they benefit indirectly if the gi producers incentives to promote are preserved for consumers and aggregate welfare the preferred level of protection depends on the model s parameters with an intermediate level of protection being optimal in many circumstances

flexible exchange rates prices and the role of news lessons from the 1970s recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates the 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century since the bretton woods conference into a regime of flexible though managed rates as a consequence of the emergence of the new legal and economic system traders national governments and international organisations were confronted with new economic problems choices and instruments during the 1970s ex change rates fluctuated widely and inflation rates accelerated the international monetary system had to accommodate extraordinarily large oil related shocks which affected trade flows in goods and assets huge oil payments had to be recycled uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier these developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets they were associated with a large slide in the value of the us dollar and resulted in speeding up the creation of new institutions like the european monetary system which provided the formal framework for the management of exchange rates among members

redistributive effects of minimal equal sacrifice taxation we examine the circumstances under which minimal equal sacrifice taxation reduces income inequality focusing on absolute sacrifice and relative inequality we show that after tax incomes are more equally distributed than before tax incomes and that after tax inequality decreases with the revenue to be raised if and only if the elasticity of the marginal utility of income is decreasing however other things equal after tax inequality is shown to decline as the utility function becomes more concave we investigate next how these conclusions extend when one takes the absolute inequality view and considers that it is the relative loss in utility that has to be equalized across individuals

the distribution of income and wealth of farm operator households because of the relatively low incomes of people associated with farming in the past income maintenance has been a major focus of farm policy the average money income of families earning farm self employment income in 1983 was 93 of the average money income of other u s families usdc however an average income of farm households has lost much of its meaning because it masks a great deal of variation compared to the past farm households represent a heterogenous population presenting a new challenge to policy makers concerned about framing income maintenance policies the current farm bill debate began in 1984 amidst piecemeal information on increased bankruptcies and general financial stress of farms analysis of the financial leverage and cash flow positions of farm businesses has since been forthcoming johnson baum and prescott however information on the financial well being of those households associated with farming has remained limited the purpose of this paper is to describe the financial well being of farm operator households by measuring their size distribution of personal income and farm equity in 1984 the contribution of each source of income to the total inequality of incomes is also analyzed

an analysis of multiple structural breaks in us relative farm prices the movement of farm prices relative to other commodity prices is analysed for the period 1913 01 to 2003 12 investigating the number and time of structural breaks and discussing likely causes of structural breaks in the relative farm prices bai and perron s 1998 2003 multiple structural change test with a dynamic programming algorithm is used this test makes it possible to have an efficient computation of the estimates of the break points as global minimizers of the sum of squared residuals we find six structural breaks when we consider only the mean process and two breaks when we consider the mean and autoregressive processes possible causes for these breaks are discussed

geographical indications and the competitive provision of quality in agricultural markets the economics of geographical indications gis is assessed within a vertical product differentiation framework that is consistent with the competitive structure of agriculture it is assumed that certification costs are needed for gis to serve as collective credible quality certification devices and production of high quality product is endogenously determined we find that gis can support a competitive provision of quality and lead to clear welfare gains although they fall short of delivering the constrained first best the main beneficiaries are consumers producers may also accrue some benefit if production of the high quality products draws on scarce factors that they own copyright 2008 oxford university press

land accumulation dynamics in developing country agriculture abstractunderstanding land accumulation dynamics is relevant for policy makers interested in the economic effects of land inequality in developing country agriculture we thus explore and simultaneously test the leading theories of micro level land accumulation dynamics using unique panel data from paraguay the results suggest that farm growth varies systematically with farm size a formal rejection of stochastic growth theories that is gibrat s law and that titled land area may have considerable influence on land accumulation furthermore our estimates indicate that a dualistic agrarian structure is the likely product of the unfettered operation of land markets

smoothness of the policy function in continuous time economic models the one dimensional case abstract infinite horizon continuous time optimization is often encountered in economic models herein we prove the c1 differentiability of the policy function when the objective is strongly concave and the state is unidimensional